Ultimate Guide to outsourcing a CFO

May 18, 2022by CFO Australia0

Most small to medium sized businesses (SMB’s), whatever their business sector or the types of products they produce, or services they offer, face the same challenge at some point in their lifecycle. They all need help with their financial reporting.

Entrepreneurs who start businesses are fantastic at identifying opportunities and the need for new products and services and can talk for hours about what they are working on and the opportunities they have identified. However, when faced with financial reporting and compliance, they are often uninterested and lack understanding.

When starting a business, entrepreneurs rarely go to financial professionals, but rely on friends or family to look after the financial responsibilities of their business. This is okay for the start-up phase (although far from ideal), but the financial reporting and compliance requirements will quickly exceed the capabilities of even the most diligent friend or family member. When this point is reached, a business owner must act.

The Solution

Outsourcing the financial responsibilities of the business to a part-time Chief Financial Officer (CFO). This allows the business to benefit from the skills and experience of a full time CFO, but without the significant costs of recruiting a full-time member.

A CFO is essential for any business that wants to:

  • Grow their business
  • Reach long-term business goals
  • Generate more cash

What is an outsourced CFO?

An outsourced CFO is a professional with advanced accounting, management, and strategic skills and experience. They work either part-time or on a contract basis for a business. Outsourced CFOs often work remotely or virtually and are often referred to as Virtual CFOs.

How to find an outsourced CFO?

Before a business rushes out and hires the first CFO they meet, it is important that the business owner and their team fully understand what their goals are and what they want to achieve by hiring an outsourced CFO:

  • Identify Business Goals
    Knowing the direction that the business wants to take and what it wants to achieve is crucial in finding the right outsourced CFO. Some business owners want to generate cash for themselves from their business each year and others are looking for a sale to be able to exit the business with a lump sum of money in a fixed period.  Some want to build a business they can pass onto their families.  Whatever the goal is, it is important that it is clearly defined. The goal may change but continued clarity on the financial destination is very important when recruiting an outsourced CFO.

  • What does the business owner want to achieve?
    Once the business goals are identified, the business owner needs clarity on what will the business achieve by hiring an outsourced CFO. For example:
    – Does the business need help with financial reporting and compliance?
    – Does the business need help with cash flow management?
    – Do they want to turn over all strategic analysis and planning to a CFO?

    The business owner needs to answer these questions to make the right decision on which outsourced CFO they hire. Once the goals are set out, the CFO selection process will be much easier and both the business and the outsourced CFO will understand the services and deliverables needed.

  • Qualified CFO firm or individual
    It is time for the business to find a qualified CFO firm or CFO individual that offer the relevant services and match the businesses’ needs. Utilising a firm would mean you can keep everything under the one roof, ie. CFO and then tax compliance management and advisory in a trusted manner.

  • Qualifications
    It is important to make sure that the CFO that is being hired is suitably qualified. Look for members of the CPA, Chartered Accountants Australia & New Zealand, or the Institute of Chartered Accountants. Members of these three organisations will be suitably qualified for the role.

  • Experience
    In every profession, knowledge is built and formed by experience. The more experienced, the better qualified the CFO will beto handle the issue for every company they work with. When looking at a CFO’s experience, a business owner should:

    • Review how long the CFO has been in accounting or management.
    • Focus on the individual CFO’s experience not their company’s.

The cost of an outsourced CFO

The cost of finding, interviewing, and ultimately recruiting a full time, in-house CFO can be daunting. The average salary for a CFO working in the SMB sector in Australia is between $200,000 and $300,000 plus a sizable list of extras. This level of cost is simply not possible for many SMB’s to afford.

How can a SMB owner recruit a CFO with the necessary levels of skill and experience, without the unaffordable price tag?
The answer is clear, use an outsourced or part-time (virtual) CFO. The cost will be a fraction of a full-time CFO, because there is no full-time salary and no extras, the CFO will likely work remotely, so there will be very limited overheads, and of course, no full-time salary. The outsourced CFO will only work on specific tasks where needed, again only paid to do the job required and as they are a contractor there will be no additional costs as there would be for a full time CFO, like super, health insurance, holiday and sick pay, bonuses, and stock options.  So, at the cost of a relatively junior member of staff  you will buy the years of experience and a significant level of expertise of an outsourced CFO. The cost alone, is a great reason for SMB recruiting an outsourced or part-time CFO.

What will an outsourced CFO do for a small to medium sized business?

Many small to medium sized businesses turn to an outsourced CFO because they need expert help with their financial strategy. They need help with the preparation and interpretation of financial statements, they need to be confident that they are compliant, they need help setting Key performance Indicators (KPI’s), with budgets and forecasts and recognising and interpreting trends. There are many more areas a CFO can have positive input into an SMB, but there are the most frequent areas a business needs help.

  • Financial Statements
    The Outsourced CFO will help the company’s senior personnel understand the financial statements of the business. The relationship between the different elements in the financial statements. For example, how the balance sheet is linked to the revenue statement and how both are linked to the cash flow statement. The outsourced CFO will be responsible for for communicating the contents of the financial statement and analysing the contents, ensuring that all possible scenarios that could result from the financial statement are considered. The outsourced CFO will highlight the most important numbers on the statements and analyse and communicate what impact these will have on the bottom line and future performance of the company.

  • Key Performance Indicators
    Key performance Indicators are an efficient and effective way for a business owner to evaluate a significant amount of information quickly. A business can set KPI’s on pretty much any part of the business’ performance, both financial and non-financial. The important thing if to use KPIs that when analysed will help the company move toward achieving its goal.An outsourced CFO will analyse what KPI’s are needed and then design the criteria and measures to make sure they are helping the business. Many KPI’s are designed as graphics, so are easy to see, understand and interpret and the outsourced CFO can build warnings and notifications to ensure KPI’s are not missed.

  • Trends
    The outsourced CFO will also build trends for analysis. There are three trends that most CFO’s will look at. Horizonal analysis, vertical analysis, and regression analysis. Trend analysis is a core method for understanding the financial performance of a business and for identifying threats and opportunities based on actual performance in the business.

  • Forecast and budgets
    The outsourced CFO will help develop e budget and a rolling forecast. A good way of looking at the two is that the budget is the destination, and the forecast is how to get to the destination.The budget is a vital tool for the business and the business owner. It summarises the expected revenue and costs for a period and provides a framework for the expected profitability and growth of the business.The forecast helps predict what direction a business is heading in relation to the budget. By regular review and monitoring of the forecast, the business owner and the CFO can see how likely the business is to reach its budget and what changes need to be implemented to ensure the delivery of the budget is still possible. The earlier under or over performance is recognised, the more time the business has, to get back on track or raise the expectations of the organisation’s performance.Financial statements, KPI’s, trends, budgets and forecasts are some of the main ways the outsourced CFO can bring a financial understanding to a business. By employing an outsourced CFO the business will have the benefit of fully understanding their financial performance because it will be much more readily accessible, which means that the chance of increased performance or over performance, is much more likely.

Cash flow

As cash is the lifeblood of most small and medium businesses, understanding where the business is regarding cash is of vital importance. This is another area where an outsourced CFO is invaluable to a small or medium sized business. An outsourced CFO will focus on cash and will do three key tasks.

  • Set up a cash reserve
  • Calculate cash conversion
  • Project free cash flow

Cash Reserve – Businesses’ run on increasing revenue, managing costs, and looking for new opportunities. Setting up a cash reserve is often overlooked by business owners. However, all businesses need a cash reserve to ensure that they can pay their staff, take advantage of an acquisition or purchase opportunity, or survive a slow economic period (the covid-19 pandemic was a classic example of where a cash reserve was crucial for businesses to survive the restrictions in trade caused by government legislation).

Cash Conversion – Not all products or services have the same value, so the cash conversion calculation works out which products and services bring in the most cash. This allows business owners to make informed decisions about product or people investment and which products and services to focus on or even discontinue. Making this calculation for every product or service allows for much more efficient management of the business.

Free cash flow – Free cash flow represents the amount of cash a business has in excess of their operating and capital costs. Therefore, it represents the amount of cash that is available to use outside of the standard operating costs. The excess free cash flow (FCF) can be used to pursue new opportunities, to pay off debt, or make contributions to a profit-sharing plan. The use of the FCF is entirely at the discretion of the business owner.

These three cash calculations are designed to analyse, prepare, and prevent any cash flow issues. An outsourced CFO will guide a business through each of these and monitor them regularly.

Business Growth

All businesses want to grow! Most want to become large businesses. One thing is definite for a company to grow into a much bigger business, the owner will have to transition out of their comfort zone on the finance of the company. When this happens, expert financial advice is absolutely essential.

An outsourced CFO will:

  • Identify every revenue producing item and put them into the budget
  • Identify opportunities and pitfalls
  • Develop ’what-if’ analysis

The most common help a business owner needs is with budgeting individual products or services. Usually, up until the point of rapid growth, the company budget will be based on the overall revenue of the business.

Once a business starts to grow rapidly, the revenue numbers should be based on a budget for each individual product or service. The individual product or service budgets can all be brought together into one overall company budget, but this still allows for changes to the individual product or service budgets if inefficiencies are discovered or markets’ change.

The CFO will identify the opportunities and pitfalls based on analysis and what-ifs on the overall company and the budgets for specific products and services. The ‘what-ifs’ will give a view on the impact of minor or major changes in the business.

Working with the business owner, the outsourced CFO can build a sophisticated budget with many ‘what-if’ scenarios and the impact they will have on the business performance. The business owner’s knowledge of the organisation’s revenue, clients, services, and competitors, will allow a detailed revenue and market picture to be built and from that, the CFO can analyse more scenarios to ensure that action can be taken if anything starts to go wrong, far earlier in the financial period.

Related: Five ways to grow your business with a Virtual CFO


A business can leverage all the benefits of a full-time CFO with the reduced costs of an outsourced CFO. They will help take a business to its next level of growth, reach its long-term business goals, and generate more cash. They will also ensure that the business has no surprises, by building solid analytical structure and a series of ‘what-if’ scenarios across the businesses’ performance. If a business owner knows where they want their business to be, bringing an outsourced CFO onboard is a huge step to taking the business there. Get in touch.

Related: Is it time to engage a Virtual CFO?

by CFO Australia

CFO Australia is an Advisory firm located in Sydney offering CFO and Management Consulting Services for fast growth and entrepreneurial businesses. CFO Australia deliver strategies that empower our clients success and have witnessed our clients grow year-on-year by an average 23%+ and know our hands on approach contributes to this success

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