A virtual CFO (aka virtual Chief Financial Officer, fractional CFO, outsourced CFO, or part-time CFO) is a financial professional that provides outsourced CFO services for small-to-mid-size businesses in any industry (usually between $3 million and $20 million in revenue).
A virtual CFO performs the same functions as a full-time, traditional CFO and their team — but at a fraction of the cost. They usually work with multiple clients rather than working full-time for one employer. Often, businesses will seek out a virtual CFO if they don’t have the budget for a full-time employee (or enough work to justify a 40-hour week), but still need help with financial strategy – forecasting, cash flow management and more.
Virtual CFO vs. Bookkeeper
You might be wondering about the difference between a virtual CFO and a traditional bookkeeper. That difference is a consultant relationship. Virtual CFOs don’t just meet with you once a year to do your taxes. Virtual CFOs offer advisory services and help you make informed business decisions. They help you plan for business goals by using cash flow forecasts and financial documents to run scenarios and make strategic plans to achieve said goals.
Fractional CFO vs. Virtual CFO
Virtual CFOs are effectively fractional CFOs. Fractional CFOs are more known to service a client in-person by attending meetings at their headquarters and working on-site in other ways. Virtual CFOs usually provide the same services as fractional CFOs but in a remote environment. However, although a virtual CFO wouldn’t be in-office on a regular basis, they certainly travel to meet clients as the need arises. Both roles provide financial health reporting and financial advice that you’d expect from an in-house Chief Financial Officer.
What Services Are Offered by a Virtual CFO?
A virtual CFO is on a mission to help you achieve all your business goals and increase profitability. That means that even tax planning becomes a strategy.
The best virtual CFOs work in a team that includes a tax expert, as well as other accounting support, such as a staff accountant. With the help of their team, a VCFO will take on tax planning and input that information into a financial forecast. Why? Informing clients about their tax obligation helps them plan by finding ways to reduce that tax burden and preventing surprises that will put unnecessary strain on a small business and sideline business goals.
While virtual CFOs can elevate standard services like tax planning to ensure a client’s financial success, these financial professionals also provide support in ways not typically seen by CPA firms.
One example is through road mapping. VCFOs use their financial expertise — as well as industry KPIs and benchmarking data — to help clients plan by developing a roadmap to success. This involves talking to the client about their goals and then working backward to identify one or more paths to achieving them. After a Virtual CFO has identified a path forward, they take on several finance functions including:
- weekly financial meetings
- budgeting
- financial statement generation and analysis
- companywide KPIs
- financial strategy and financial planning
- financial reports
- back-office tasks
Should You Hire a Virtual CFO, Bookkeeper, or a Full-time CFO?
The decision to hire a bookkeeper, virtual CFO, or a full-time CFO comes down to business needs and company scale.
Generally, we’d advise that if your business is under $2 million in annual revenue, a bookkeeper or traditional CPA firm will likely be more cost-effective. However, if your business is over $2 million in revenue and has grown to the point where you need a financial advisor, but your business can’t yet afford a full-time CFO or controller, a virtual CFO is the right fit.
Experienced, full-time CFOs command high salaries. By one estimate, the median CFO salary is $440,000+, not including vacations, bonuses, and other benefits. That gives you a ballpark of whether it’s in your budget to hire a full-time CFO versus a virtual or fractional CFO.
The image below shows our typical client size and the virtual CFO services they generally require at their size.
While a very large company will likely benefit from an in-house CFO because of the complexity of the job, there are reasons beyond scale to consider outsourcing your CFO function, even beyond the $20 million dollar mark. Because a virtual CFO works with multiple clients and with a team of collaborators, you get the benefit of diverse experience. In business, there’s rarely a problem that’s never been seen before; a virtual CFO has probably encountered your very same challenges and engaged in a range of solutions. If they’ve never seen it before, someone on their team certainly has. In addition, when you engage a fractional CFO with specific experience in your industry, you get insight into best practices that will help you elevate your business to the next level.
I Might Need a Virtual CFO if…
Beyond revenue levels, here are some questions to ask yourself when considering whether you could benefit from a virtual or fractional CFO:
- Am I planning to sell my business within 1-5 years?
A virtual CFO can help prepare you to attract the highest possible offers, go through due diligence in a timely manner, and make your exit match your goals. It all starts by ensuring your financial records offer visibility into your financial history and a roadmap for your future. That’s the best way to ensure a smooth transaction with a high multiple of EBITDA.
- Am I operating profitably, according to industry standards?
During high growth periods, strategic financial advice is a must-have: You’ll need to assess risk (and plan your cash reserve accordingly – see below) and be ready to make fast decisions, ideally with data rather than your gut.
- Do I have sufficient cash on hand and a large enough line of credit?
We recommend businesses keep 10-30% of annual revenue in cash on hand and a line of credit of equal size. That’s something you can build to – but it’s important to set a target so you know how much to put aside as you go.
- Am I staffed appropriately for the near- and long-term?
In times of uncertainty – whether due to high levels of change within your business or in the economy – it becomes even more key to understand if your team is the right size for the work that you have coming in. No one wants guesswork when it comes to taking care of their people or their clients. A dynamic forecasting process that takes into consideration capacity and sales pipeline will make sure you can meet payroll and meet market demands.
I hope this blog post helps you better understand what a virtual CFO role is, and which type of financial professional might be right for your business. If you want to learn more about our virtual CFO services, don’t hesitate to reach out for a free consultation.
