How can an outsourced CFO be a low-cost solution for small businesses?

With the ever growing ease of doing business and investors seeking fast growth, a lot of services have to be ready from the get go to meet the demands. Outsourcing has been a factor for businesses for a long time where they hire specialized services instead of developing an in-house team, the benefits of outsourcing are endless, and did you know? Even financial services can be outsourced. Companies outsource many functions in today’s economy, including accounting, payroll, IT, and marketing. However, many business owners don’t realize they can outsource their company’s finance functions.

Why outsourced CFO’s are recommended?

Outsourced CFO’s have a portfolio of companies they have worked with and they can give you an unbiased view of how your organization is functioning. They have no pressure unlike internal CFO’s, whose decisions are driven by interpersonal relationships, they may not express some opinions so as to preserve those relationships, but these decisions may or may not help your company. With their comprehensive knowledge of different markets, industries and products, they can help you identify and address critical risks from the internal operations, finance managements or external environments. In addition, outsourced CFOs draw a line of defense to avoid severe damage to the organization's finance. They monitor and control risk factors such as strategic risk, changes in government regulations and overall economic climate.

What benefits does a CFO who is outsourced offer?

Think about a company that sells both a product and service agreements to help customers use the product. The owner lacks the financial data required to properly divide costs between the two and is unaware of the key performance indicators (KPIs) that differentiate a software company from a service company. The owner simply cannot determine whether the business is profitable on both sides in this circumstance. Managing a business with incomplete financial data is equivalent to receiving important news that has been jumbled or is written in a foreign tongue. To interpret the data and take the proper action, you need the assistance of a skilled translator. An external CFO might be the best option if your staff is lacking that translator. Daily decisions are made by business owners, but they are not always the best ones if they are based on incomplete or inaccurate information. Quantities, costs, margins, inventory, cash flows, and other financial inputs that are incorrect can have significant effects on profitability, market share, and access to capital. Your financial data is not as valuable as it could be if it is not properly arranged and presented. Even worse is if you are receiving insufficient or incorrect information.

How outsourcing effectively cuts down your costs

When an employee is hired for a full time cost, the company undergoes a lot of their costs such as insurance, reimbursements, allowances, bonus and indirect costs like office space and hospitality. This will prove to be burdens to startups that are focusing on growth and profitability, they can’t dedicate so much capital to these tasks. CFO’s are usually one of those high paid staffs in an organization, so outsourcing them is the best capital efficient decision a growing company can make, another effective thing to do is to hire them as interim CFO while you take your time to employ a full time in-house CFO.

They ease the process of raising capital

The most common reason to use an outsourced CFO is to raise capital, which is a challenging and time consuming task for young companies. They can help you to prepare the slides, presentation, documents and financial models which you can use to present to potential investors. Another perk they offer you is that they can reach out to their network of investors. They have connections with financial backers and may be able to introduce you to fund raising possibilities that you may not have been able to discover on your own. From researching and analyzing your financial status to creating a business strategy to assist with negotiations, an outsourced CFO will ensure you are well prepared to raise capital. The investors too may choose to put their trust and money in you as you give them an impression of an entrepreneur who has his priorities in order.

Final Thoughts

A word I would like to add is that in today’s demand for fast paced growth and profitability, a lot of subjects cannot be tackled in traditional organic time consuming fashion. I feel that this is one of the best decisions any startups can make with their early round funding money to get their finances in order as the biggest problems a lot of companies make in their growing phase is mismanagement of finances in their pursuit of growth.