When is it appropriate for a company to think about hiring an interim CFO? Are there instances where it’s not a good idea in any way? What criteria and attributes should companies use to filter and choose candidates? This piece by Toptal Finance Expert Scott Hoover examines the solutions to all three of the questions. It is designed to serve as a guide that draws on more than ten years of experience as an independent CFO working for privately owned firms.
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About four years ago, Joe as well as Gary started printing in their garage. The business flourished, and now they own a store located in the industrial park as well as 27 employees. Gary is the producer, while Joe is in charge of finance and sales.
As time goes by, Joe’s roles have become too much for him to manage. The two partners have decided Joe will join sales full-time and outsource finance work. Joe is at the computer and writes the following message:
The local printing company is seeking a part-time CFO who can assist in all accounting matters, which includes but not only AR, AP, bank reconciliations, as well as payroll and reporting at the end of each month/year. Also, assist with quotations, as well as HR management and supervision of benefits programs for the company. The ideal candidate has previous experience in sales tax and the preparation of S Corp income tax returns. A minimum of 5 years of experience using QuickBooks is necessary. Other financial projects are ad-hoc, such as modeling, according to the request of the owners.
From Joe’s point of view, the article perfectly spells out what the company requires. It is, indeed. The problem is that what he wrote is not likely to be the best solution for meeting those requirements. Anyone who has worked in the field for a while can recognize warning signs and steer clear.
What’s wrong with Joe’s position, and how can it be improved to set the business and the CFO you want to hire to be successful? Are Joe and Gary consider the possibility of a part-time CFO arrangement in any way? There are situations in which it’s not sensible to employ part-time CFOs.
This article provides the answers to each of these three of the questions. This article is not meant to be a scholarly treatise. However, it is a useful guide that draws on more than ten years of experience working as an independent independent CFO for privately-held businesses.
When Does It Make Sense to Hire a Part-time CFO?
The idea that an interim CFO (or outsourced or part-time, the term “contract” or fractional CFO” – whatever you choose to label the position) is a good idea for many reasons:
A small percentage of companies, especially smaller and mid-sized companies, are able to get more than 2,000 hours of CFO’s time throughout the year. They might have periods that require a full week or day of work. This is followed by long periods without work. A part-time CFO can fill the gap nicely.
Flexibility is beneficial. It’s among the reasons businesses rent equipment and lease it on a short-term basis. Horton’s whitepaper called “Boosting Profitability using Flexible Overhead The author, Dr. Thomas Schleifer, states, “Companies should allocate 15 to 25 percent of total overhead as flexible, meaning it can be added or subtracted in a week or less.” CFO outsourcing services meet this definition.
A fractional CFO can bring a wide range of experiences to every engagement. One of the most common things I get asked by clients is what they like regarding their part-time CFOe) is that they appreciate the fact that I’m involved with many companies and have the experience to give them a balanced one.
That’s not to say that full-time CFOs don’t have an expansive perspective; however, I’ve noticed the tendency for them to become a little focused on a particular industry or company over time. This is one of the main reasons why I opted to be a part-time CFO on a freelance basis, and I’m certain that most of my colleagues have the same view.
The annual cost for an interim CFO is typically lower than that of a full-time employee. The location of the CFO will determine the price an experienced full-time CFO could cost from $100,000 to $200,000 within the middle market. Add payroll tax as well as benefits, mandatory conference and training, as well as office space. and the total cost grows to anywhere from $125,000 to $250,000 per year.
Even at a wage of $250 an hour for a part-time CFO, working 20 hours per month could yield a much lower annual expense of $60,000. The hourly rate is more expensive, but a part-time arrangement for an overall lower cost can obtain many of the advantages that a full-time CFO has.
Outsourcing gives access to talent that may not be readily available. Many CFOs with years of experience aren’t willing to commit their full time to a mid-sized or small company, in part because it’s not difficult. However, they could be extremely content to achieve 25 hours per month of top-of-the-line oversight and assistance.
This aspect has increased in importance with the advent of freelancing websites like Toptal. A small manufacturing business located in rural Wisconsin has access to an efficient manufacturing CFO from Pittsburgh by the press of one button. It has completely transformed the way that companies think about the CFO role.
Outsourcing also allows hiring specialists for every need. For instance, a startup could hire a part-time CFO to write an overall business plan, another expert to help with the development of a proposal deck and fundraising, and another specialist to set in place their finance department as well as an accounting system. Few full-time CFOs will be able to excel in all three areas.
A part-time CFO will ensure that critical aspects (such as financial reports) actually get completed. I’ve told clients that sometimes, my biggest value is just setting a date for them to finish their daily financial work. Without a regular deadline, some clients notice that crucial month-end reporting isn’t possible. This is also true for monthly owner meetings for financials as well as the cash flow forecasts.
Let’s get back to the original question: What is the best time (or in what situations) is it appropriate to have a part-time chief financial officer? Each company is unique and has its unique characteristics. Still, these are the most common characteristics I’ve observed in companies that have the greatest benefits from a part-time CFO arrangement.