Are you worried about the state of your company’s finances? Don’t worry, you are not the only one facing this issue. Running a business can be very challenging, mainly if you don’t have a financial background.
A majority of startups fail during their initial years, and its known by almost everyone. But why exactly does that happen? Well, a US bank study cited that poor cash flow management was among the top reasons for business failure in initial years. In fact, the study reported that 82% of failed startups bungled up this incredibly important financial issue, leading them towards failure.
But cash flow is not the only thing that you need to in your business related to finance. You have forecasting, preparation of books, gathering actionable financial data, tax preparation among other really important business related financial functions.
For an entrepreneur, these functions can be overwhelming, that’s why external support is necessary to share the overall burden. This is where outsourced CFO services can really help the business.
Outsourced CFO services are much cheaper than having an on-site CFO, and since the role of a CFO is integral towards maintaining a healthy financial functionality for the business, going for outsourced CFO services seems to be the best option for startups that are always cash strapped.
Many businesses think part-time CFOs only help comply with tax laws and regulations. But using their expert knowledge within the industry, they can guide you through cash flow problems and make a financial strategy for an increase in growth and profitability. Above all, an outsourced CFO can assist with making your business finances a competitive advantage.
With the right partnership, the outsourced CFO can be the perfect addition to the business. But how much do they actually cost? There is a lot of ambiguity in there so why not clear it once and for all to make things easier for everyone?
Let’s find out more about outsourced CFO services, how much they cost in comparison to in-house resources, and how a low priced outsourced CFO can affect your business.
What is a fractional/outsourced CFO Service?
Fractional CFO services provide businesses with a part-time business and financial advisor that works together with other departments to improve the financial state of the business and help guide through sensitive phases like growth strategy, launching a new product, and cash flow problems. Outsourced CFO services can vary from business to business, based on the scope of the work, growth stage, and upcoming plans.
Hiring outsourced CFO services can assist businesses in various ways. The following are a few ways an outsourced CFO can support the organization:
- The part-time CFO can help plan long-term growth strategy, look over its execution, and analyze the results.
- They can help identify new emerging markets and business opportunities for growth and expansion.
- Help improve business cash flows by cutting down necessary expenses and looking for new sources of income.
- They can adjust business systems to improve productivity, efficiency, control costs, and manage finances to increase profitability.
- They plan tax strategy and guide with its implementation, tax filing, and compliance.
- CFOs are majorly responsible for making a financial strategy, looking over its execution to achieve business goals.
- When launching a new product, an outsourced CFO can help you connect with investors and capitalists. As they often have a strong network within the industry.
In-house CFO Service vs. outsourced CFO Service
Most Outsourced finance and CFO services offer their clients custom charges based on the specific needs of the business and the existing state of the company’s finances. However, on average outsourced CFO services can cost companies anywhere between $1,200 and $2,500 a day. On the other hand, hiring a full-time CFO in the US will cost businesses anywhere between $296,832 and $470,616 per year in salary. The salary of the in-house CFO may vary based on their industry experience, educations, and other skills. Hiring an outsourced CFO service in comparison to an in-house resource can help companies save up to 60% of the cost, which also includes additional benefits and overheads.
Besides, a lot of outsourced accounting and finance companies provide great business solutions, including bookkeeping, preparing financial statements, and CFO services, and so on. This means they are basically providing you the complete accounting and finance department. A substantial advantage of choosing the outsourcing option than gives you further control over expenditure is the easy scalability. You can scale up or down the services you need based on business needs, goals, and budgetary limitations.
In contrast, running the entire finance department within the company can mean a considerable investment, which is often not possible for small businesses. From employee benefits, bonuses, and operational overheads, you can avoid all these costs with outsourced solutions.
Whether you hire an outsourced CFO Service or an in-house CFO, you will get a highly expert, educated, and experienced individual working to guide your business. However, often businesses use collaboration with an unbiased specialist, an outsourced CFO, to their benefit. Having experience of working with several other companies with the same industry, the outsourced CFO can give you insights and guide you better through growth and expansion phase.
Why Should You Be Careful of Low Priced Outsourced CFO Services?
As more and more businesses realize the benefits of outsourcing CFO services, like cost-effectiveness and scalability, you see an increasing number of them picking the part-time expert over full-time. However, this also means the option of outsourced finance and CFO services are also on the rise. So, it is imperative to find the right match for your business needs.
By the requirement of the job and nature of the work, an outsourced CFO has access to some of the most sensitive information, which is one of the primary reasons why you should find a reliable outsourced partner. That said, a CFO also has the authority to make financial decisions that are going to affect business operations, cash flow, growth, and day to day management. Another reason for businesses to conduct thorough research before hiring outsourced CFO services.
When selecting the right outsourced partner, there are several factors that businesses usually consider, including:
- How much the outsourced CFO Service cost?
- Which additional accounting and financial services the company provides?
- Can the company scale services in case of business growth?
The budgetary limitation at times makes businesses to hire low priced outsourced CFO services. But, considering the severity of the work CFOs do, it not a good idea because lower cost sometimes means low-quality solutions. This can affect business profitability, liquidity, operations, and create problems with growth and other long-term plans.
Hence, take your time, research, contact previous and existing clients of the outsourced firm you are considering to hire. Remember, the right outsourced partnership will be rewarding for the business in the long run.
Whether its cost-effectiveness, the outsiders’ perspective, or scalability, there are a number of reasons why businesses these days are preferring to hire outsourced CFO services. For most organizations, particularly small businesses, paying for an outsourced expert makes more sense, as they can better control the cost they pay and avoid unnecessary expenses like employee benefits. From helping businesses to improve their financial position to fast-pace growth, outsourced CFOs can make a big difference in the overall success of a business. However, it ultimately comes down to finding the right outsourced firm that is compatible with your budget and other specific needs.