Part-Time CFOs: When to use them – and when to move on
Hiring a full-time, in-house CFO is an expensive proposition, especially for small or mid-sized businesses without a lot of capital to burn.
Perhaps not surprisingly, accounting firms and other businesses are filling the void by offering a service that frees businesses from needing a full-time CFO.
These services are known by a variety of different names: part-time CFOs; outsourced CFOs; virtual CFOs. They all have the same purpose: helping businesses manage their finances and to drive growth and prosperity, without needing to carry an entire CFO salary and benefits package which generally averages six figures.
In Traverse City, numerous local businesses offer some variation of the virtual CFO service. From full-service accounting firms like Kindlinger & Company or Manville & Schell, to businesses like New Era CFO that focus specifically on the virtual CFO function, Traverse City-based companies have a few options if they decide to go this route.
According to CPA Chris Kindlinger, president of Kindlinger & Company, more and more businesses are deciding to opt for a part-time or outsourced CFO.
“I have seen it become a larger part of my practice over the past 25 years,” Kindlinger said of his firm’s part-time CFO services. “It is most valuable to clients who are truly dedicated to getting timely and accurate financial information and analyzing that information – with the help of a part-time CFO – to grow and improve their business. If a client is willing to do the hard work that goes along with implementing change to generate growth and maximize profits, then the return on their investment is usually very high.”
A virtual CFO can essentially serve any financial or accounting function within a business. Budgeting, cash management, tax optimization, financial controls to prevent employee theft and fraud, goal-setting, liaising with bankers or insurance companies, expansions, mergers and acquisitions, and equipment purchases are all things that could fall under the purview of a virtual CFO.
The proprietor of New Era CFO – who declined to be referred to by name for this article – told the Traverse City Business News that any business can benefit from hiring a virtual CFO, but that these services are typically most useful to small businesses that have never before had an expert financial voice involved in their decision-making.
“The biggest problem I see with small companies is that they just don’t have a good record of banking in their books,” said New Era’s owner. “Without having high-quality financial data, it’s pretty hard to really know what’s going on with the business. The numbers always tell the story. So, I think the first priority with any business – whether it be through an outsourced third-party CFO or an internal accounting person – is to really have strong accounting records. From there, if the company is complex enough where the business owner is having difficulty deciphering the financials, that’s really where it makes sense to bring in a CFO-type person, even just part time, to explain what’s going on and identify the kinds of trends and opportunities that there might be to improve the business.”
Perhaps the main point of confusion around outsourced CFO services is who they are appropriate for. Kindlinger says that many new or small businesses are under-capitalized to the point where they can’t afford any CFO service – be it part-time or full-time. His practice offers startup advisory packages and limited consulting engagements to help these businesses understand “the importance of their numbers and why they are even more valuable for running the business than they are when just being used to calculate taxes.”
Kindlinger adds that it’s usually a little later in a business’s evolution, after it “has had several years of success,” that it becomes affordable to start paying for part-time CFO services.
From there, affordability and return-on-investment are the factors that businesses should consider when deciding whether to hire a full-time CFO or outsource their financial needs. Kindlinger says part-time CFO services are billed hourly and that their cost usually ranges “from 10-60% of the cost of a full-time CFO, depending on a client’s needs.”
“The part-time CFO is about getting the financial expertise (a business) needs at a price they can afford,” Kindlinger said. “While the part-time CFO service is not inexpensive, it is cost-effective in that clients only pay for the hours they need and don’t carry the expense of having a full-time employee.”
It’s when a part-time CFO’s billable hours start skewing outside of that 10-60% range that Kindlinger says businesses should start thinking about hiring a full-time CFO.
“When the cost of our services approaches 60% of the cost of a full-time CFO, we generally start helping clients look to hire someone in-house,” he said. “Part of the reason is that we have limited staff members and hours to devote to providing these services. At 60%, a client begins to outgrow our capacity to adequately provide for their needs. In addition, clients at that stage are generally on a growth trajectory that will easily absorb the cost of a full-time CFO if they just invest in one.”
As for what types of businesses or business industries can benefit from virtual CFO services, both Kindlinger & Company and New Era CFO work with clients from all over the business world map. The commonality, Kindlinger says, is a drive to use financial information to improve decision-making and speed up effective growth.
“Most of the business owners we work with have never had anyone look at their financial statements with them and use them to help map out a path forward,” Kindlinger said. “Many have looked at historical data and figured out what went wrong or what went right, but that’s more of a history lesson. With the CFO services, we help clients use their financial information to profitably grow their business with the help of forecasting, cost-benefit analysis, and assisting with obtaining the proper funding for their growth.”