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Outsourced CFO Services & The 10 Most Commonly Outsourced Tasks to CFOs

Outsourced CFO Services & The 10 Most Commonly Outsourced Tasks to CFOs

Contents

The popular trend of migrating from in-house resources to outsourced vendors and services has created new service firms. For example, an outsourced chief financial officer (CFO) can provide part-time and short-term CFO services to help your business. Outsourced CFOs direct a company’s financial strategy by doing financial forecasting, implementing financial controls and helping to manage cash flow issues related to sustainable growth and expansion. CFOs can also aid a company during a challenging event such as an audit or capital raise or help achieve a vital objective such as preparing for a strategic exit or an initial public offering (IPO).
An outsourced CFO can offer insight to ensure that the company’s finances are in order and meet its goals. Companies often hire outsourced CFOs to take care of many crucial functions. These include supervising the bookkeeper and controller to obtain accurate data and decipher the results, pinpointing important metrics, providing GAAP financials, providing budgeting, investor relations, managing treasury functions, and taking care of strategic forecasting.

What is an Outsourced CFO Service?

Due to today’s uncertain and turbulent economy, many small and medium-sized companies are looking for professional financial guidance to assist in business growth while mitigating financial risk. As a result, companies are contracting with an outsourced chief financial officer—a financial expert and consultant who offers small businesses strategic financial services either on a part-time or project basis.
Outsourced CFO services can include enterprise-level financial strategy, systems evaluation, and operational improvements. Also, outsourced CFO services can resolve many challenges such as cash flow difficulties, raising capital, improving tight margins, putting more efficient systems into place, or preparing a company for growth.

Why Do So Many Businesses Use Outsourced CFO Services?

As data and systems have migrated to the cloud in recent years, numerous small- and mid-sized businesses are now relying more and more on third parties for roles and duties that previously were only handled in-house. For example, most small companies employ a bookkeeper, but hiring a full-time CFO requires paying an annual salary and benefits, which can be too costly for a smaller company. Without a CFO, however, a small company may have an urgent need for strategic financial advice. Outsourcing the CFO function can be an excellent option because you only pay for the hours, services, and capabilities that your company needs.
A company can also contract a CFO with the specific experience, background, and skills to resolve a pressing issue. Outsourced CFOs usually have experience working on many types of projects. Their experience also includes contracts with both small and large companies in several industries. They probably have also already completed projects at companies similar to yours and solved complex problems relevant to your situation. Thus, you can rely on the outsourced CFO to help you overcome any obstacles to growth.
Another opportune situation to outsource the services of a CFO is after a company has obtained venture capital for growth. This milestone requires the entrepreneur to inform investors about its profit margins, costs to win new clients, and other crucial performance yardsticks. Still, he or she may need a CFO’s assistance to organize that data.
A startup may also need a part-time or outsourced CFO as it plans to raise funds. The CFO can work on financial projections, prepare key performance indicators (KPI), and answer financial reporting questions.

Making Decisions Based on Financial Analysis

Business owners make numerous decisions every day, but those choices may not benefit the company if they are based on inadequate inputs or lack the proper information and data. Incorrect financial inputs—i.e., those about costs, profit margins, inventory, cash flows, and others—can lead to adverse outcomes.
These consequences include lower profits and market share and reduced access to capital. This is where outsourced CFO services are valuable. For example, an outsourced CFO can conduct a financial analysis of a company’s enterprise-wide financial positives and negatives, with recommendations for improving the company.
Also, an outsourced CFO can provide financial planning with suggestions on improving a company’s ability to budget and forecast while also evaluating a firm’s long-term and short-term financing needs. The CFO can assess new product ideas’ practicability, including projections and net present value (NPV) and internal rate of return (IRR) calculations.
Outsourced CFOs can also create financial presentations such as PowerPoint pitch decks for the board and investors. They can also analyze merger and acquisition prospects, including financial forecasts of when the company will return to business as usual (BAU) and how the company will perform after the acquisition is complete.

10 Outsourced CFO Services—Most Common Services Offered by Outsourced CFOs

Small- to mid-sized companies often worry about their finances. One solution is to consider outsourced CFO services to obtain crucial information about its financial performance to achieve peace of mind. For example, hiring an outsourced CFO is an excellent worry-free decision that can help a business understand its cash flow and business capitalization. In short, the CFO puts into operation the best practices for the company’s accounting systems and streamlines its financial procedures.

1-Financial Strategy

The most significant advantage of contracting with an outsourced CFO is obtaining a much better understanding of your business’ overall financial strategy. While most of the other financial professionals at your company concentrate on managing past and current records, a CFO will provide expert advice and focus on your organization’s comprehensive short- and long-term strategy and plans. Another argument for hiring an outsourced CFO is if the company’s bookkeeper does not fully comprehend or analyze the financial statements they prepare. The CFO will provide a much higher level of financial planning and analysis.

2-Financial Forecasting: Short- and Long-Term

A financial forecast is a crucial tool for a business. It is a GPS that guides a company’s finances and operations from your current situation to your future goals. Thus, a financial forecast encompasses financial analysis, strategy, and feasibility. The analysis includes an overall evaluation of financial strengths and weaknesses, with suggestions on improving the company’s finances.
Outsourced CFO services provide a calculated examination of a company’s current and future competencies, knowledge of financial systems and trends, as well as in-depth analysis of developments in your industry. CFOs can also help you closely track your business’ performance. Ideally, companies should be tracking performance on a day-to-day basis to spot potential problems and make any adjustments necessary to improve operations.
Achieving optimum performance tracking can be surprisingly complex and involves more than merely reviewing financial reports each month or quarter. Perhaps the most complicated part is pinpointing the key performance indicators that are unique to your company, a role that can be managed by an outsourced CFO.

3-Financial Systems Strategy & Design

Small- and mid-sized companies often purchase financial management software and internal systems. Still, there are several ways that these structures stop providing accurate data or may be out of date. These systems may fail to keep pace with the company’s expansion, may no longer be compatible with the company’s other systems and processes, or lack features required by your company.
These systems are tools for financial analysis and need to be up to date to maintain proper financial management. Outsourced CFOs usually do not install a new and improved system, but they can review existing systems and assess your current and future needs. These design systems will perform best for your organization’s current and future growth. CFOs can also offer advice to help choose and negotiate with a vendor, ensure the transition is efficient, and help train personnel to use the new systems.

4-Budgeting

Corporate forecasts are usually a 5- or 10-year prediction of costs and operations, but a budget details your financials and cost projections. A budget plan’s time frame is typically shorter than the strategic forecast, but it is crucial as a roadmap for a small company’s day-to-day actions and financial performance. This budget helps to guide your financial decisions while helping a company to reach its ambitions and goals.
An outsourced CFO uses planning, budgeting, and forecasting to provide an accurate outlook of an organization’s short- and long-term financial goals and plans. By comparing the actual performance with the budget, the CFO helps the company highlight areas where they can improve their profit margins and other critical business metrics.

5-Facilitating and Interpreting Financial Reporting

A small business must install a reliable system to prepare prompt and accurate financial reports to be successful. Finances are necessary for a company’s successful daily operation, and financial reports keep business owners informed of present and future issues. Many outsourced CFO services include simplifying and interpreting financial reports.
A CFO can analyze your financial reports and provide important information and advice in an approach that best addresses your business needs. At this juncture, you can ask the CFO questions, change your corporate strategy if necessary, remain vigilant about day-to-day operations, and gain the information necessary to make your critical business decisions.

6-Capital Structure

One of the biggest challenges for a company is to raise capital, but an outsourced CFO can help a small business navigate the process more efficiently. An outsourced CFO provides services to help an executive decide what capital structure is best suited for the firm and help judge how much financing is necessary. The CFO can also help you decide the ideal mix of debt and equity financing for your company’s plans and needs.
Another bonus is that an outsourced CFO often has access in his or her Rolodex to a network of financiers and can introduce them to the company to raise capital. Finally, the outsourced CFO can review the term sheet and help with the negotiations.

7-Interim CFO Services

Small businesses often require the aid of outsourced CFO services in times of transition, perhaps when a company is interviewing candidates when searching for a new, in-house CFO. At this time, an interim CFO can assist your organization and manage the finances until the new CFO comes on board. Also, a small business may not yet need to hire a full-time CFO.
For that reason, many companies will hire an outsourced CFO on an interim basis until such time that the company increases its revenues and headcount and then requires a full-time CFO. In this instance, an outsourced CFO can take care of the necessary CFO tasks and services as your company expands but can also help hire and train a full-time CFO for your company when it is ready for that milestone.

8-Cash Flow Analysis and Restructuring

Cash flow is probably the lifeblood of a company, but it can be one of the most common (and influential) tests for a small business. To resolve cash flow issues, a company must understand its expenses and where you are making these purchases.
Understanding cash flow requires the knowledge of which expenses are crucial for your organization’s advancement and development, which can be cut or adjusted. Outsourced CFOs have an expert understanding of expenses and can examine your financials to decide how to improve your bottom line.
Steps that a CFOs may recommend for improving cash flow include renegotiating your contracts with vendors, restructuring contracts with your clients, and analyzing commission structures. Outsourced CFOs can also analyze if the pricing of your products and services are aligned with company and industry standards.

9-Making Cost Cuts

A small business owner may lack objectivity when making strategic cost cuts because certain expenses and initiatives may be especially dear to the owner. Overall, an outsourced CFO will be more objective because they will not be biased when making cuts. They will make more effective decisions because they are based on data and industry knowledge; they are not invested in any particular project or initiative which may influence the in-house managers.
An outsourced CFO may also be better positioned to enact strategic cost cuts than the business owner because they have extensive knowledge about many companies in the industry. As a result, they are familiar with industry benchmarks and can compare them to your costs to determine if they are too high or low.

10-Facilitating Mergers and Acquisitions

When a small business decides to merge with or acquire a company, several important tasks and details must be completed. At this time, a small business can benefit from outsourced CFO services to help oversee the process. The CFO can conduct a preliminary analysis, complete the reporting, and advise high-level team members during the sales process and closing.
An outsourced CFO’s expertise also includes preparing relevant documents and stabilizing financial functions. After the financial close, an outsourced CFO can assist in many ways: Help merges the two companies’ accounting departments and establishes a new unified accounting system.

Conclusion

No doubt finances are crucial to the daily operations of any company, and financial reports keep executives informed of the state of the current (and future) operations. Often, small business owners and entrepreneurs tend to focus most of their attention on product development and sales numbers and neglect day-to-day financial chores. As a result, keeping accurate financial records and bookkeeping can get ignored as the company is in a hurry to launch a product or service and keep the company solvent. If your company currently lacks a reliable system for timely, accurate financial reporting, an outsourced CFO can help you install a robust and accurate reporting system.
Contracting CFO outsourced services is an ideal way to obtain access to expertise in interpreting and analyzing financial reports on an as-needed basis. The CFO can analyze your reports and provide the most important recommendations in a way that best supports your business needs. This allows you to ask questions, change strategy if necessary, stay current on what is happening at your company, and obtain the information you need to make vital business decisions.
Startups also require a CFO’s assistance who can mentor entrepreneurs to gain a better knowledge of cash inflows and outflows and provide a long-term analysis of the company’s finances. Letting an outsourced CFO handle the financial work is a time-saving alternative that allows business owners to concentrate on essential tasks and responsibilities.

About the Author

Tyler Barr, Director
Tyler Barr, Director

Tyler Barr is the director for Punch Financial and an outsourced controller who specializes in managing financial and accounting functions for various small businesses and startups.

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