An outsourced CFO is a financial expert that works as a strategic financial consultant for businesses on an hourly, part-time, or otherwise contracted basis. They have experience in high-level financial roles across private and/or public companies at different stages of growth and work with businesses of all sizes on everything from strategic planning to scenario modeling, unit economics, financial projections, and more.

1. Financial Projections  Every small business needs financial projections: They show the revenue potential of your business and help attract investors. Financial projections also form the basis of your budget and indicate the amount of investment the business needs, so it’s important to work with a finance expert to make realistic predictions. An outsourced CFO solution will use your financial results from previous periods to help predict how the company will perform over future months and years. This includes projecting your expenses and revenues across all key verticals, how your sales expenses will grow, and how many salespeople you’ll need to meet revenue targets. If you already have financial projections in place, an outsourced CFO can extend and maintain them.  ‍ 2. Scenario Modeling Scenario modeling involves creating alternative projections showing how your company will likely perform under various conditions. For example, you may model an aggressive scenario where the business grows by 30% in one month and a more conservative scenario where it grows by just 10% in a month. For each scenario, the modeling would predict the impact on financial results like revenue and costs. The current circumstances may also call for a COVID-19 impact scenario, where growth decreases month over month. Planning for multiple scenarios is necessary but time-consuming, so outsourcing this task can give you back valuable hours. ‍ 3. Actuals vs. Budget The budget sets targets for how the small business should perform each month in order to achieve the results in your projections. To monitor whether the business is on track or underperforming, the outsourced CFO will compare your actual financial data to the budget and report back on where you stand. Calculating the variance between your budget and actuals highlights where you may need to adjust your strategy or review whether the budget is achievable. ‍ 4. Unit Economics An outsourced CFO solution can help you establish and track the unit economics for your business model. For SaaS companies, this usually involves looking at the average revenue and costs per customer. The CFO will likely monitor the ratio of customer lifetime value (LTV) to customer acquisition cost (CAC) to show how sustainable your business is, and to indicate ways you can improve profitability. 5. Small business-Specific Guidance As a small business, your financial needs are different than those of established businesses. An outsourced CFO who has years of experience in your vertical can guide you through processes like building out your team and exploring funding options, and highlight details someone with less specialized knowledge may have missed; for example, contract loopholes that need to be fixed. However, if you choose an outsourced CFO without the relevant experience, the support they can offer will be limited. For instance, if your business is a SaaS small business and you work with a CFO specializing in direct-to-consumer businesses, chances are they’ll only be able to act as an adviser rather than being a hands-on partner. ‍ 6. Financial Presentations Many of the topics that board meetings cover are directly linked to your finances: fundraising, business strategy, the annual budget, etc. Some outsourced CFOs offer the service of attending board meetings to lead financial discussions and interpret the figures. The outsourced CFO can field questions, go into detail about financial projections, present financial models, and explain the theory behind the assumptions in their projections.  ‍ 7. Financial Reporting Even if an outsourced CFO isn’t presenting at meetings, they can support the team by preparing the reports, slides, and figures for you to present yourself. This service is particularly helpful when you’re preparing for meetings with investors. Having key financial documents on hand means you can respond immediately to requests and avoid the embarrassment of looking disorganized. Plus, your outsourced CFO will review and confirm the accuracy of your key monthly financial statements -- Profit & Loss (P&L) or Income statement, Cash Flow Statement, and Balance Sheet. ‍‍ 8. Strategic Planning  Founders who are new to the small business world (and sometimes even those who aren’t!) may make strategic decisions that have unexpected consequences on their expenses or revenue growth. An experienced outsourced CFO will help you avoid these kinds of mistakes by advising on strategies that work from both finance and business viewpoints. For example, the interim CFO may be able to give advice on the business models you’re designing, and suggest an alternative model that might be a better fit.  ‍ 9. Customer Contract Reviews An outsourced CFO can advise business owners on how to negotiate more profitable contracts with customers. From a finance perspective, the CFO can identify potential risks that could end up costing the company, and make sure contracts are watertight. From the business perspective, they can assess whether the contract terms are in your best interest, and suggest ways to make them more profitable. ‍ 10. Legal Team Liaison For a CFO to produce accurate financial statements, they need to have a clear view of the company’s contracts and legal obligations—something they can only get by working in close collaboration with your legal team. Such collaborations also give them an opportunity to review your legal documents to see if they’re in the best interests of the business. Having a CFO’s perspective on legal decisions ensures you’re aware of the financial outcomes before you make a commitment. ‍ 11. HR Oversight Headcount is a main HR function and also often the biggest expense of a small business (or any company, for that matter). An outsourced CFO can collaborate with the HR manager to monitor how changes to the team affect your ability to hit budgeted figures, and, if necessary, make recommendations about how to cut staffing costs. They can also advise on how to develop a competitive compensation package that is still good value for the business.

An outsourced CFO can offer a huge amount of value to your team, but if you rely on them for the wrong kinds of services, you won’t get the maximum benefit from this relationship. There are two main mistakes founders often make here: Trying to outsource functions that rely on long-lasting relationships Using CFOs to complete basic projects that should be assigned to someone else Below are two common examples of how some small businesses use fractional CFOs in a counterproductive way.  ‍ 1. Fundraising Some articles suggest using an outsourced CFO solution to handle fundraising for your small business, however, we don’t recommend doing this. Investors are usually buying into the story of the founder’s vision, so it’s the founder who should be meeting with investors and developing relationships rather than a representative from an outsourced CFO solution. Where outsourced CFOs can help with your fundraising is by preparing documents, slides, and financial models you can take into investor meetings. Although the founders should always take the lead on fundraising, if your small business has progressed to the point of Series B or Series C funding, you may need a CFO who can become more involved in the process. Once you get to this stage, it’s probably time to hire a full-time CFO for your team. ‍ 2. Bookkeeping & Accounting (We can do this with an outside Source but we do not technically do it) A lot of people who engage the services of an outsourced CFO ask them to do their business’s day-to-day bookkeeping and accounting. This is a bit like having a samurai sword and using it to cut vegetables. CFOs usually command a high price for their time, so using them for basic accounting tasks can be an expensive and ineffective use of their expertise. Instead, it’s best to delegate the day-to-day finance tasks to a bookkeeper or accountant, freeing up the CFO to work on higher-level (and therefore more valuable) projects. If you want to outsource CFO and accounting services to the same firm, make sure you’re working with a finance solution that has CFOs and accountants on their team, so each function is managed by someone with the appropriate qualifications.