What is an Outsourced CFO?
In today’s outsourced and globally connected business world there are many functions of businesses that are being outsourced like accounting, payroll, operations, IT, and marketing among others. Unfortunately, not many companies are aware that finance as a function can be outsourced too.
Herein, comes the importance of an Outsourced CFO. An outsourced CFO is a financial expert who provides financial services on a part-time or full-time basis to companies. The role of an outsourced CFO is to provide strategic insights as well as provide expertise in areas such as formulating strategy or providing core financial services help. This includes areas such as support in finding cash flows, raising capital, implementing more efficient systems, or formulating growth strategies. Usually, outsourced CFOs have considerable experience performing high-level financial roles as they may have worked in corporate finance roles in other reputed organizations.
Why one should hire an Outsourced CFO?
Outsourced CFOs can lead up to 40-50% savings in costs. About 80% of financial services executives outsource or offshore some of their services. Highlighted below are some of the top reasons for outsourcing this critical finance function.
-Currently undergoing growth – This is usually the case for companies that are witnessing a lot of growth. A common example could be growth related to the launch of new products or say when a company is entering a new market.
-Resolving key business challenges – This comes into the picture when a company for instance is trying to resolve challenges such as cash flow, cost cutting, or looking to improve operational efficiencies.
-Raising debt or equity capital – Outsourced CFO can be of great help especially when companies are looking to raise capital. They do so by assisting in strategy formulation for it, due diligence, and in raising capital in terms of debt or equity mix.
-Maximizing margins – By analyzing current spending and costs, the outsourced CFO can suggest improvements that can be made in spending.
-Need for an interim CFO – This normally is the case when there is a need felt to place an interim CFO, especially in cases where an organization is transitioning from one CFO to another or a need is felt to outsource an organization’s finance function simply because someone else can do it better.
-Taking advantage of consulting services- An organization can look to hire an outsourced CFO simply because they can do the task better.
How does an Outsourced CFO provide value?
We have already seen why companies should look forward to outsourcing their services to a third-party service provider. In this section, we will look at some of the key benefits that are provided by an outsourced CFO. It must also be mentioned here that there are cost implications associated with hiring a CFO. Smaller companies may not have the budget to hire a CFO. This means they can incur a lot of savings by outsourcing this function which can be at a fraction of the costs of the salaries that are paid to a CFO. Not to mention the availability of talent and global access to them without incurring many operational headaches. These talents are simply at a third company party’s disposal the benefit of which can be reaped by companies.
There are some of the other benefits which an outsourced CFO can provide. Some of them are:
-They help in financial planning and analysis by providing assistance in the form of budgeting, and forecasting future revenue or cash flows for a company.
-They can help an organization in assessing its strengths and weaknesses vis a vis competition.
-Help in designing complex business models which necessitate the use of techniques such as NPV and IRR.
-Help in analyzing spending and cost incurred by a company and thereby suggest improvements in cost cutdowns.
-Assistance with financial statement preparation.
-Assistance with yearly financial reporting.
Top 10 Outsourced CFO services
A question that arises naturally is what kind of services are provided by Outsourced CFO.
Listed below are the top 10 services –
-Financial Strategy – One of the key benefits of outsourcing CFO services is in designing a company’s financial strategy. These are designed both short term as well as long term.
-Forecasting – Forecasting for the future is one of the key functions of any finance division of an organization. Preparation of the details helps in planning an operational roadmap for an organization. It requires a strategic understanding of requirements, assessing current and future capabilities of a company, competition analysis, and mastery in building financial models
-Financial systems strategy and design – With growth, it becomes imperative for any organization to implement software and improve process that can match an organization’s growth strategy. An outsourced CFO can help address this pain point by redesigning systems and suggesting improvements in current processes.
-Budgeting – Managing budgets is one of the key functions of the finance function. Normally budgeting is done for a 5–10-year time horizon. Budgeting helps to plan spending and future revenues in great detail.
-Financial statement preparation – An outsourced CFO can help in preparing financial statements as well as interpreting their consequences. This is the most useful information for any organization.
-Raising capital – Here a person is introduced to a host of investors, people or organizations who can help a company in raising its capital.
-Capital structure – This is done by suggesting which would be a better route – debt or equity or a mix of both.
-Interim CFO services – This service is most useful to avail of in case there is a transition from one CFO to the next or in cases where low-cost outsourcing seems to be a better option.
-Cost cutting – Costs are an important factor in decision-making. Outsourcing its services to a third party can help in this.
-Complex decision making – This is especially true with companies where complex decision making is involved and which requires the knowledge and expertise of a person. Examples could be making models for Mergers and Acquisitions, management buyouts, etc.
How can Magistral help in providing CFO services?
Magistral offers Portfolio Management services for varied kinds of the portfolio of companies such as Private Equity or a Venture Capital fund. For all the investors who sit on multiple boards, it is a headache, to implement something in a company that worked in another portfolio company. The problem is more acute when all companies are in similar industries and are facing quite similar headwinds. Limited supervision time available to board members, unavailability of resources across companies, and implementation knowledge held in a single portfolio company, all play spoilsport. It’s like re-inventing the wheel every time for the same problem.
We help portfolio managers in centralizing their Marketing (mostly digital), Strategy (Fund-raising and Exits), and Finance at fraction of the cost required to have dedicated functions in each portfolio company, big or small. The off-shored extended team also ensures no knowledge is lost for similar projects across companies and multiple projects in multiple companies can run at the same time, prioritized as per the schedule of board meetings. Learning, of course, is cross-pollinated across projects.
Our service offerings for portfolio and other companies are:
-Strategy: Identifying add-on acquisitions and potential buyers, fundraising, exit strategy, growth strategy, and content marketing
-Analytics: Financial reporting and analysis, preparing dashboards, data visualization, text cleaning and mining, predictive modeling, KPI tracking, and web scraping
-Sales: List generation, CRM cleansing and management, competitive intelligence, and social media management.
-Financial planning: Budget preparation, forecasting, and competitive quarterly earnings updating.
-Procurement: Spend analysis, vendor identification and management, spend base cost reduction, category strategy, RFP support and procurement strategy.
About Magistral Consulting
Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is in Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research.
For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact
About the Author
The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to firstname.lastname@example.org