12 Essential Outsourced CFO Services for Startups
One of the greatest pain points that a majority of small businesses and startups face is the question of which positions they should immediately hire for in-house and which they will be able to outsource effectively.
More likely than not, positions that are deemed “financial” will be filled in-house as soon as possible. That’s because, no matter how green they might be, most business owners understand that keeping track of their company’s money effectively is going to be exceedingly important in these early, initial stages of the company’s growth.
And while hiring an in-house accountant or bookkeeper might be a realistic goal for most young startups and small businesses, hiring a Chief Financial Officer (CFO) might be easier said than done. Even without going into the specifics of the complex process that is often involved in finding the perfect startup CFO, the basic economics are hard to overlook.
According to Payscale, the average annual salary of a startup CFO is around $140,000, a salary many early-stage startups might not be able to afford. But here’s the dilemma: Having a good CFO to work with your company can be a huge difference-maker for your company.
So what’s the best solution for this problem? Finding a compromise. That usually means outsourcing CFO services for a fraction of the price it would cost to hire a full-time financial expert.
What Is an Outsourced CFO?
When companies pay for the services of an outsourced CFO, they are getting a financial expert that will be helping the company put together the proper financial modeling systems and strategies for the future.
Basically, instead of hiring a full-time CFO, your company is outsourcing CFO services for startups at a fraction of the price by paying these experts on a part-time, contractual basis. And one of the best things about outsourcing CFO services is that there are plenty more benefits to reap outside of the obvious—the money that your company will save.
The Key Benefits of Outsourced CFO Services For Startups
Once you start searching for an outsourced CFO, one of the things that you’ll notice early on in the process is that the talent pool is quite significant. There are plenty of experienced people who have worked in high-level financial roles that are looking for part-time consulting work.
Best of all, these candidates tend to be very diverse, as they’ve worked part-time helping startups from a large variety of industries and in many different growth stages. Unlike CFOs that tend to take full-time positions and stay in one industry for a majority of their careers, outsourced CFOs might have a much more diverse range of insights and services to offer.
But even if you’re looking for someone who has very specific experience within one industry or a very specific skill set, it shouldn’t be a problem to find a great number of qualified candidates.
For example, some startups might be looking for virtual CFO services that are directly related to the process of raising capital and attracting potential investors. Thankfully, there are plenty of financial professionals and experts who specialize in these types of activities.
Another great advantage is that an outsourced CFO will be able to give you a more objective opinion and will look at your financial situation with no biases attached. Full-time financial managers and executives always have certain projects and parts of the company that interest them the most and might not be able to sustain a completely objective point of view no matter how hard they try.
An outsourced CFO provides a fresh and unbiased perspective and a new set of experienced eyes whenever you have a financial issue that needs resolving.
What Does an Outsourced CFO Do?
If you’re asking yourself what an outsourced CFO can do for your company, the answer to the question will ultimately depend on the needs of your startup. The role of an outsourced CFO can vary greatly from company to company.
Therefore, before we take a deep dive into the types of services that outsourced CFOs can offer to startups, it’s first important to help small businesses understand why they would need these services.
Startup founders often have to make a trade-off between investing the brunt of their resources in activities that are related to aspects of the business that are not related to financial management. They need to think about growth strategies, go-to-marketing plans, building the right company culture, finding a perfect product fit, and the list of necessary strategic decisions goes on and on.
This isn’t to say that entrepreneurs don’t realize how complex their financials can get and don’t understand that they need to hire experts to handle these aspects of the business. The reason that the financial planning sometimes doesn’t appear to be a priority is that the executive team members of a startup usually come from a more product or marketing oriented background.
The thing is that if these financial issues are being somewhat ignored or are being handed off to people who might not have the right expertise needed to handle them correctly, your shortcomings in this area are going to become very noticeable, very quickly.
Your profits could be declining. Your spending could be outweighing your cash flow. Your budgeting and financial forecasts might constantly be very much off. Your team might not even be able to track or analyze your growth and performance properly.
If you’re noticing any of these things happening at your company, it’s unequivocally time to start looking into virtual CFO services for startups.
12 Outsourced CFO Services for Startups
If you’re having the aforementioned financial problems or a number of other issues we have yet to touch on, hiring an outsourced CFO might be the best way for you to go.
For growth-stage startups that have yet to fully blossom, hiring a full-time CFO might not be the best move, even if the company does have the budget for it. It still might make more financial sense to hire a consultant to provide you with a more specific nature of financial expertise that you need at this stage of growth.
To help you better understand situations in which you could benefit from part-time CFO services for startups and to get a better idea of what these services could look like, let’s take a look at some of the most common areas for which startups hire outsourced CFOs to provide them with the expert guidance they need.
One of the most basic but imperative financial services that a startup needs is good reporting. Financial reporting is something that needs to be worked on every day by your internal staff, just to make sure that all of the data that is coming in is relevant and factual. However, an outsourced or virtual CFO would then be able to come on a contract basis to make sure that your company is benefiting from this reporting.
An outsourced CFO can facilitate the creation of these reports and help interpret them if need be. Having a financial expert available to analyze your financial reports and give you a rundown of the most important takeaways and issues that your startup should be aware of and actively following is an incredibly important part of putting your management team in a position to make the best business decisions that they can by providing them with the needed data and insights.
2.Financial Projections and Forecasting
While financial reporting will let you know where your company currently stands financially, financial projections and forecasting are needed to help you understand where your company needs to be in the future. A part-time CFO can help with this type of financial planning.
Financial projections are needed so that your company will know how much it needs to spend, and where, in order to achieve its desired growth trajectory. This doesn’t simply include projections of your expenses and revenue, but of all of the key components that are related to each.
Since outsourced CFOs give you flexibility, there really is no rule related to what types of projections and forecasts you can ask from your temporary CFO, short or long-term.
Startups need financial experts who are not just good with numbers but also have the strategic understanding that will enable them to provide you with an in-depth analysis of your company and its current and future financial capabilities.
An experienced financial expert could also provide your company with scenario modeling services, which consists of creating a variety of alternative projections that will show you how the company will perform under numerous different conditions. Having these types of business models and financial models available to you can go a long way towards improving the stability and sustainability of your company, especially during times of economic uncertainty.
3.Installing Financial Strategies and Systems
Not only can an outsourced CFO provide you with financial forecasting and predictions, they can also help you to achieve those forecasts. The most essential benefit that a part-time CFO can provide is providing your company with a high-level financial strategy, business strategy, pricing strategy, and more, giving your startup the tools and insights that it needs to implement that strategy.
Not only can they put together a proper strategy that takes into consideration every financial aspect of your startup, but an experienced financial officer will also be able to put together the financial systems that your business needs to achieve its goals.
This often relates to creating the financial architecture needed to support your business; things such as having the right financial management software and knowing how to use it, and making sure that your company has the tools that it needs to continue following and updating all of the forecasting and analysis that the temporary CFO has implemented.
To be clear, the outsourced CFO is not the person who is technically implementing the systems, they will simply give recommendations and, based on their experience, be able to recommend what tools and systems will work best for your organization.
4.Assistance with Audits
Usually, a professional accountant should be able to handle most audit requests, but in some cases, it certainly wouldn’t hurt to have the eyes and experience of a CFO available to you.
This is especially true for startups, who tend to have unique financial structures that certified public accountants (CPAs) who don’t have experience dealing with startups might not be able to fully evaluate.
It is not uncommon for startups that have received funding to have to submit an audit of their financials to their investors on a regular basis. Having someone who has experience with startups help in this process could be of immense help. A temporary CFO can both prepare your startup for an audit and represent your company during the process in order to make sure that your financials are accurate while relieving some of the burden placed on your startup accounting services department or CPA.
5.Analyzing Capital Structure
Every startup needs capital in order for it to operate. That could mean funding, it could be financing, it might be a combination of debt and equity. Whatever it is, understanding your capital structure is crucial to achieving your growth goals.
An outsourced CFO can analyze your capital structure to find the perfect fit for your startup. Not all startups need venture capital funding. Some are able to successfully grow without having to lose equity to investors and can instead opt for different financing options.
An experienced CFO will be able to help with this analysis process and find the right solution for your organization. And if the CFO deems that you do need funding, they can help get that process going as well.
6.Performing Interim CFO Services
Some startups might have already had full-time CFOs that recently left and need to replace them. However, the process for hiring a full-time CFO can be incredibly daunting and could take a long time to complete. What should your company do in the meantime while it waits for a new full-time financial officer?
Sometimes a startup will be able to function for a few months without one, but other times it won’t. Your business could be going through a very critical period of growth with many financial management challenges ahead of it and might need someone to step in as an interim CFO until a proper replacement is found.
Another great thing about hiring a part-time CFO while you are looking for a full-time one is that the outsourced CFO will be able to help you in the search and make sure that you hire the right person for the full-time position.
7.Analyzing and Improving Cash Flow and Budgeting
Startups commonly face problems with cash flow and staying on budget, especially when they are bootstrapped and have yet to receive funding. It’s also not a problem that can simply be solved by earning more money. The more you make, the more you’ll have to spend as well, which is why every startup needs expert guidance when it comes to understanding how money is being spent and whether current budgeting and financial models are sustainable or not.
An outsourced CFO can help by ensuring that your business models make sense, analyzing commissions, looking at and restructuring vendor and partner contracts if necessary, and much more.
As we already mentioned, an outsourced CFO offers an independent, unbiased opinion which will make their cost-cutting decisions more objective in the end, since they are not full-time employees that may have stronger ties to certain teams or company initiatives.
8.Facilitating Negotiations with Banks and Other Lenders
Young businesses can easily get into trouble with banks and other lenders if they are not careful and especially if they do not have someone on the team that knows how to deal with banks.
Even activities that involve lenders need to be backed with detailed forecasts and action plans in order to be successful. `And even in cases when startups do have institutional funding, they might still need a bank to help plug some holes in their financial model.
However, the bank wants to be sure that your company will be able to pay back the loan and can ask for a number of things, including cost-cutting plans, confirmation from your investor that another round of funding is coming, or a solid exit strategy if your company is close to going public. An experienced CFO would be needed to help out with all of these things.
9.Offering Fundraising Guidance
A lot of work goes into the process of raising a round of funding and no one knows that better than a CFO that has experience with startups that have raised capital. An outsourced CFO can help your company prepare for the process in many ways, including:
- Getting all financial documentation ready for due diligence
- Reviewing term sheets
- Assisting with negotiations
- Helping structure capital
- Introducing your company to VCs
Remember, an experienced CFO usually has a network of VCs and other financiers that they have previously worked with and can be a great asset in the process of attracting potential investors.
10.Assisting with Mergers and Acquisitions
If you are about to start the process of a merger or acquisition, you are going to need an experienced financial advisor. A CFO that has experience with these types of transitions can help you by providing you with initial analysis and reporting so that you are sure that the move is the right one to make for your company.
If you decide that it is the right way to go, the CFO can help advise your team during the process and prepare and audit all relevant financial documentation needed for a merger or acquisition.
11.Reviewing Client and Partner Contracts
If your sales and partnerships team is green and you’ve noticed that your startup is losing a lot of money because of contracts that were poorly negotiated, getting a part-time CFO to come in and take a look at this issue would be a wise thing to do.
An experienced financial expert would be able to easily identify the areas in which your contracts are lackluster and improve them. They can offer an expert perspective on the contract terms, whether they are in the best interest of your company, and whether there is room for renegotiating them in order to make them more profitable for your startup.
12.Cooperating with Your Legal Team
Contract disputes can often lead to legal issues, which is why it’s not a bad idea to get an experienced CFO in the mix if your startup is dealing with legal issues that are money-related.
A CFO can be a great asset to a legal team by providing a financial point of view in all matters, whether they are contract disputes or very real lawsuits that could cost your company a lot of money. It’s always a good idea to have someone on board who understands the potential financial outcomes that can commonly result from a variety of legal actions and decisions.
Top 5 Platforms for Outsourced CFO Services
Not only is the talent pool for excellent freelance CFO services great, there are also plenty of companies and platforms that specialize in connecting startups with freelance CFOs. Let’s take a look at some of the best ones on the market:
Shiny is a marketplace that matches vetted fractional executives to startups. Their 300+ CFOs can help with everything from financial models to complex accounting to high-level strategy. With Shiny, you get to hire your ideal Fractional CFO as an integrated and flexible part of your team, instead of an agency on the outside.
Shiny is not only focusing on fractional CFO’s, but the company is also expanding to other fractional roles. If you want to join their waitlist you can sign up from here
Zeni is an outsourced CFO firm whose business model is geared a bit more towards early-stage startups and offers real-time financial insights within the platform. You can use Zeni to hire an entire, full-service strategic finance team from top to bottom if you’re looking to outsource most of these positions, which many early-stage companies are.
You can definitely find high-level, part-time CFOs through Zeni too, but most startups use this service for handling their taxes and various compliance needs. Regardless, best-in-class part-time startup CFO services are available through Zeni as well.
This might actually be the most specialized platform for freelance CFO services for startups, hence the name. Since it mostly focuses on financial experts who have CFO experience and not accountants and bookkeepers, Preferred CFO is a bit more expensive, with plans starting at about $3,000 for an outsourced CFO.
However, the talent pool is big and your chances of finding a great outsourced CFO that fits your startup perfectly when using Preferred CFO are pretty good.
Another platform that offers a range of services, from the most basic to the most complex. The CFO services are excellent however and include forecasting cash flow, optimizing costs, strategic planning, and managing more high-value processes.
Ignitespot is probably the most affordable platform that offers top-rated freelance CFO services for startups.
As the name suggests, this is a platform that is geared towards high-growth startups, especially those that already have an annual revenue growth of close to $2 million or more. The CFO services GrowthForce offers are all customized, with monthly plans averaging about $3,500.
The one negative is that you’re not really getting a true part-time CFO, rather, a dedicated team that works together to offer the services that an experienced CFO would offer. Still, the experts are excellent and understand growing startups and their financial needs very well.