Gone are the days when a Chief Financial Officer (CFO) had to be a full-time employee. We now live in a world where the CFO function can be outsourced to highly experienced and qualified financial professionals for a fraction of the cost of a full-time CFO. A contract CFO assumes this outsourced job function and plays a significant role in helping organizations better manage their finances.
Not convinced? We’ll discuss five advantages of hiring a contract CFO in this article so that you can determine whether this option is right for you. However, we’re going to dive a bit deeper into what a contract CFO does before discussing these advantages.
What is the Role of a Contract CFO?
Financial mismanagement is often one of the main reasons for a business’s demise. To be even more specific, poor understanding of cash flow and how it impacts a business often leads to business closure. Recent research done by Jessie Hagen at U.S. Bank reveals that at least 82 percent of small businesses fail because of either poor cash flow management or a poor understanding of cash flow.
You see, financial management is more than focusing on net profit margins, gross profit margins and debt to asset ratios. These financial indicators are important but what matters more is an in-depth understanding of your company’s cash flow statement and how your company’s cash balance is being impacted by your decisions.
This is where a contract CFO comes in handy. A contract CFO will analyze your cash flow statement, balance sheet and income statement to determine areas of greatest risk and opportunity. Additionally, this experienced financial professional will:
- Generate weekly or monthly financial reports uniquely suited for your business.
- Prepare a budget and financial projections.
- Work with your bookkeeper and/or financial controller to keep accurate financial records.
5 Advantages of a Contract CFO
Pay As You Go
Cost-saving is one of the main advantages of using a contract CFO. One of the greatest cost-saving benefits is the option to pay monthly or hourly retainers rather than a full-time salary. A contract CFO can cost between $1,200 to $2,500 per day (and would only be hired on an as-needed basis) while a full-time CFO would generally cost at least $225,000 per year.
Only Hire a Contract CFO When Needed
You can probably get by on your own with some basic accounting knowledge. When there is a more complex business need, a contract CFO can be hired on an hourly, daily, or weekly basis. This gives you the flexibility to hire a contract CFO to address specific challenges within your organization and is one of the advantages of using a contract CFO.
However, this doesn’t mean that you should wait until there is a problem within your organization to act. You can, therefore, have a contract CFO on retainer who will proactively work towards keeping your organization in good financial health.
Brings An Outside Perspective
A contract CFO typically has a vast range of experience across industries. This cross-industry perspective can be particularly beneficial to your organization as you search for innovative ways to keep your company relevant and prepared for possible challenges.
It also helps to have someone who isn’t close to the company provide an unbiased perspective about your business decisions and future prospects. Business owners are often too close to their businesses to think objectively about their decisions based on what the company’s financials are saying.
Offers a Unique Set of Skills and Experience
Like the other experts you need to manage your small business, the most experienced contract CFOs have a broad range of experience that spans various sectors and business units. Therefore, this CFO will have a good grasp of how to get the best bang for your buck in areas such as supply chain management and logistics. Ultimately, the aim is to help your business have a strong cash position to support growth and continued success.
The diverse background and unique skill set is definitely one of the advantages of using a contract CFO.
Helps You Make Better Business Decisions
Business decisions should be based on solid data and research. A contract CFO knows how to collate data in a way that makes sense and use this data to provide the best possible recommendations for business success.
Advantages of Using a Contract CFO – Final Thoughts
Full-time CFOs are quickly becoming a thing of the past in this rapidly changing world. A contract CFO is often a budget-friendly solution for astute financial management that leads to long-term business success.
Hopefully this article detailing what exactly a contract CFO is as well as the advantages of using a contract CFO was useful and insightful.