58% of new businesses have less than $25,000 available during the startup phase. It means that many find themselves in a position where they don’t have the resources to grow, but can’t grow without resources. It’s a total catch 22.
When you’re at those initial stages in business, sorting out your finances probably isn’t the top priority…but maybe it should be. There are tons of case studies of startups who fail due to a lack of long term financial planning and strategy. Perhaps expertise in this area could be the key to scaling and success.
We’re all too familiar with the idea that startups simply can’t afford to hire the best talent when it comes to financial expertise. So get acquainted with the idea of outsourced CFO: a possible solution to your catch-22.
What are outsourced CFO services?
CFO refers to the term: chief financial officer. Holding the premier and most senior position within the finance department of any company, the CFO role oversees cash flow, as well as implementing strategies to increase revenue and reduce overhead costs.
Traditionally, startups and larger companies alike tend to hire an in-house CFO in order to employ one individual to head up ownership of the business’ financial needs. But did you know that hiring a CFO on a contract basis is possible, and that it may actually be more beneficial for your startup?
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Why choose an outsourced CFO service provider?
There are a number of benefits to hiring an outsourced CFO (also known as a fractional CFO).
Remote working
For starters, we’re now well into the normalcy of remote working in 2022 and hiring a fractional team member is the perfect way to integrate this into your company. A Virtual CFO would work solely via the internet, which may be ideal for companies in the process of taking their team to fully remote status.
Cost efficient
Secondly, hiring a financial expert is no cheap feat. Opting for an outsourced provider reduces a full time CFO salary down to a contractor expense. An average full time CFO earns around $393,000 annually, whereas startups can budget just $5,000-7,000 per month for outsourced CFO services. This combined with the reduction in benefits and office equipment, for example, means that outsourcing CFO services can save a huge chunk of precious funding.
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Access to experience
Moreover, outsourcing your CFO can allow a startup or small business to access a level of expertise that they would otherwise be unable to afford. By paying only for the services they need, companies can access an experienced CFO on a part time CFO hire. The right person will provide high quality, forward thinking and specific industry knowledge, such as whether to opt for equity or debt funding. This unique combination is likely to help push the business into new realms of growth.
Stopgap option
Finally, outsourcing CFO services can be ideal if your startup was reliant on just one individual to run the finance department, who now requires time off or has quit. Outsourcing financial leadership with an interim CFO can provide stability in turbulent times, and give an indication of what the business truly needs to search for in their next permanent hire.
How to choose an outsourced CFO candidate
Hiring an outsourced CFO is not easy, by any means. Moreover, it’s important to take the time to find the right fit, as the wrong CFO could potentially cost your business in both salary and business growth.
Firstly, you should determine what’s required in terms of the needs of your business.
Are you expecting a chief financial officer to clean up the entire financial infrastructure of your business prior to an acquisition sale? Or would you rather bring on someone with financial expertise from a particular company or industry, in order to scale your startup as efficiently as possible?
The priorities of your hire for this position should be reflected in the job description.
Interview process
During the interview process for any role, you’ll want to perform due diligence (not just a quick google search). You’ll want to make sure any candidate is on the same page as the rest of the finance team, even though they will not be working in-house.
This role is more than simple payroll management or a candidate showing that they can present reports like a balance sheet. For example, how are their communication skills? Will they fit into the business?
Try to look for somebody who is detailed oriented, but can also see the big picture. A CFO is not someone well-versed in following tasks, but instead, can lead and influence small businesses into real change.
Find out about their experience in this role at other startups, and the impacts made. If possible, you’ll want someone who is already experienced in working virtually or in an outsourced capacity.
Hiring
After qualifying your chosen candidate, setting expectations is key. While they’ll be a contracted member of the firm, a good CFO will still be able to hold up to performance metrics and key performance indicators (KPIs).
This factor is likely to be especially important when the management team handle investor relations and explain the expense to stakeholders. Even though the business will save on the costs of a full-time salary, to outsource a CFO is not cheap.
Talking of payments, will the CFO be paid on an hourly rate or through retainer? These are factors to discuss during the hiring period. Then, the onboarding process can begin, and your newly outsourced CFO can put their financial knowledge to work in transforming the company’s finances.
Accounting software
Just a note: if you’re looking to further slim down the costs associated with your finance department, take a look at your accounting software. Plenty of small businesses automate accounting software to produce the necessary company financial information, as they comply with Generally Accepted Accounting Principles (GAAP) metrics.
If you’re not yet ready to hire a CFO, this could be the next best option.
Many small businesses struggle with a lack of funds during their initial launch phase, but that doesn’t mean your company’s finances should further suffer. Ensure your company is prioritising the money they do have, and create a long-term financial strategy with an outsourced CFO to give your business the a fighting chance of survival.
Looking for funding?
We can help. Fundsquire has funding solutions for every step of your growth journey.