A question we hear often from startups is when to hire a CFO. Every company is different, of course, but for many of our startup clients the answer is the same: if you aren’t thinking about going public in the next 1-2 years, consider working with an outsourced CFO.
Let’s take a step back first, and talk about what a CFO does.
Your Chief Financial Officer is responsible for everything related to your company’s finances. From a managerial perspective, the CFO usually oversees the teams responsible for tactical issues like keeping accurate, timely books, and correctly meeting your tax liabilities. On the strategic side, your CFO will keep tabs on the company’s wellbeing and provide guidance to achieve your financial objectives:
An outsourced CFO will fulfill that same strategic role – but instead of joining your company as a corporate officer, they will work with you on a contract basis. Most outsourced CFO services (sometimes also called fractional CFO or virtual CFO services) are available at hourly or subscription rates.
There’s no substitute for having a knowledgeable and experienced finance professional to help guide business decisions, especially at startups whose founders don’t have a finance background themselves. So why might outsourcing be the right option for your startup or small business?
Hiring a full-time CFO is expensive. The average CFO makes over $300,000 in annual salary, plus additional compensation in bonuses, equity, and perks. For many startups, that kind of hiring investment simply isn’t possible. Even if the company can absorb the expense, the opportunity cost can be prohibitively high – that’s money that isn’t going into the rest of your business.
That’s where outsourcing comes in. Paying for a certain number of hours with a fractional CFO allows you to get the benefits of working with an experienced finance leader, at a much lower cost than hiring a full-time CFO. For small companies like startups, this can mean having access to a resource you otherwise wouldn’t be able to afford.
There’s also the question of what your company needs. For many early-stage companies, the need for a CFO is more around needing expertise for specific activities like forecasting, budgeting, or fundraising – all areas that could be well-handled by engaging outsourced CFO services. For these companies, hiring a full-time CFO would be overkill.
Just like an in-house hire, it’s essential that your fractional CFO be a good fit for your company. Here’s a few things to keep in mind:
Bringing in a finance expert doesn’t have to mean hiring an expensive corporate officer. As your company grows, consider leveraging an outsourced CFO to get the guidance you need, at a price your company can afford.
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