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Outsourced CFOs Bring Experience and An Objective View To Small Firms
by Ron Ameln
Interested in hiring a top-flight certified financial officer (CFO), but can’t afford the hefty salary and benefits? Try outsourcing to a part-time CFO.
Independent contracting and outsourcing of financial management functions is becoming common in today’s changing business environment.
Outsourcing, which began at the task-oriented level by bringing in bookkeeping and accounting clerks, programmers and analysts, has expanded to include the financial and financial planning aspects of businesses. The concept is more relevant in small- to mid-sized companies that need the service, but do not find it cost-effective to hire a full-time executive. Some companies are now even hiring temporary CFOs.
“There is an obvious cost-savings on salary,” said Liz Rowland, of Accounting Resources, a staffing company specializing in accounting and financial professionals on a permanent, part-time or temporary basis. “The CFO is typically one of the highest paid individuals in the organization. Also, it’s not always a necessity to have a financial person of that level in the office on a full-time basis. Often, other accounting staff can manage the day-to-day operations. Utilizing the expertise of an individual that will work on a temporary or part-time basis can allow smaller companies the senior level expertise they need at a more affordable price.”
“There is certainly a cost benefit,” said Darlene Davis, owner of Davis Associates CPAs. “Smaller companies can’t afford to have a CFO on board, but they still need the expertise.”
Davis said some firms make the mistake of settling with a full-time accountant instead of looking for a CFO. “An accountant is typically dealing with day-to-day details and putting the numbers together,” she said. “A CFO is really interpreting that data. CFOs tell owners what those numbers really mean. They are responsible for interpreting those numbers and turning that information into business knowledge.”
Just who is a candidate for outsourcing CFO functions? Forget annual revenues, number of employees and other size criteria, the complexity of the business is one of the best measures, according to Phil Brumbaugh, owner of Philip G. Brumbaugh, CPA, CVA. “The complexity of the finances, operations, plans for growth, potential mergers/acquisitions and other factors relating to change are better measures,” he said. “However, usually a company has to have some critical mass to afford an outsourced CFO. This probably means sales of several million.”
Rowland said the decision often comes down to the skill level of other accounting and financial people within an organization. “Another important consideration is where the company is in its lifecycle,” she said. “A new company just starting out may require more senior level expertise than one that has been in existence for a while and already has some established processes and procedures.
“Any small organization that has an in-house bookkeeper to manage their day-to-day accounting would greatly benefit from a part-time CFO. Owners sometimes don’t realize ‘what they don’t know’ without that financial expertise.”
Plugging in a temporary or part-time CFO into the top level of management at a company could have drawbacks. Incoming executives aren’t familiar with office politics and policies, both the official and unofficial ones. This can cause conflict.
“There could be drawbacks if the arrangement is not properly outlined and managed,” Rowland said. “As long as expectations and levels of commitment are set and revisited regularly, this can be an ideal situation for a small- to mid-size company.”
That same lack of knowledge about existing office politics can be a benefit for CFOs and business owners. The part-time CFO doesn’t have to worry about holding back an idea to avoid ruffling feathers. The CFOs also see the financial situation from a fresh perspective.
“An objective party will be able to evaluate processes and operating procedures in a way that someone closer to the organization may not be able to,” Rowland said. “Often, in a smaller company, many of the senior level employees have closer emotional ties to the business. A fresh set of eyes could be very beneficial.
“From an accounting standpoint, bankers, attorneys and accountants love the objectivity that comes from a third party, especially if the company is going through any type of transition.”
In order to find the right CFO, Brumbaugh encourages business owners to start with their network. “A number of CPA firms have persons on staff who are available for this role,” he said. “You should look for a well-rounded, experienced person. Be wary of a candidate who has been called a CFO, but who was not qualified for the role. Ask to review prior engagements that he or she performed and talk to some references.”
Davis said owners should look for similar experiences. “Look for someone with experience in your particular industry and with clients of similar size,” she said.
When searching for CFOs, Rowland said business owners should focus on previous experiences and how those experiences will help your company. Said Rowland, “Remember, just because someone has strong credentials doesn’t necessarily mean they are the best fit for you and your company.”
© St. Louis Small Business Monthly, The Source for Business Owners September 2003.
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