As a successful small business owner, you already know financial oversight is crucial to not just survive but thrive. You may find yourself at a crossroads: should you hire an in-house finance manager or an outsourced Chief Financial Officer (CFO)? Understanding the cost implications of each option will help you make an informed decision.
What are Outsourced CFOs?
CFO outsourcing can cover all tasks an in-house CFO, Finance Director, Controller and accounting team might perform for a small business. These services often include:
- Bookkeeping
- Month-end accruals and financial statements
- Forecasting
- Budgeting and variance analysis
- Audit support
- Tax filings and other compliance
- Strategic advisory with the CEO and other managers
An outsourced CFO is an advisor and collaborator, helping business owners through challenges like the 3 financial issues small businesses face.
Outsourced CFO v In-House: a Cost Analysis
To make an informed decision, let’s break down the costs associated with hiring an in-house finance manager versus engaging with a fractional (outsourced) CFO.
All things considered, an outsourced CFO may save you up to $80k/yr.
| In-house Finance Mgr. | Outsourced CFO |
|
| Recruiting fee | $30k | $0 |
| Salary | $140k | $140k |
| Benefits & Taxes | $24k | $0 |
| Vacation Time | $11k | $0 |
| Supervision | $15k | $0 |
| Fraud Risk | Moderate | Low |
| Churn Risk | Moderate | Low |
| Total | $220k | $140k |
| Savings | $80k |
Recruiting Fees
The search for a qualified in-house finance manager can be costly, averaging $30-40k. This is especially true in the tight labor market for finance professionals. On the other hand, partnering with a fractional CFO service incurs no recruiting fee, offering immediate financial savings.
Salary/Service Fees
You will likely pay the same monthly fees for a fractional CFO as you would a full-time finance manager. That’s because the workload is the same for both. CFO outsourcing typically results in the same work in fewer hours since they employ a team of professionals like analysts and accountants. This means they deliver more value dollar-for-dollar even though each individual works less-than-full-time.
Benefits & Taxes
Employing a W2 finance manager requires additional employee benefits and taxes, ranging from $1-3k per month. An outsourced CFO doesn’t incur these additional expenses, as they operate under their agency’s umbrella.
Vacation Time
For an in-house finance manager, paid time off is expected – usually 4-6 weeks per year. That means nearly 10% downtime on your key role. In contrast, outsourced CFO services for small businesses include a backup team to cover vacations meaning no disruption of service and support.
Supervision
The supervision of a finance manager requires significant CEO or executive time, adding to the hidden costs. Most CEOs aren’t even certain how to manage a finance professional or double-check their work. An outsourced CFO company supervises their own staff, reducing the time you spend in 1:1’s, discussing career progression, and mentoring skills.
Fraud Controls and Risk
Bringing on an outside agency significantly reduces fraud risk by adding extra visibility and separation of duties. If the agency commits fraud (which is unusual,) you can be compensated through their professional insurance. Whereas if your employee commits fraud, your insurance may not cover the loss.
Churn and Transition Expense
The turnover of an in-house finance manager not only disrupts operations, forecasting, and financial reporting; but also restarts the recruiting/hiring/training expense cycle. An outsourced CFO company absorbs these transition expenses for you, ensuring a smoother and cost-effective changeover.
The Right Solution for the Right Size
This cost comparison was based on a $5M-$10M small business. As your business grows past $30M revenue, the need for a full-time controller or finance manager becomes more pronounced. A business of such scale demands dedicated financial oversight to navigate the complexities of its operations and market engagements.
Outsourced CFO v In-House: Non-Financial Factors
Choosing between an in-house finance manager and an outsourced CFO is not solely an economic decision; it is a strategic decision that impacts both the financial health and operational efficiency of your business. Reasons you may prefer an in-house finance manager even though it is more expensive include:
- On-site demand. Fractional CFOs and their teams typically work remotely. If your finance team needs to count cash or spend time on a factory floor, in-house may be a better option.
- Multiple upcoming acquisitions. Companies who plan to engage in frequent acquisitions and integrations deserve a dedicated full-time finance professional to assist with this challenging task.
- Need for frequent, urgent advice. A fast-paced environment with daily, unexpected issues deserves a full-time dedicated professional to help solve problems as they arise.
For most small businesses, these issues are not significant enough to overshadow $80k/yr in cost savings. As a result, more and more entrepreneurs are turning to fractional CFO services for small business.
CFOshare’s outsourced finance and accounting teams save money for dozens of businesses like yours every day. Ready to elevate your small business with expert financial guidance? Explore the potential of outsourced CFO services and take the first step toward enhancing your financial strategy.
