Outsourced CFO

With rapidly changing business models and dynamics in recent years, companies are keenly aware that expert financial management is a requirement for their business and financial expertise must be represented on their team.

To provide financial leadership and avoid common mistakes that can derail a company’s plans, the outsourced CFO model has become immensely popular and successful. By keeping in mind a few guidelines about the company’s requirements, expectations and resources, a company should be able to locate an outstanding financial professional at a good value to help them grow responsibly.

Increasingly, CEOs are outsourcing the finance function on a project, part-time or interim basis to an experienced CFO who often brings highly specialized skills to his/ her assignment. Depending on the circumstances, it may be more efficient and cost- effective to bring in a hired gun.

This approach affords CEOs the flexibility to bring someone on without incurring significant overhead. Consulting contracts usually have short termination periods and help avoid recruiter fees, too. Thus, CEOs can tap their network to not only find someone quickly and cost-effectively, but they may even be able to find someone with highly specialized skills to help solve their current issues.

CFO Responsibilities

A Chief Financial Officer (CFO) is one of the crucial resources that every competitive firm needs to reach the next level in its development. The multi-faceted, well-experienced and highly competent finance and accounting head is responsible for among other things:

  • Building sustainable corporate finance, accounting and operations
  • Identifying and securing capital needs
  • Coaching executive performance for defined targets and metrics
  • Contributing to the development and execution of long-term strategy
  • Identifying, diagnosing, and integrating mergers and acquisitions
  • Building sustainable, growth-oriented organizations and cultures
  • Ensuring technology advancement and utilization
  • Facilitating audit and compensations committees needs
  • Developing and implementing corporate change leadership initiatives
  • Guiding continual enterprise risk management
  • Overseeing international governance and expansion
  • Developing and implementing aligned executive compensation

More specific to the finance and accounting function, a CFO will oversee treasury and cash management, financial modeling, options and compensation plans, business performance and cash flow, partner/vendor management, Board of Directors management, investor communications, payroll, accounts payable and accounts receivable functions, and any activities tied to turnaround, restructurings and divestitures.

Due to the vast experience and skill-set CFOs bring to the table, the cost of hiring a full-time CFO is very high, but considering the advantages a strong CFO can offer to an organization, it is essential. However, businesses can now escape the heavy cost of hiring a full-time CFO, and indeed an entire finance and accounting staff, by opting for an interim, fractional or part-time resource.

While all offer similar cost-saving benefits, part-time, interim and fractional CFOs aren’t exactly interchangeable terms. They are all different models for employing a CFO and having to pay them based on the amount of efforts they put in.

Fractional CFO

A fractional CFO, as the name suggests looks after a fraction of responsibilities and focuses on specific areas of requirements. Their responsibility is usually shared with other in-house resources. Small to medium sized businesses that are seeking to add finance and accounting policies, processes and systems can use a fractional CFO to ensure timely deployment and effective troubleshooting of issues.

Part-Time CFO

The main difference between a fractional CFO and a part-time CFO is that a fractional CFO only looks at a certain number of responsibilities, whereas a part-time resource looks after all the responsibilities, but only part of the time. Business owners that are not sure how to effectively utilize a fractional CFO can opt to hire a part-time one and have him/her identify the needs of your business.

Interim CFO

These are transitional CFOs. While you are in the process of replacing your CFO or choosing a new one, you may hire an interim CFO to look after the responsibilities.  In addition to running key functions, they can conduct interviews of potential candidates to ensure that the new hiring is a strategic fit for the organization.

Fractional CFO Roles, Responsibilities and Experiences

It takes years of experience and a boatload of enthusiasm to face each day as a blank slate, with endless possibilities and room for improvement. Finding the best path to take, even in impossible situations, is something that requires, not only the right intellect but a great attitude too.

A Fractional CFO first and foremost, needs to understand the workings of your company. They must be in harmony with the company’s vision, mission, objectives, and long-term goals for there to be a productive business relationship.

With capital needs, strategic objectives and financial and performance metrics constantly changing, a fractional CFO needs a steady hand, sound experience while balancing an eye on the future.

An open and realistic mind is invaluable as well. It is important to find a balance between a business’ necessities and luxuries they can do without. Minimizing cost while maximizing profits is every business’ mantra.

With a business’ objectives as a guiding map, and personal experience, insight and relevant technology as a shining light, navigating through challenges becomes much easier and manageable.

Other responsibilities a Fractional CFO, include:

  • Prompt accounting and finance staff management
  • Taking part in developing executive decisions on leadership and management
  • Researching and evaluating relevant technology of importance to the business.
  • Spearheading and implementing business objectives, missions and visions.
  • Development and management of key functions, software, and their methodologies.
  • Defining a business’ Key Performance Metrics (KPMs)
  • Understanding the level of scalability and resilience of various technologies
  • Technology maintenance assessment and planning
  • Board management
  • Financial reporting
  • M&A transaction support
  • Reviewing and negotiating business contracts

These are just a handful of the responsibilities a part-time CFO is faced with. These responsibilities will vary depending on the type of business.

When do you Require a Fractional CFO?

So when would you require the services and expertise only a fractional CFO can lend?

High-growth – High stress

Companies that reach an inflection point in their growth usually do so for one of the following reasons:

  • Increasing number of transactions, such as more customers, more employees, more vendors n increasing complexity in the business that requires more experienced leadership and better
  • Planning to develop policies and procedures
  • An inexperienced controller or other finance staff member who may simply need a mentor
  • The company has raised or intends to raise significant ($1 million or more) funds from outside investors
  • A merger or acquisition of a line of business that requires acquisition accounting and reconciliation between multiple systems.

Highly Specific Projects

Often a company will require specialized skills to address a very particular problem. audit firms are increasingly unwilling to risk compromising their audit function by providing in-house consulting services and will instead refer the company to a project-based CFO. Some common projects that might require outsourcing include:

  • Issues with revenue recognition, international expansion or sales tax cleanup or strategy
  • Statutory compliance
  • M&A activity where the company is either the buyer or the seller and needs help either evaluating the target company or properly packaging the company for sale
  • Pre-audit cleanup work to get the company’s financial statements in shape to begin an audit

Transition Issues

In these cases, a company has no CFO in place and wishes to find an immediate resource to fill the gap until they can hire a permanent CFO. This is usually a role for an interim CFO who will commit substantially all his/ her time to a company for a limited period.

Unlike part-time or project CFOs who generally make a living by working on an outsourced basis with several different companies, interim CFO are often finance professionals who are dedicated to one client.

How can an experienced, Fractional CFO help a CEO, Board and Senior Management Team?

With an experienced CFO, a CEO gets:

  • Increased credibility with Board, prospects, partners and suppliers
  • Attention/attraction of equity investors
  • Better cash management
  • Upgrade from general bookkeeping to build a real finance and accounting department. n improved negotiation of contracts and agreements, as well as improved audits
  • Collaboration of senior team for the c-suite to become more effective. n optimized profits and improved working capital

Outsourced CFO: success

Outsourcing your company’s CFO can provide you with a higher return on your investment and sound business advice from an expert with an objective viewpoint.

Some Rules of Thumb for Being Successful

1. Prioritize. It is important that both the company and the hired CFO are realistic about the goals and objectives they are trying to achieve given the time constraints or available resources. A few, very strategic, well-defined projects will be easier to manage than multiple, more tactical projects. Focus is key.

2. Create a Plan. A project plan is a helpful tool to maintain focus and should include specific responsibilities by person as well as target completion dates for each project. This should be reviewed and updated by the CFO and his/her direct contact (usually the CEO) to ensure that progress is being made in the right areas.

3. Find the Right CFO. Another rule of thumb is to correctly match the type of CFO with both the company and the work required. Not all CFOs are created equally. For example, if there is a limited finance team then the company probably needs someone who will roll up his/her sleeves. In this case, it is important to focus on the candidate’s knowledge of financial accounting packages or the ability to build and maintain spreadsheets. During an M&A process, it is important that the CFO has prior experience buying or selling companies, working with investment banks and negotiating.

4. Industry Experience. While many CFO’s have a range of experience across various industry vertical segments, it is always desirable to match a CFO with the company’s specific practice area. A manufacturing CFO will not have the same success in a biotechnology company as he/she would in a manufacturing company. Experience counts, but the type of experience can be critical. Like other professionals, CFOs have their own network of contacts. A CFO with industry specific experience can add tremendous value by introducing the company to other service providers (bankers, lawyers, accountants, insurance agents) or potential employees from within the same industry. Someone outside the industry is likely to be less effective.

5. Goal Alignment. To better align the company’s goals with those of a temporary resource, companies often offer an equity component as part of the compensation package rather than an hourly or weekly wage. Like bringing on a full-time CFO, equity ties the financial success of the part-time CFO to the success of the company.