It’s the stuff entrepreneurs and founders dream of. You’re a few years into the business and starting to hit your stride. What was once your first million-dollar year quickly becomes your first 5 million-dollar year. Maybe even 10 million.
As your business grows, you want to spend time on the areas you’re passionate about like strategy, innovation or your product roadmap. However, that’s hard to do when you’re responsible for everything – people, processes, technology and finance.
What’s more, your entire team is operating at capacity. So, nobody else has time to focus on your finances or help ensure you can scale, even though a healthy balance sheet is critical for your continued growth and success.
If this sounds familiar, it may be time to bring in an outside finance partner to help. Someone who can counsel you on the financial side of the business and offer you honest, forward-looking financial advice that helps you grow.
This role is usually called an outsourced CFO, a fractional CFO or a virtual CFO. No matter which term you use, this guide covers everything you need to know about how to bring one onto your team, including:
- What is an outsourced CFO?
- Why do companies outsource a CFO?
- How to know if your company needs an outsourced CFO
- How do you evaluate which firm is best for your company?
- Preparing to onboard your CFO
- What to expect from outsourcing a CFO
What is an Outsourced CFO?
An outsourced, or virtual, CFO is the finance arm of your business. They handle all your strategic finance needs like accounting, budgeting and forecasting. They can also address the day-to-day operations like monitoring cash flow and managing payroll.
It’s like having a CFO and a finance department without building one.
Why Do Companies Outsource a CFO
As companies grow, especially when it’s happening quickly, they need access to different counsel and advice. The focus has to stay solely on the future and looking ahead.
Not every accounting firm aligns with this high-growth way of doing business. Some are more skilled at looking backward. However, boutique finance firms, like ours, have deep expertise in working with founders and entrepreneurs whose annual revenue reaches the 20 million mark, roughly. Once you reach this threshold, we’ve found that it’s probably time to add someone internally and work with a fractional CFO in a more consultative way.
Generally speaking, this size company realizes these benefits from outsourcing their CFO function:
- Building a team of advisors – It’s common for founders to supplement their small internal team with a few external experts.
- Gaining an external perspective – Sometimes, you just want to bounce an idea off someone not on your team. You know, get a third-party reality check. Here’s where an outsourced CFO can be a lifesaver.
- Having access to a broad range of financial expertise – An outside finance partner can offer the full spectrum of knowledge you need depending on your current challenges.
- Partnering with growth-minded vendors – High-growth companies want to work with high-growth partners. It’s a shared passion that’s hard to describe. If you know, you know.
How to Know if Your Company Needs an Outsourced CFO
In our experience, founders and CEOs in any industry can benefit from outsourcing a CFO. Usually, they bring someone on when they’re facing one or more of these challenges:
- Spending less time in areas of the business where they find passion.
- Using weekends to catch up on financials or unravel a financial challenge.
- Facing a specific financial challenge (e.g., tax-related).
- Becoming concerned about the unknowns because you’re moving so fast.
- Having cash flow problems now or anticipating them in the near future.
- Lacking someone they can talk to openly and candidly about the financial side of the business.
Of course, there are dozens more things you could add to this list. These are some of the most significant financial pain points founders and CEOs are experiencing when they give us a call.
How to Evaluate Which Outsourcing CFO Firm is Best for Your Company
If you’re considering a fractional or outsourced CFO, you will, of course, want financial expertise. That’s table stakes. Beyond that, here are some things you should consider:
- Can you learn from this person?
- Will they push back and challenge you?
- Do they add something to your internal team?
- Are they growth-minded?
- Can you see yourself working with them long-term?
- Do you feel a personal connection?
If a few of these surprise you, we believe work is more rewarding when people pass the vibe check – even when it comes to finance. This is especially true if you’re facing a significant financial challenge. If that’s the case, you deserve to feel like you can trust the team you’re working with to sort it out on your behalf.
Preparing to Onboard an Outsourced CFO
As part of your decision-making process, you’ll want to get your fractional CFO up to speed quickly. Ask potential vendor partners how they:
- Evaluate your current/state financials
- Identify your top finance priorities
- Approach your most critical challenges
- Focus on getting money in the door
Then, ask how they stay involved with you and your team to shift the focus back to looking ahead and continuing to grow. They should have a flexible but templated approach to ensure you have a good onboarding experience.
What to Expect From Outsourcing a CFO
Your business has its own rhythms and routines. An experienced virtual CFO will be able to drop right into that. They’ll focus on setting up your monthly financials, managing your cash flow, and taking care of your budgeting, forecasting, and reporting requirements.
In addition, you should have a regular cadence of touch-base meetings to ensure you and your internal team have the information you need to:
- Make decisions
- Take advantage of opportunities
- Invest in the business
One advantage to working with a smaller, boutique CFO is the ability to customize what you need. No two situations are truly the same, so you don’t want a one-size-fits-all approach.
Growing a Business Should Be Fun
At this point, you may have noticed we’re not a traditional accounting firm – no pinstripes and navy blue suits here. We take a more modern approach and unapologetically lead with our hearts. We care about people. We prioritize building relationships.
You see, we’ve been in meetings with new clients where you can see the worry in their eyes. They have a cash flow problem (or worse), and they know it. As a result, they have no choice but to lay their situation bare to us.
It’s a humbling experience.
It’s also extremely rewarding when you see that same client and notice their smile is back just a few weeks later. They’re feeling lighter already.
Although we love numbers, our passion lies in building relationships. We want to know you and your business so that we can provide education and services that meet your unique needs. Allow yourself to focus on whichever aspect of the business you are most passionate about and leave the financials to us. Reach out to Ledge Financial today to take the next steps toward hiring an outsourced CFO. We look forward to hearing from you!