The benefits of outsourcing a CFO

There are a number of companies that don’t have a CFO on staff. They might not have the budget for it, they don’t think they need one, or they think it’s enough to have a bookkeeper or a controller who manages the billing statements and books.

What gets lost in that reasoning, according to Michael Stevenson, managing partner at Clarus Partners, is the purpose of a CFO.

“They’re responsible for strategic operations,” he says. “They work in tandem with the CEO, taking on tasks and managing them so the CEO can focus on the things he or she does best.”

Smart Business spoke with Stevenson about the role of outsourced CFOs and how to deploy them in middle-market companies.

When does it make sense to outsource a CFO?

Outsourced CFOs are often brought in on a project basis to source financing, improve processes and controls or help drive the growth of the organization.

When a company is in growth mode, its working capital can be outstripped fast. A CFO can help introduce companies to different financing options, such as bank debt, asset-based lending or private equity. They can help companies find ways to raise the capital needed to sustain growth until they’re better positioned.

CEOs understand operations and their customers, but need guidance on where to find and make investments that could help drive growth. A CFO can help by taking responsibility of the financial aspects of the business, thinking about the company’s future cash flow and helping analyze the return on purchased assets.

An outsourced CFO isn’t an expense. A good one should add 1 to 2 percent of net income to the company through a strategy of finding the best return on investment, and that should more than cover whatever he or she is paid.

What arrangements should companies make with their outsourced CFO?

Each circumstance is different. In some cases, a CFO will visit with a company weekly to keep a finger on the pulse of the business. In some instances, an outsourced CFO will temporarily step into the role in companies that have lost theirs, filling the gap until a new one is hired.
Most often when a CFO is engaged, it’s on a time and material basis. A CEO might want a CFO to prepare the budget for the next two years. Sometimes the completion of one project leads to more assignments.

While an outsourced CFO’s assignment is naturally temporary, CEOs still need that person to be a business partner. A CFO hired to help with the budgeting process needs to be ingrained in every aspect of the business so it can be determined where to spend money and why. On a project basis, such as ahead of a merger or acquisition, the CFO may be directed to focus on the pluses and minuses of each opportunity, filing in any blind spots in the CEO’s vision.

Ultimately, the CEO needs to know what he or she wants from a CFO and give the CFO specific tasks. Companies that don’t have a specific project, but feel they need help that falls within a CFO’s wheelhouse, might just need a full-time CFO.

How does a company find an outsourced CFO?

There are myriad accounting and outsourced CFO firms that exist in any given region. They can be found through a web search, or through a word-of-mouth referral. However they’re found, it’s important to interview a few candidates to find the person who is the best fit not only for the task, but also for the CEO who he or she will aid. CFOs and CEOs can’t butt heads. It has to be a partnership, which is a personal thing and not a technical thing. Finding a CFO with the right personality is just as important as his or her technical ability.

In a growing business, the CEO has to know what he or she doesn’t know. Bringing in a specialist to fill those gaps is not a cost. The right outsourced CFO should bring any combination of greater profits, greater financial efficiency and better financing strategies that help the company achieve its goals.

Insights Accounting is brought to you by Clarus Partners