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Can An Enterprise Company Use An Outsourced CFO?

by Pat Stokowski, on Apr 11, 2019

sean-pollock-203658-unsplashOutsourced CFOs are not Exclusive to Small Business

Whenever someone mentions the word “outsourcing”, the image of repetitive, low-skill, high-volume tasks usually comes to mind. Indeed, in the past, many outsourced tasks were of this type. However, automation is rapidly replacing outsourced personnel for such tasks, and in the wake of this change, a flourishing industry of outsourced professionals has arisen. Freelance accountants, bookkeepers, and even CFOs are now available, and the flexible lifestyle often attracts top talent.

Interestingly, conventional wisdom claims large companies outsource their high-volume tasks while small companies outsource their professional tasks, because full-time hiring costs are too high. But conventional wisdom is being constantly upset in the modern age. Big companies do use outsourced professionals, even for C-Suite positions. And it isn’t just the cost that drives large enterprises to hire outside assistance.

Why Mature Companies Shy Away from Outsourced CFOs

Unfortunately, many mature companies are suspicious of or reluctant towards hiring outside help. Management of mature companies may want to pursue in-house solutions for C-Suite roles. They may be wary of hiring outsiders, with so much confidential information, investor relations and capital, and the livelihood of so many employees on the line. It may even seem that hiring a part-time Chief Financial Officer diminishes the prestige of the role and thus the standing of the company in the eyes of investors.

However, mature companies may have major projects, a complete financial restructuring, a shakeup in top management, or simply too much work for a single, full-time CFO to handle alone. A popular solution is automation. One example is task delegation, wherein employees are assigned tasks based on metrics like average downtime. Another example might be proprietary financial software that attempts to make project funding decisions and the only part reviewed by the CFO is the final outcome. Of course automation is immensely beneficial, but it is not a panacea for all the ills of lacking sufficient professional help at the top.

Another popular solution, often insisted upon by the beleaguered CFOs themselves, is to work longer hours. But as we all know, burnout is a real risk of excessive hours on the job, and it is well documented that burnout damages quality, clear-headed decision-making and reactions to any situation.

Sometimes, instead of the CFO working longer, tasks are delegated to various in-house employees, diffusing the workload. This may sometimes lead to resentment for those earning less than C-Suite salaries, though, and most of these internal employees already carry heavy workloads or lack the training and experience to handle CFO-level tasks in addition to their normal tasks.

All of these solutions offer their own benefits and suffer from their own drawbacks, so let’s add the idea of an outsourced CFO to the list of solutions to see how it may help.

Benefits for Big Businesses Derived from Outsourced CFOs

Large companies in the midst of change would do well to consider hiring outside help. The costs of hiring a second, long-term CFO can be quite high, so investors and accountants will be pleased with the cheaper option of an external CFO. Moreover, there is little reason to hire someone long-term when the project itself is shorter-term (on the order of a few months to a year).

For example, with the changing role of CFOs, the implementation of a new IT system may require help from the CFO. In this case, the current CFO could benefit from specialized IT knowledge held by the part-timer. In fact, having a second opinion from another CFO can ease investor hesitance towards a new project, particularly when that other CFO is a freelancer who has worked with several other companies. An in-house CFO will have profound knowledge of the company, but an outsourced CFO will know several companies at least more than superficially, and more importantly, the latter will have a strong grasp on what has worked for whom and in which situations.

As mentioned in the previous section, relief from overwork and burnout has its own benefits. Of course, this benefit is not exclusive to enterprise companies. However, in large companies, the challenge lies in managing large numbers of professionals across FP&A, accounts payable/receivable, and other financial functions, all of which must be integrated and orchestrated to a high degree to avoid redundancy and conflict. It may prove to be too much for a single CFO, especially during major projects that require complete attention from the in-house CFO, but diffusing the responsibility across several already-stressed internal workers could also prove to be inefficient. In that case, a short-term CFO could be the ideal solution.

Hiring externally as the norm, not a solution to a temporary problem

Maintaining a full-time CFO and a part-time one is not the only situation in which outsourced CFOs are valuable. Especially in this era of technology and automation, a single, outsourced CFO might be sufficient to run a lean company. A great example of such a company is Twitter, which is certainly on the enterprise level with a market cap in the tens of billions of dollars, but it employs less than 3,500 people. For lean companies like this, particularly ones where machines and software do much of the work, the CFO role may not be full-time or, if it is, it may not be long-term. Both situations could find value in outsourced CFOs.

Another scenario may be a full-time CFO that is also outsourced. For example, a subsidiary of a large corporations may receive most of its direction from the parent company, and the parent company will make most of the major decisions. However, for day-to-day operations and management, the subsidiary may still need a CFO, and bringing in an outside individual could assist the company full-time and long-term, potentially with less engagement than an in-house CFO, who may conflict with the parent company’s vision.

Or perhaps the company is not a subsidiary but simply likes the idea of employing a CFO whose experienced was gained through several companies, not just one or two. It might even be the case that the company wants advice from outsiders, a “pair of fresh eyes”, and wants to avoid connections between the financial side of the business and the cultural or product side of the business.  These situations would also warrant a full-time, outsourced CFO.

Conversely, it may be wise to bring a part-time CFO on board to preempt issues that could arise from expected increases in workload or a shifting business environment. Not all external or part-time hires need be in reaction to the current state of affairs. In fact, companies would do well to consider a part-time CFO before the situation becomes so overwhelming that it becomes a requirement.

Not Everything is Rosy

While an outsourced CFO can be extremely helpful to even the largest organizations, just like automation, this is not a panacea for financial management troubles. Those who work on a freelance basis tend to charge much higher prices to offset the instability of the work and low job security, so forecasting the time needed is important. If a project is expected to last two or more years, it might be financially better to simply hire a full-time second CFO than to outsource on a short-term basis.

Additionally, an in-house CFO has an intimate knowledge and understanding of the company that an outsourced CFO would not have. Outsourced CFOs are transitory by nature. On the one hand, this means lots of varied experience, but on the other hand, it could lead to culture clash or employee resentment if the wrong outsider is brought in to make sweeping changes. Finally, pertaining more to large businesses than small ones, outsourced CFOs might be perceived by some investors or even customers as a pure cost-cutting measure, since the perception is that large companies can afford in-house executives. If that occurs, management can explain the benefits to alleviate distrust of outsourced personnel.

Conclusion

High-volume work is not the only target of outsourcing today— and in fact high-volume transactions is a major target of automation now— and outsourcing professionals is not practical only for the SMBs undergoing growth. Even the largest companies can benefit from outsourced CFOs, whether the task at hand be restructuring, new project development, or simply providing a second high-level analysis of the current financial operating conditions.

Topics:CFO