Outsourced CFO Services - 11 Reasons Why Your Start-Up Needs An Outsourced CFO

If you are thinking about outsourcing the role of Chief Financial Officer (CFO) for your startup, do not worry, as many startups choose to outsource CFO services. Contract CFO services provide similar advantages to having an in-house CFO, but they can be utilized as needed, which works well for early-stage startups. These services differ, so as you explore your options, you may question which functions you should outsource.‍

In summary, the majority of tasks that necessitate a CFO's expertise in finance and business can be effectively managed by a third-party provider. The primary services offered by outsourced CFOs are detailed below. (Please note that the outsourced CFO role may also be referred to as temporary, contractual, part-time, fractional, or virtual CFO services.) Nonetheless, there are certain functions that should not be outsourced, and we will explore these further to understand why relying on an external CFO may not be ideal.‍

What is an outsourced CFO?

A CFO that works as a strategic financial consultant for businesses on a contracted basis is known as an outsourced CFO. These financial experts possess a wealth of experience in various high-level financial positions within companies at different stages of growth, whether private or public. They assist businesses of all sizes with a wide range of financial matters, including strategic planning, scenario modeling, unit economics, financial projections, and more.‍

What types of businesses should consider an outsourced CFO?

During the initial phases of growth, companies might not experience significant advantages by recruiting a full-time CFO. Opting to outsource certain tasks can assist in keeping a reasonable budget, especially if the financial affairs are relatively straightforward.

Nonetheless, comprehending the drawbacks of outsourcing is crucial. Many businesses undervalue the expense of contract CFO services. Generally, start-ups allocate their finance and accounting budgets based on hourly rates, estimating approximately 3-4 hours per month for financial projections, planning, and reporting. In truth, such allocated time is usually insufficient.‍

Although some outsourced CFOs can fulfill basic tasks in just a few hours, resolving long-term issues necessitates more than 3-4 hours per month. To meet the average needs of early-stage startups, it is advisable to allocate a budget of 15-25 hours of CFO services, which can cost between $5,000 and $8,000 per month. Moreover, if an outsourced CFO is not integrated into the business permanently, they might lack the expertise needed to offer comprehensive analysis or effective advice. Therefore, it is essential to engage a committed professional who comprehends the unique challenges faced by your startup in order to fully capitalize on a CFO's experience.

K-38 offers superior CFO solutions to tackle these obstacles effectively. Our comprehensive solutions stand apart from other outsourced CFO services, as they merge skilled human analysis with a robust AI-driven platform. By familiarizing ourselves with your company, K-38 provides precise insights and dependable advice while staying within your startup's financial means.

11 Outsourced CFO Services Startups Need

Prior to going public, a startup has the option to entrust a competent specialist with the main obligations of a CFO, without compromising on precision. Nevertheless, it is crucial to bear in mind that each business is unique. Prior to delegating tasks, ensure that you comprehend the services and limitations of your CFO.‍

Below, we’ll look at 11 services that are typically beneficial for startups.

‍

1.    Financial Projections 

Financial projections are essential for startups as they demonstrate their revenue potential and attract investors. They also serve as the foundation for budgeting and determining the amount of investment required. To ensure realistic predictions, it is advisable to collaborate with a finance expert.

An outsourced CFO solution can assess past financial performance to project future performance, including expenses, revenues across different sectors, the growth of sales expenses, and the staffing requirements for meeting revenue targets. If financial projections are already established, an outsourced CFO can update and manage them.

2.    ‍Scenario Modeling

The process of scenario modeling involves creating different projections to show how your company may perform in different situations. For instance, you can create a projection for an aggressive scenario where your business grows by 30% in one month, and another projection for a more conservative scenario with a growth rate of 10% in a month. These projections would predict the impact on financial results such as revenue and costs. Scenario modeling is also useful for businesses to adapt to unique circumstances, ensuring continuity.

For example, in 2020, numerous organizations created scenarios to anticipate the impact of COVID-19, which resulted in a decrease in growth month after month. While planning for multiple scenarios is necessary, it can be time-consuming. Therefore, outsourcing this task can save valuable time.

3.    ‍Actuals vs. Budget

The startup's budget establishes monthly performance targets to achieve projected results. An outsourced CFO will compare actual financial data to the budget to monitor the business's progress and provide a report on its status. Assessing the variance between the budget and actuals will point out areas where strategic adjustments may be necessary or determine if the budget is attainable.

If the CFO has familiarity with the business, they may offer guidance on improving budgeting. However, most outsourced CFOs lack a permanent relationship with their clients, only presenting the true state of the budget, which restricts the ability to address any problems.

 

4.    ‍Unit Economics

Utilizing an outsourced CFO solution can aid in the development and monitoring of the unit economics for your business model. Specifically for SaaS companies, this typically entails analyzing the average revenue and costs associated with each customer. By closely overseeing the ratio of customer lifetime value (LTV) to customer acquisition cost (CAC), the CFO will provide insight into the sustainability of your business and suggest opportunities for enhanced profitability.

5. Startup-Specific Guidance

As a startup, your financial needs are different compared to established businesses. Hiring an outsourced CFO with expertise in your field can provide valuable guidance in areas like team expansion and funding options, ensuring that important details are not overlooked.

However, if you select an outsourced CFO without relevant experience, their support may be limited. For example, if your business is a SaaS startup and you choose a CFO specializing in direct-to-consumer businesses, they may only be able to provide advisory services instead of being a hands-on partner.

To receive useful guidance, an outsourced CFO service requires extensive knowledge of your business model, capacity, and team functioning. This level of expertise cannot be achieved with just a few hours of work per month, so it is important to set realistic expectations.

At K-38, we have a team of experienced financial professionals with diverse industry knowledge. By leveraging their expertise and understanding the individual needs of each client, we offer precise guidance to meet your goals at an affordable rate.

‍6. Financial Presentations

Board meetings often discuss topics directly related to finances such as fundraising, business strategy, and the annual budget. Some outsourced CFOs offer to attend these meetings to lead financial discussions and provide their interpretation of the figures. They can address questions, provide detailed explanations of financial projections, present financial models, and clarify the underlying assumptions.

However, it is crucial for the outsourced CFO to have extensive knowledge of the startup in order to offer informed interpretations of the data. Depending on the business model and the complexity of the figures, it may be advisable to avoid outsourcing financial presentations unless a strong relationship can be developed with the individual representing the business.‍

7. Financial Reporting

If a hired CFO is not able to attend meetings, they can still assist the team by preparing the necessary reports, slides, and figures for you to present. This can be incredibly beneficial, especially when getting ready to meet with investors. By having these essential financial documents readily available, you can promptly respond to any requests and prevent any potential embarrassment from appearing disorganized. Furthermore, your outsourced CFO will thoroughly examine and verify the accuracy of your crucial monthly financial statements, such as the Profit & Loss (P&L) or Income statement, Cash Flow Statement, and Balance Sheet.

‍8. Strategic Planning 

Inexperienced startup founders, and even some seasoned ones, may make strategic choices that result in unforeseen impacts on their expenses or revenue growth. To prevent such mistakes, it is beneficial to seek guidance from an experienced outsourced CFO who can provide advice from both financial and business perspectives. An interim CFO could offer valuable insights regarding the business models being developed and propose alternative models that may be more suitable.‍

9. Customer Contract Reviews

An outsourced CFO can provide valuable guidance to business owners in negotiating contracts that yield higher profits. Their financial expertise allows them to spot potential risks that may result in costly consequences for the company, ensuring that contracts are well-protected. Taking into account the business viewpoint, the CFO services for start-ups evaluates whether the terms of the contract align with the company's best interests and suggests strategies to enhance profitability.

A successful review of customer contracts requires the expertise of a CFO who possesses a deep understanding of your industry, target market, and the stage of development of your business.‍

10. Legal Team Liaison

In order for a CFO to create precise financial statements, it is imperative that they have a thorough understanding of the company's contracts and legal responsibilities. This knowledge can only be obtained through close cooperation with the legal team. Collaborating with the legal department also allows an outsourced CFO to evaluate the company's legal documents and determine if they align with the business's best interests. By incorporating the CFO's financial perspective into legal decision-making, you can make informed choices about the potential financial implications prior to making any commitments.‍

11. HR Oversight

The primary function of HR in any company, including startups, is to manage headcount, which typically accounts for the largest portion of expenses. Working together, an outsourced CFO and HR manager can analyze the impact of changes in the team on the company's ability to meet budget targets. If required, they can provide suggestions on reducing staffing expenses. Additionally, they can offer guidance on creating a competitive compensation package that provides good value for the business.

Outsource Your Startup’s CFO Services With K-38 

Are you in need of top-notch outsourced CFO services for your startup? Look no further than K-38. Our full-service financial firm takes a fresh approach to outsourced CFO services, providing more cost-effective and intelligent finance functions. Our knowledgeable team of CPAs, accountants, and CFOs works alongside cutting-edge artificial intelligence and machine learning technologies to deliver expert finance management services.

By enrolling in the K-38 CFO Plan, you can trust that your financial planning and analysis functions are in the hands of qualified CFO-level experts. With a unified team overseeing every aspect of your financial management and planning, you can expect fast, precise, and actionable results every time.

Choose K-38 for your startup and enjoy the perks of having a dedicated always-on finance concierge and access to a sleek finance dashboard that transforms your accounting data into powerful visualizations.

Our team not only possesses firsthand knowledge of what it takes to achieve startup success but can also assist you in smartly managing your finances.

Unlike many other CFO firms, you won’t have to worry about mounting hourly charges: Our flat monthly fee includes all your outsourced CFO services, including: 

 

• Financial forecasting and projections

• Budgeting (planned vs. actuals)

• Scenario modeling

• Board meeting attendance

• Investor deck review and feedback 

‍

Learn more about our outsourced CFO services by contacting us today!