When Should You Outsource The Finance Function?

Many companies could benefit from the expertise of an experienced financial leader. However, hiring a full-time CFO isn’t always the most practical move to meet functional, budgetary or other needs.

Fractional CFOs, who work contractually as needed, can be a great option. Hiring such an outsourced CFO can make sense for any organization where the CFO function has fallen by the wayside, the controller has absorbed CFO-related responsibilities, the company has expanded and requires new skill sets, or the current CFO is departing and the company needs to reevaluate its needs.

To determine whether a fractional CFO is right for your organization, consider the following questions:

1. How much time do you need from a CFO?

Determine how much time you actually need from a CFO to get the insights you seek. If you could get what you need in fewer than 40 hours a week, 52 weeks a year, a fractional CFO could be an excellent choice to help you both gain valuable, new perspectives and save on payroll. In fact, research shows that hiring a fractional, rather than a full-time, CFO could result in savings up to 65%. This can also be a great approach for companies expecting to add a full-time CFO role in the future. A fractional CFO can stand in as a good interim measure before your company is ready to hire for a full-time position.

2. Is your business in a time of transition?

The unique perspective a fractional CFO can bring to the table may be particularly beneficial for companies looking to fill the roles of departing CFOs who have been in their positions for many years. The retirement or other departure of a full-time CFO can be an excellent opportunity to reevaluate the needs of your company and the nature of the position.

For example, a client recently engaged my company to take a fractional role upon the retirement of their longtime CFO. The intention, in that case, was to use that time to redesign the position before making a permanent hire. The company considered what the position had been providing for the organization, whether more was needed, whether some responsibilities could be shifted, and whether new responsibilities could be added. The retiring CFO remained available on an as-needed basis to offer institutional knowledge throughout the process. With the former CFO’s assistance, we were able to shift responsibilities smoothly and help the organization make room for personnel changes.

3. Do you have a specific, project-based need?

A fractional CFO may also be vital in filling specific short-term needs. A company may have a capable CFO who may be lacking in availability or expertise for a specific need. For example, a company may wish to assess or execute a significant business acquisition but lack experience in the type of purchase or industry being considered. Or a company may be planning significantly different operations or service lines (such as replacing functions that are currently outsourced) but not have experience with similar assessments.

Planning for expected (or unexpected) periods of rapid growth, optimization of financial planning strategies, expansion into new overseas markets, or several other critical situations may call for fractional help. For project-based needs, “CFO” may describe the level of expertise needed but not necessarily be an official title.

CEOs who recognize business needs only a CFO can fill should first realize they have options. Full-time hiring isn’t the only course of action. Before making the call, however, consider each question above to make the most effective decision for your company.