Outsourced CFO Costs & Benefits — a Skilled Fractional CFO is Worth the Investment
Instead of asking how much an outsourced CFO costs, it's better to ask whether the value of the services is worth the investment for your business.
The benefits of a fractional executive include a new perspective and an experienced view of business. The cost of a fractional CFO is easily justified through better financial reporting and providing owners with better information to make decisions.
Hourly billing is not the answer. With this type of structure, the business owner feels like the meter is always running, and the fractional executive has the administrative burden of tracking time. Hourly billing turns a partnership into a transaction.
The job of the business owner and fractional executive is to define the scope and deliverables, the value brought to the company, and get the work done.
An hourly service rate approach may be appropriate for temporary controllers or accountants, but not for fractional executives and CFOs.
If a business has engaged that executive to work remotely, an hourly arrangement may make sense as the scope is determined. Once the working relationship is set, the owner must trust that performance will occur, and the executive has to trust that the company will provide the information needed to help the executive do the job.
The value of outsourced CFO services is the opportunity to work with someone who helps you make better decisions. Leave the debits and credits to someone else.
The right outsourced CFO can help you navigate issues large and small.
Some Big Issues to Improve
Increase the Company Value
A fractional CFO helps you implement your plan and creates the right environment to improve accountability toward the plan.
Align Sales Compensation to Company Plan
There are many, many companies with a sales compensation plan that doesn’t fit the company, and most compensation plans seem to lack the structure to handle multi-year customer commitments.
Manage Other Parts of the Business
An experienced fractional CFO can manage the finance function as well as other parts of your business. Many times, the HR function welcomes the chance to work with a fractional CFO – it’s a seat at the table to discuss how to improve productivity and morale. Together, the Finance and HR leaders can help the owner to manage the company culture.
Some Smaller, Obvious Issues to Improve
Financials Completed Consistently and Timely
This is the peanut butter to the jelly – they go together. Any fractional CFO should improve the timeliness and explanation of the financial statements to you.
Big Ticket Transactions
Analyze benefits expense, machinery investment, marketing ROI – it’s a long list but comes with regular and continuous interaction with an outsourced CFO.
Process Improvement
The right outsourced CFO will always identify areas to improve your process and can work with production to challenge and justify the right investments to improve the process.
What is the Company's Investment — What Do You Get For Your Money?
As a Fractional CFO Plus, I can handle a variety of engagements – we need to agree on the scope of work.
The scope of work also considers the bench strength of your team (finance, human resources, information technology, etc.) and the condition of the financial statements and processes. As a Fractional CFO Plus, I can fix a lot — the scope will drive the areas to spend time and expertise to get you the best ROI.
There is no “right” fit for a fractional CFO. It may be a high growth company or a company that needs a higher level of analysis without the cost of a full-time executive.
You should get a commitment from an outsourced CFO that gives you a measure of comfort, someone with the experience to say, “I got this.” You will need to decide the best way to communicate — identify where you, the owner, want to participate and where you need to let go.
Your ability to delegate can improve the success of the engagement, and that’s better for your business. If you want to take it slow in delegating, that’s no problem, Just be clear on your expectations from the start.
Every engagement with a fractional executive should come with a commitment to be available to you outside of the stated arrangement.
In other words, if the arrangement is for one day per week of dedicated time, that professional should also remain available to you during the week for questions.
But you don’t know my industry…
[Insert deep sigh]!
I was talking to a friend who was CEO of a regional company for more than 20 years and now serves as a mentor, board member, and fractional executive for a variety of industries.
He is fond of saying about businesses, “the problems are the same; just the people and language are different.”
Do you need an industry expert or an executive with critical thinking skills to help you make better decisions? If you had both skills today, you wouldn’t need a fractional CFO and especially not a fractional CFO Plus.
There is a downside to focusing only on industry experts:
Although I have experience working with businesses in a wide variety of industries, which is beneficial, it doesn't change an important fact.
It’s about people. Your people.
A fractional CFO gets more out of your employees than you thought possible, and it’s done collaboratively, and it elevates the team. Those who won’t be held accountable won’t like it all. And that raises a simple question: Why are they still working for your company?
How Much Do Outsourced CFO Services Cost?
Many companies utilize part-time, fractional CFO services for two reasons: the company currently does not require a CFO on a full-time basis and because it is less expensive.
Hiring a Fractional CFO Plus allows a company to get a higher level of talent than it could normally afford — without the risk.
When you include benefits, designated office space, payroll taxes, training, bonuses, etc., the all-in-cost of hiring a full-time CFO is a large expense. It’s a big chunk of your budget, especially if it’s not what you need yet.
It’s no wonder many small to mid-sized companies are choosing to work with fractional CFOs, where the typical agreement is between $4,000 and $8,000 per month.
A highly skilled and experienced outsourced CFO is a force multiplier in management experience.
The range is an average, with many variables impacting that investment including the size of the company, the number of hours per week, as well as how much of the work needs to be done on-site. Arrangements can be created for a wider range depending upon several factors such as: the scope of the services required, current state of the financial statements and system, and a desire for executive support beyond financials.
Some companies need more of an interim CFO — someone who is full-time, or nearly full-time, but for one to six months.
In this case, the investment is substantially more, and there is no volume discount for a short-term engagement — you are getting that much more experience and expertise. However, when you outsource these interim CFO services, the total investment is still less than if you hired an in-house, interim CFO.
While I understand that considering “costs” is important, I believe there is a better question to ask.
Can I Justify the Investment for Hiring an Outsourced CFO?
A highly skilled and experienced outsourced CFO is a force multiplier in management experience. For a fixed amount each month, you get the financial and management experience to help move your business forward.
If your dominant thought is that an outsourced CFO is an expense and not an investment, then perhaps you should set your sights lower on a controller or senior accountant.
If you want to set your sights higher, consider the impact on the valuation of your company.
A typical scorecard created to value the company includes the usual: earning track record, quality of sales, market concentration. What is also measured is your internal strength: employee quality, management quality, ease of operation.
What if the right fractional CFO could help you improve the value of your business?
A business broker will grade your company on 10 to 15 factors. Even if you are not looking for a buyer, operating with these in mind is a best practice for improving the value of your company.
For this hypothetical scenario, I have selected 3 of those factors (quality of employees, management and ease of operations) that the right fractional CFO can improve with you — providing value beyond the financials.
Let’s take a look at the possibilities, using a 5-point scoring system where the scope of the work is to:
- Create clear expectations for your employees
- Improve planning and alignment of goals to the plan
- Use better expectations to improve processes
Just helping in those three categories can improve the company value in the eyes of a buyer as shown below:
This chart shows modest score improvement and does not include improved financial performance that comes with greater accountability and direction for your employees.
Even a rough calculation of the improvement in value will justify investing in a outsourced CFO services. It takes more than just financial skills to improve the value of your business.
The right fractional CFO has the skills to work with you and your team to improve the accountability and direction of the company.
Ready for a consultation? Have a question?
