Understand What an Outsourced CFO Does

Engaging an outsourced CFO is a great option for many companies who need the expertise of a talented finance executive.

What is a CFO?

A chief financial officer (CFO) is a member of a company's executive management team and is responsible for understanding and managing the company's financial health. This includes keeping a record of and analyzing historical financial performance as well as creating and leading a strategy for positive future performance.

Primary Functions of a CFO

In every company, a CFO is responsible for three core financial functions: controllership, treasury, and financial planning and analysis (FP&A). Controllership contains all of a company's accounting and financial reporting needs, ensuring the company has accurate and timely-prepared financial records. The treasury function will include all activities related to cash and the company's liquidity, including working capital management, investment management, and fundraising. In FP&A, the CFO is responsible for forecasting, budgeting, and many other forward-looking strategic initiatives.

Outside these core functions, the CFO may have several other functional reporting lines, including leading strategic transactions, information technology, enterprise optimization, and more. These additional responsibilities are subject to change based on the company's size, industry, culture, and other attributes. The role of the CFO has changed dramatically over the last couple of decades, transitioning from a role solely focused on financial stewardship to initiating and leading growth as a partner to the CEO.

Difference between Full-Time and Outsourced CFO

A full-time CFO dedicates all of their work hours to the company that engages them. Typically a full-time CFO refers to a W-2 employee of the company, but a company may also engage an interim CFO on a full-time basis for a temporary period.

An outsourced CFO is a consulting financial executive who works with companies in various circumstances under flexible work arrangements. These work arrangements could include a virtual working relationship where the CFO spends ten or fewer hours supporting the client every month or a circumstance where the CFO works onsite with the client for 40 hours a week. In many instances, the CFO is first brought on to assess the organization's needs before committing to the work arrangement moving forward.

Outsourcing the work of a CFO can allow a company to engage the expertise of a high-level finance professional without committing to the full-time expense of hiring a new W-2 employee with a substantial compensation package.

Example Initiatives of Outsourced CFOs

Establish Strategic Plans 

An outsourced CFO can act as a strategic advisor, charting a course to financial success for the company. The company has a range of options from engaging the outsourced CFO in executing the strategy on a full-time basis to only consulting the outsourced CFO for a couple of hours per week or month.

The strategic plans to which a CFO can contribute vary in scope and complexity. Companies will call on outsourced CFOs to support the development of product strategy, mergers and acquisitions strategy, capital growth strategy, and more.

Promote Scalability & Enhanced Operations

An outsourced CFO can help a company determine its readiness to scale. Scaling a business can place a substantial burden on business infrastructure and cash. An experienced CFO understands the operational and financial requirements to grow a company and can help a company manage the anticipated change. An outsourced CFO can support the analysis of a company's systems environment and needs at different growth stages.

An outsourced CFO can also help a company operate more effectively in its space regardless of plans for growth and scale. Many times, private equity firms call upon our expertise as financial executives to improve the operational effectiveness of their portfolio companies without shouldering a large capital investment in the enterprise. A CFO can enhance a company's operations by focusing on operational excellence, establishing effective internal controls, facilitating cross-functional collaboration, and more.

Build & Train Accounting Team

A CFO understands how to structure an effective finance team for the stage and goals of the organization. An outsourced CFO can help a company's leadership define the team structure and identify the right talent to fill the roles. Another principal responsibility of the CFO is leadership development, providing adequate training opportunities to all finance team members. A study from the Chief Learning Officer Business Intelligence Board reports that 95% of companies plan to maintain or increase their leadership development budget in the upcoming year. This is no surprise, given the impact of learning and development on a company's bottom line. Specialized outsourced CFOs can lead the effort to create a development framework for the entire finance team. The CFO may recommend a team-wide program and individual-focused development programs for higher-level roles.

Enhanced Decision Making via Financial KPIs

A CEO should expect the CFO to provide a transparent view of a company's financial health. KPI stands for key performance indicator, and financial KPIs are measures that evaluate the company's financial performance. A business can create and monitor a virtually unlimited number of KPIs. Strategically identifying the KPIs most relevant to the business will allow the company to gain the insight needed moving forward without getting too lost in the details. Some examples of common financial KPIs include sales revenue, earnings per share (EPS), interest coverage ratio, gross profit margin, and many more.

The CFO can work closely with IT to integrate an analytics platform with real-time access to the company's financial data. Through this platform, the CFO and their team can create dashboards that monitor the chosen KPIs, providing easily digestible financial data to management to support executive decision-making.

Raise Capital

An outsourced CFO can help a company raise capital in several ways. The source and type of capital raised will depend on the circumstances and the company's financial health. A CFO can help growth-stage companies raise additional rounds of capital from venture capital funds or lead a publicly traded company's efforts to sell debt instruments to investors. The skillset needed from the CFO can change dramatically based on the needs of the company. Some CFOs specialize in supporting venture financing but they may be in over their heads working with a publicly traded enterprise to issue additional shares to the market.

Frequently Asked Questions about Outsourced CFO

What skills should a CFO have?

Not every CFO needs to be a CPA, but every CFO should be well-versed in basic accounting skills and understand GAAP and all relevant tax law. A CFO should be comfortable navigating spreadsheets, accounting software, and other standard business systems. Many times, companies will look to hire CFOs who have previously worked in their industry. This reduces the learning curve and ensures that the CEO will have a strategic partner in a CFO that understands the business environment.

A CFO will not need to possess all the hard skills necessary to perform each role within their finance department, but they need to understand every component of the function's requirements. For example, a CFO may not be an expert in the latest business intelligence tools, but they need to understand what the tools are capable of and how to manage the analyst whose job it is to master the tools. A CFO will have the ability to see the bigger picture behind each work effort.

A CFO will also need soft skills to be a great leader and strategist. Great leaders do not all lead in the same ways, but a common theme is that great leaders have team members willing to follow them and perform their jobs effectively. These leaders are great communicators and are interested in recognizing and supporting the people around them. CFOs with an innovative and agile perspective often make for the best strategists thanks to their ability to identify opportunities and quickly act upon them. 

Can an Outsourced CFO work onsite or virtually? 

An outsourced CFO can work onsite or virtually, depending on the company's needs, and neither case is uncommon.

How many hours a week does an Outsourced CFO work?

One of the primary benefits of engaging an outsourced CFO is their flexibility in work hours. There is no correct answer here. An outsourced CFO can work as many or as few hours as you need them. The only caveat here is the willingness of the CFO to work a given number of hours. The consulting CFO may be at a point in their career where they are unwilling to accept full-time engagements and are only interested in supporting a few clients for a limited number of hours. Other times the CFO will have a minimum threshold of hours before they will agree to work with a company. All of these expectations are established before the start of the engagement.

How long is a typical engagement for an Outsourced CFO?

The average engagement duration for an outsourced CFO would likely fall in the 3 to the 6-month range, but this is ultimately another question with no correct answer. We have clients that have engaged an outsourced CFO for several years and others who only need the counsel of a CFO for a few weeks or less.

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