When scaling your business, you may hit a certain point where your company needs more financial expertise and guidance than what you or existing employees can provide.
You might wonder if it’s time to establish your C-suite and bring on a full-time chief finance officer (CFO). But, if you’re like many startups and small businesses, you may not have the workload or financial resources to bring on a full-time CFO in-house, leading you to outsource the role to an experienced professional.
Both options provide certain benefits and drawbacks, so you can continue reading below as we discuss the pros and cons of in-house and outsourced CFOs, and how to determine which is best for your business.
Understanding the Role of a CFO
A chief financial officer, a CFO, is an executive in charge of overseeing a business’s financial operations. Some of their main responsibilities include:
- Financial planning and analysis
- Budgeting and forecasting
- Financial reporting
- Risk management
- Cost control
- Cash flow management
- Compliance
An outsourced CFO generally has the same experience and education and can handle the same responsibilities as any other type of CFO. As you might be able to gather, the main difference between an in-house and an outsourced CFO is that one is employed full-time by the company, while the other works on a part-time or contract basis.
Because of this, there are clear advantages and drawbacks to both types of employment, as we’ll explore in further detail below.
Hiring an In-House CFO: Pros and Cons
An in-house CFO is a full-time employee. They are on the company’s payroll, and enjoy benefits, bonuses, and other types of compensation on top of their annual salary.
As a result, the scope of their work is often greater than that of an outsourced CFO, giving them oversight over more of the company’s financial operations. Here is a quick overview of the top pros and cons of hiring an in-house CFO:
Pros of In-House CFOs
- In-house CFOs are available full-time, enabling quicker decision-making or real-time adjustments to support agile operations.
- Full-time CFOs are more engrained in the company’s culture, which can make them more dedicated to their mission and invested in their financial performance.
- These financial executives are seamlessly integrated into the executive team, making for easier communication and alignment on a day-to-day basis.
Cons of In-House CFOs
- It can be more expensive to hire an in-house CFO and pay an executive salary and benefits than to outsource the position, especially for smaller companies.
- When a company grows, an in-house CFO may be unable to keep up with the growing demands without extra support.
- An in-house CFO may possess general financial knowledge and expertise but might lack specialized training on emerging technologies and industry practices.
Hiring an Outsourced CFO: Pros and Cons
On the other hand, companies may decide to outsource the CFO position. In this case, the company will find a firm or independent contractor that offers outsourced or fractional CFO services. Ideally, they’ll find someone with experience in their industry who can handle the specific tasks or responsibilities they need support with.
The pricing structure will vary between providers. Outsourced CFOs commonly charge a flat monthly retainer or an hourly rate for their services.
Pros of Outsourced CFOs
- Companies only pay outsourced CFOs for the specific services they provide, which can be more affordable for startups and small businesses.
- Outsourced CFO services are often flexible and scalable, meaning they can adjust their scope of work up or down as needed to accommodate changing business needs.
- Outsourced CFOs may possess unique knowledge that isn’t found in the existing in-house team, bringing a new perspective and expertise to benefit the business.
Cons of Outsourced CFOs
- Companies don’t have full-time access to the CFO, meaning they may be at the will of their availability if they need immediate support on an issue.
- The outsourced CFO may feel removed from the rest of the in-house team, and poor communication or structure could make them feel detached from the organization’s mission and goals.
When Does an In-House CFO Make Sense?
Given the pros and cons of hiring an in-house CFO, this type of engagement is better suited to companies in certain scenarios and financial objectives. So, how do you know if it’s better to hire an in-house CFO rather than outsource the role?
Generally, internal CFOs may be needed by companies that are well into their growth phase, and have highly complex financial management needs. In this case, it may be better to have a full-time CFO that is fully integrated into the business, and can devote all their working hours to strategizing and supporting financial operations.
When Should You Hire an Outsourced CFO?
Hiring an outsourced CFO is often a logical choice for growing businesses or those in the earlier stages of development. For starters, it’s often a more cost-effective option. Especially for companies that might have limited financial resources, outsourced CFOs give them access to expert financial guidance and resources without the long-term commitment of paying an executive salary and benefits.
Plus, outsourced CFOs can deliver support on an as-needed basis. So, they don’t have to go through the resource-intensive and time-consuming process to recruit, hire, and train an on-house CFO if they only need support on a certain project or financial task. In this way, outsourced CFOs offer flexible and adaptable support, giving companies of all sizes and needs access to expert financial support.
If you want to know where to find expert outsourced CFO services, consider us at Bob’s Bookkeepers. Our fractional CFO services are designed to give you the expert financial guidance you need to optimize and grow operations without the cost or commitment of a full-time CFO.
Contact us today to learn more about our custom fractional CFO services.
