What is an Outsourced CFO? And Why Do Businesses Hire Them?

Picture of Gary Jain
Gary Jain

Founder, Ledger Labs

outsourced cfo

Table of Contents

Running a business requires you to juggle multiple tasks at the same time. Among all the tasks you handle, managing your finances can be the most difficult. Well, you can handle bookkeeping and filing taxes, but developing a whole financial plan to grow and scale your business is a story for another day. That’s where the help of a CFO or an Outsourced CFO is considered most important, especially because they have the foundational know-how of finances.

But, here’s the thing, when you hire a full-time Chief Financial Officer (CFO), it can be way too costly – particularly if you are new to the business or just scaling up. 

An outsourced CFO provides you with the same financial expertise you need, but at a fraction of the cost. In fact, according to Salary.com, the median compensation for a CFO in the U.S. is $441,037 per year (updated right in April 2024). The number varies up and down. But, in contrast, if you compare that amount to hiring an outsourced CFO, the number plummets by half. It’s cost-effective, hassle-free, and makes complete sense.

But, what are the roles of an outsourced CFO? Why should you even hire one? That’s what we are here to answer. Read along, and you will know all the answers you are looking for.

What is a CFO?

A Chief Financial Officer (CFO) is one of the key executives in a company responsible for managing all financial obligations. In addition, some of the duties of a CFO service involve planning and tracking the finances of a business, creating budgets, and pinpointing areas that can be modified to improve the well-being of the company.

Needless to say, there are several aspects of this domain that they take care of. Besides the one mentioned above, a CFO also assesses financial data, forecasts future performances, and makes important decisions that further support the growth of the company. Plus, they also help in managing the cash flow of the company, assessing any underlying financial risks, and complying with all financial regulations. But, that is what a CFO is. What exactly is meant when we say outsourced CFO services? Let’s have a look.

What is an Outsourced CFO Service?

An outsourced CFO, sometimes also referred to as a fractional CFO, is a part-time financial expert who goes to join your executive team in order to offer important financial insights for you to make better decisions. The good news? This individual has the same job role as a full-time CFO, but just at a lower cost. One of their many responsibilities includes analyzing business finances and helping the team make better business decisions.

But, you should remember that an outsourced CFO is distinctly different from an interim CFO. Having said that, an interim CFO is basically a temporary hire. They usually file for someone who is either on leave or when you are searching for a permanent CFO to take their place. On the other hand, an outsourced CFO is actually a long-term part of your team, and they work with you side-by-side for several years down the lane.

Outsourced CFO Rates in 2024

The rates of an outsourced CFO, or fractional CFO cost, can greatly differ on the basis of the needs of a business. But, on a whole, the average rate for an outsourced CFO usually falls between $3,000 and $12,000 per month.  

In fact, for several small-sized businesses and mid-sized businesses, the most common agreements seen to date fall between $5,000 and $7,500 every month. As you can see for yourself, the return on investment (ROI) for an outsourced CFO surpasses that of any full-time CFO, where the associated costs are gigantic.

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What does an Outsourced CFO do?

An outsource CFO is responsible for providing businesses with part-time, high-level financial command and leadership without having to hire them full-time. This, as a result, helps businesses save quite a chunk of money over time. But, we still need to understand exactly what outsource CFO services do. So, here you go:

Financial Strategy and Planning

  1. Long term financial planning: Outsourcing CFO services typically develop plans that are meant to align with the business’s long-term goals. This, further, ensures sustainable growth and robust financial stability for businesses and CFO services for startups.
  2. Budgeting and forecasting: They are also responsible for creating and managing budgets, predicting how the business will perform in the near future, and modifying the plans on the basis of the results drawn.

Financial Infrastructure Development

  1. Creating financial systems and procedures: One of the responsibilities of an outsourced CFO is to set up and enhance financial systems and methods to improve accuracy in financial reporting.
  2. Implementing technology solutions: They also help to introduce and set up financial software and technological solutions in order to streamline management.

Team Leadership and Development

  1. Leading finance and accounting terms: They are also responsible for educating the finance and accounting teams to make sure they operate quite efficiently.
  2. Training and mentoring staff members: Outsourced Chief Financial Officer typically offer mentorship to the finance staff. That said, this helps upskill staff members and helps them stay completely synced with the strategies the team is following.

Special Projects and Advisory

  1. Managing mergers and acquisitions: One of the duties of outsourced CFOs is to oversee and offer insights during mergers and acquisitions. This helps make sure all financial aspects are meticulously managed and estimated.
  2. Supervising investment plans and capital raising: They also assist in directing the company’s capital-raising and investment decisions. This, in turn, supports the growth of the business.

Needless to say, it’s undeniable that outsourced CFO companies do offer the helping hand of a CFO who is both flexible and just as knowledgeable as a full-time CFO would be.

Why are Outsourced CFO Services Useful to Your Business?

There are actually several benefits that an outsourced CFO provides to businesses. Here’s a closer look:

Cost-Effective Expertise

Compared to hiring a full-time CFO, outsourcing CFOs provide high-level financial expertise at a fraction of the cost. This makes it far too easy for businesses to get the guidance they require without the overhead.

Strategic Financial Management

Outsourced CFOs can give you comprehensive financial planning and analysis. This is especially beneficial because businesses can create long-term strategies, build purpose-driven budgets, and forecast their performance in the future with the help of someone who knows what they are doing. In return, this solidifies your game plan and helps you make better decisions, at large.

Better Cash Flow Management

There is absolutely no doubt that businesses do face turmoil, on one occasion or another. Among all the problems, cash shortages and confusion in cash flow can lead to huge financial distress. That is where you would need an outsourced CFO to take a look at what went wrong and what can be modified. They can help your company manage its cash flow more effectively. In fact, they can assist in preventing cash shortages and also streamline the usage of cash over time. That means, you will have more liquidity in hand for running operations and investing as needed. 

Flexibility and Scalability

Businesses can easily scale outsourced CFO services up or down, directly on the basis of their needs. This is incredibly helpful, as businesses can access and change their requirements whenever they feel the need, without the fear of being locked in for longer commitments. This is, in reality, one of the best features of a CFO outsourced service provider.

That’s not all. You have several other benefits, too. When you partner with outsourced CFO services consulting, you can reduce the risk of legal penalties and gain unbiased, data-driven insights to cultivate business growth. That being said, why should you even bother hiring an outsourced CFO? The reasons are plenty. Let’s give you a sneak peek.

Why Should You Hire an Outsourced CFO?

As you can see, the list of benefits and outsourced CFO features is too long already. That being said, the demand for outsourced CFO services has risen by 103% in 2023. There is no doubt that the figure has risen since 2024.

This just shows their increasing importance, day by day. So, why should you hire an outsourced CFO? Here’s your answer.

  1. Rapid business growth or expansion: An outsourced CFO can help business owners and team members get curated financial guidance to manage their growth efficiently. They know how your business can reach its milestones while keeping cash flow balanced. That means, they create long-term financial plans and understand loopholes in cash flow structure. In return, this just amplifies your business and helps it scale sustainably.
  2. Improved cash flow structure: According to Business Insider, 82% of small businesses fail due to cash flow problems, while 29% run out of cash. This means that these businesses often struggle to cover their operational costs, pay bills on time, and have issues with investing in growth opportunities. This is where an outsourced CFO can help big time. An outsourced CFO can help you analyze your cash flow and usage. Plus, they can recognize and implement the right strategies to improve your cash usage over time for maximum growth.
  3. Navigating financial challenges or restructuring: When outsourced CFOs tackle major financial obstacles, they can usually do it because of their extensive experience in the field. They have a clear idea about their job and responsibilities, which we may not. As a result, they can be a big help in managing cash flow issues, cutting down on costs, and restructuring operations to solidify your financial grip.
  4. Preparing for mergers, acquisitions, or funding rounds: Business valuation is one of the most important aspects of a company, and this is where most get the help of a CFO benefit. But, at a fraction of that gigantic cost, outsourced CFOs are preferred over full-time service providers. An outsourced CFO can prepare detailed financial reports and offer you immaculate business valuations. They facilitate in making wise business decisions and raising required capital. Moreover, their guidance is especially helpful during complicated business transactions and for better financial well-being of the company.
  5. Enhancing financial reporting and compliance: Outsourced CFOs are a big help in making sure your financial reporting is on time, compliant, and completely accurate. As a result, this can maintain investor confidence to the fullest and prevent any looming legal problems. Furthermore, they are best known to mitigate your risk of a penalty as well. That means they keep your business compliant with changing rules and standards, over time.

We are just a phone call away if you need professional financial advice without the hefty price tag of a full-time CFO. Our outsourced CFO services provide the leadership and strategic insights you need to advance your business.

How to Choose the Right Outsourced CFO?

When you are considering the financial health of your business, you will have to be a little more careful when choosing the right outsourced CFO. Here’s a guideline on how you can do it:

Identifying business needs and goals

The first step is to understand why you would need an outsourced CFO. What exactly are you looking for? Do you need help with financial planning, growth advice, cash flow management, or all of them combined? Whatever you choose, you need to be clear about your requirements from the get-go.

Evaluating the experience and expertise of potential CFOs

Always make sure you are looking for CFOs who have an appropriate credential. These credentials can be anything, such as a Certified Financial Analyst (CFA) or Certified Public Accountant (CPA) with major industry experience. Plus, you can ask for their case studies to understand how fit they were with past clients. Thus, you will have solid proof of how they may work with your team and business over time.

Considering cultural fit and communication style

From the start, make sure your outsourced CFO understands and syncs well with your company’s values and culture. This will only solidify the relationship and support better collaboration down the road. Moreover, monitor how they communicate with you and other team members. They must be able to articulate financial concepts in easy ways that open up communication between team members.

Assessing fee structures and engagement terms

Although placed last, this is one of the primary things to consider if you are thinking of seeking the guidance of an external CFO. You need to understand the fee structure inside and out. There are certain CFOs that charge hourly rates to you, while a few others charge on a monthly basis. Plus, make sure that the costs associated with it are transparent and fall within your budget. On a side note, this is where you would consider their flexibility in terms of engagement. You may need the help of a CFO for a part-time requirement, project, or retainer basis. Whatever your choices are, make sure you get your terms aligned perfectly.

That’s about it. That’s all the information you need in order to choose the right outsourced CFO partner for your business. But, who is it that you should trust at the end of the day? Without a doubt, entrust your finances to the experts at The Ledger Labs, and focus on what matters most right now – the front and centre of your business.

Let The Ledger Labs be your Trusted Outsourced CFO

When it comes to managing the finances of your business, you should always make the right decisions to maintain sustainability and growth. More so, entrusting someone with your goals, aspirations, and especially your finances can seem stressful initially. 

But, we are here to save your day. 

The Ledger Labs offers scalable services that you can modify to meet your business requirements. Why is this beneficial, you may ask? Well, it gives you the freedom to effectively manage expenses and resources. In addition, our outsourced CFOs offer superior financial knowledge for a fraction of the price of employing a full-time CFO. By doing this, you can obtain elite financial management without having to pay a high salary.

Choose the best outsourced CFO services, The Ledger Labs, and unlock:

  1. 12+ years of industry experience
  2. Curated and personalized business solutions specific to your needs
  3. Full support, from cash flow management to daily financial management.
  4. Top-tier financial expertise at a much lower cost

Get in touch today and drive your business towards growth. Book a consultation today!

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