Growth Companies

What’s the Definition of an Outsourced CFO?

There are ever-more opportunities to market yourself as a contract finance chief, but small companies have different expectations for the role you'...
Kira SpivakMay 11, 2017
What’s the Definition of an Outsourced CFO?

Have you ever thought about leaving your high-pressure finance job to hang out your own shingle and work as a contract CFO for small, entrepreneurial companies?

Kira Spivak

Kira Spivak

Not that such work isn’t pressurized. The point is that if you think you might like that change of scenery, there is greater opportunity to make the switch now than ever.

Whether you call outsourced CFOs “hourly,” “part-time,” or “fractional,” in today’s startup economy many CEOs, investors, and lenders increasingly recognize that such professionals can provide big value to small and growing companies. But at the same time, because the CFO title implies a certain degree of control over a company’s finances, contracting with a part-time finance chief raises questions about quality standards.

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Outsourced CFOs can charge in the ballpark of $150 to $200 per hour, or more, depending on the region. For a small business owner or CEO, deciding whether to hire one is something like deciding whether that budget can handle making a call to their lawyer. That is, for a small company it’s not a small decision.

However, even at small companies, the definition of a high-quality CFO is someone who aims to see the future and takes proactive measures that keep things running smoothly and, ultimately, pay for themselves. She or he may analyze risks, strategize, investigate cost and process improvements, study the industry, and stand ready to be accountable for the financials and other key issues. And the outsourced CFO knows that tracking and managing data now can build value for the company’s future exit.

But here’s a key question: Do CEOs who hire outsourced CFOs on a part-time basis have a right to expect they will get someone who will handle things at that level?

It depends in large part on what level of commitment the company has to the position. An outsourced CFO’s smiling face may be shown in the company’s marketing materials and website, and presented to investors. Yet if the company wants that person’s services for only, say, 10 hours per month despite being busy with many customers, 20 employees, and several investors, is that person really a CFO?

Those are gray-area questions that don’t lend themselves “yes” or “no” answers. But they do warrant conversation.

Months after forming my team at VenturePack Finance, which involved transitioning from the middle-market world to the startup environment, I’m starting to lean toward not accepting a client if I feel its hourly budget won’t allow us to have full accountability and representation of the client company’s finances.

For executives of startup companies that may be reading this article, what do you think? If you’re going to outsource the CFO role, what do you have in mind as the scope of that role?

Also think about whether it makes sense for you to pay the outsourced CFO on an hourly basis versus having a flat-rate contract. And, consider whether you feel you would get added value if part of your rate went toward the overhead of an outsourced CFO team, versus an individual part-time CFO who is working solo.

The market for outsourced CFOs at small companies has grown out of infancy in the last decade. Now, investors and lenders are starting to ask more details about the scope of these contracts. I know many whip-smart outsourced CFOs, and I’m hopeful that together, as our niche grows, we’ll continue to support its value proposition to the entrepreneurs we service.

Kira Spivak is the owner of VenturePack Finance, a provider of outsourced finance and accounting services for small companies