In a previous post, we highlighted the importance of having the right financial leadership for a business. We discussed the different roles of CPAs vs. CFOs, as well as the various criteria that a company should review in order to determine its need for a CFO. Part of the discussion was the option to outsource the chief financial responsibilities, which is a practice that is becoming more common.

Outsourcing the CFO role can offer a growing business significant benefits while lifting the pressure on owners and management, including the following:

  • Cost efficiency

    Hiring an in-house CFO can be quite costly. The business may be growing but might not yet be in a position to justify the full-time or even part-time hire. Outsourcing allows management to pay for just the services and time used, and the engagement can be structured on a project-basis. Also, outsourcing eliminates attributed overhead costs that would have been incurred with a full-time employee, such as insurance and other benefits.

  • Flexibility

    A business can customize the level of support coming from an outside resource to best suit its needs at different stages of growth.

  • Expertise

    Services that offer outsourced talent comprise highly experienced specialists in a particular area and often have a deep bench of professionals, offering a range of services for a comprehensive set of resources.

  • Independent perspective

    An outside finance executive can offer a fresh set of eyes and perspective for the business. This contrasts with internal managers who can be too close and too personally invested in the business to provide objective assessments.

  • Risk management

    Internal finance managers, when they are that close to data, could overlook mistakes or manipulate numbers. With an outsourced financial manager, there are likely to be more layers of checks and balances and increased controls. Fraud cannot be ruled out entirely in any case, but an outside CFO or a team with specific expertise in corporate finance may be more likely to spot anomalies.

In considering all angles of outsourced financial management, incorporating a third-party CFO does not necessarily come without challenges. A business must consider that “scope creep” can occur, where the scope of a project changes or grows without proper anticipation or preparation, leading to an escalation of costs. Less control and intermittent communication are also possible issues as the CFO is not in the same office. Regular updates and conference calls are a highly encouraged part of the outsourcing agreement, and a well-devised communication policy and a level of trust will be crucial to this relationship.

This summarizes the potential benefits and challenges that can come with developing a relationship with an outsourced finance executive. A business must weigh the options based on its individual needs and priorities. Finding an outsourced financial-services provider that is most appropriate for a company’s unique goals is a substantial task, but it is one that can be done successfully with the right guidance and research.