One Strategic Role CEOs should Consider Outsourcing

Business experts once believed that all individuals in the C-suite needed to have a high stake in the company. They needed to be full-time employees, personally invested in the organization’s success.

However times have changed (especially since the last recession) and small- to mid-sized companies committed to good growth – growth that’s sustainable and profitable – have realized that many of the tried-and-true business practices of the past no longer serve the best interests of growing organizations. 

The idea that the CFO must be a full-time, permanent employee is one of them.

Here’s what you need to consider in order to make the most informed decision about whether to hire or outsource your CFO:

CONSIDER: The Real Role of the CFO

A CFO is not a controller or a bookkeeper; they are not the person “running” the numbers on a day-to-day basis. Of course, you still need an individual to manage your company’s day-to-day financials, but if there is the expectation that the person in that role is the CFO, then you don’t really have a CFO. In fact, the CFO is the key strategic partner to the CEO and they are responsible for the financial aspects of growth and operations that CEOs typically do not have a background in. Specifically, a CFO’s role is to drive growth for an organization by:

• Sourcing financing
• Improving accounting processes and controls
• Making the right investments in growth
• Planning and managing cash flow
• Analyzing the return on assets or any growth expenditure

These activities are make-or-break for growing companies because growth can eat cash quickly. CFOs can help with this because they’re skilled at figuring out the best ways to raise capital (e.g. bank debt, asset-based lending, private equity, etc.) given a company’s situation.

A good CFO can help the CEO set up a strong financial function, perform the analyses needed for good decision making at critical junctures and help the company sustain growth until it reaches the point of financial stability and is well positioned for future success.

CONSIDER: The ROI of a Full-Time vs. Outsourced CFO

The fact that your company may only need a CFO at important decision and action points is great news because full-time CFO salaries are nothing to sneeze at – at least for the type of CFO who excels in the role described above. Additionally, the cost of outsourcing a CFO on a part-time or project basis can actually pay for itself.

According to Michael Stevenson, managing partner at Clarus Partners, “A good [outsourced CFO] should add one to two percent of net income to the company through a strategy of finding the best return on investment, and that should more than cover whatever [the outsourced CFO] is paid.”

So if your company is in growth mode and you need that strategic partner to assist you in planning for the human and capital resources required to scale or in making sure your company’s financial operations are set up correctly, or you need a special skill set for a specific circumstance, then outsourcing can not only save but make your company money in the long run.

CONSIDER: The Pain and Pitfalls of Hiring the Right CFO

Bringing any C-level employee into the fold on a permanent basis is a monumental project because the consequences of selecting the wrong individual demands putting significant resources towards the effort. You need someone who fits your budget and culture, as well as someone whose expertise aligns with your company’s needs and who has demonstrated past results.

Therefore, you will spend hours and hours, and much money, calling for referrals, placing ads, sifting through resumes, interviewing candidates (multiple times) and courting those you’d like to hire, but who are also receiving offers from other firms.

Outsourcing the right CFO requires diligence too, but not to the same magnitude. After all, you’re not getting married and because outsourced CFOs work with companies differently than internal CFOs do, risk is further reduced.

CONSIDER: That Size Matters

There is usually a point in a successfully growing company’s trajectory when it becomes worth it to bring on a full-time CFO and, at that point, the pain of the selection process becomes worth it as well. Until then, outsourcing is a great option.

Here’s how companies typically move from outsourcing the CFO to making an internal hire – and where CFO outsourcing fits into the picture later in the business lifecycle:

Startup Stage: During this stage companies can’t afford an experienced full-time CFO, so outsourcing is a smart way to get the experience needed to grow without the full-time salary. However, startups sometimes make the choice to hire a CFO with less experience – an individual the CEO believes can grow with the company. This can be a big mistake. The startup stage is precarious enough and requires proven expertise, not expertise gained on the job, by trial and error. No matter how determined to learn a less experienced CFO is your company cannot afford to serve as their classroom.

Growth Stage: A growing company has quickly changing needs and requires the flexibility to bring in the right CFO at the right time. Specifically, you need a CFO who is highly experienced with the pitfalls associated with growth and a growth-experienced, outsourced CFO is ideal for helping you navigate this stage, including advising on the type of full-time, permanent staffing needed.  

Enterprise Stage: At this point, companies may need high-level players to be full-time employees, but outsourced CFOs are still a valuable resource. In fact, some enterprise companies continue to outsource on a short-term basis when additional insight and/or outside expertise is needed; and some never make a full-time hire, choosing instead to outsource on a long-term basis. It’s also common for companies to outsource the CFO role while recruiting a full-time CFO. After all, the need for expert financial strategy and planning doesn’t go on holiday simply because you’re still searching for the right CFO. Additionally, outsourced CFOs can ease the company’s transition to a full-time CFO, making the process smoother for both the company and the new CFO.

Summing Up the Value of CFO Outsourcing

As mentioned previously, business has changed. Old paradigms are being replaced by innovative ideas that are reshaping how organizations are structured and how they run. So don’t assume that the traditional approach to filling key positions with permanent employees is automatically the right way to go. Outsourcing a CFO gives you the highest level of financial expertise without the high price tag and is well worth considering as you think about the wisest way to take your company to the next level of success.