When to Hire an Outsourced CFO vs. In-House CFO

5 min read
12/13/22 9:00 AM

When you're running your own practice, it quickly becomes impossible to juggle both the financial aspects of your business and the services your organization is providing. But when the time comes to grow your company with a C-level financial expert, there are a lot of options available—and not all of them will be the right fit for your business. Do you just need a tax advisor, or will that leave your company vulnerable? Are you in a position to hire a full-time CFO with years of experience in your business niche, or do you need all of that expertise without the price tag and risking it all on a single hire?

According to Smartbooks, "More than half of small businesses employ a CFO." But you can pick between a full-time, salaried CFO and an outsourced CFO or team of financial experts. The right financial solution will give your business a sturdy financial foundation while easing the pressure on your own workload, and, for many professional services businesses, that right choice is an outsourced CFO.

In this article, we'll explore:

  • The key differences between an outsourced CFO and an in-house CFO
  • The signs that an in-house CFO is a good fit for your business
  • When it's better to consider an outsourced CFO

Outsourced CFO vs. In-House CFO: Which One Is Better for My Business?

Both outsourced CFOs and in-house CFOs share many of the same responsibilities with their organizations: creating a profitable plan for the organization's future, ensuring cash flow and budgetary adherence, and ensuring the company complies with financial regulations and tax requirements. However, there are a few key differences. Primarily, in-house CFOs are salaried members of the company. They are at the helm of the ship and part of the decision-making processes throughout the business. An outsourced CFO has responsibilities that are set out in the contract, and they are responsible for providing those deliverables. In-house CFOs are full-time employees, while outsourced CFOs are contracted members who serve set hours based on the contract and your business's needs.

CFO-level services are beneficial to business owners in professional service firms as they bring business and financial expertise to the table while allowing you to focus on the services and clients. While either choice can be a good fit for businesses, it depends on your current financial situation, predicted growth, and the market.

When to Hire an In-House CFO

An in-house CFO is a full-time, salaried, internal employee. They can be a strong addition to your company if you have these three factors:

1. High Business Maturity

Mature businesses are complex organizations, with lots of financial obligations, diverse product lines, and lots of financial regulations to adhere to. Because of this complexity, having an in-house CFO who will stay with the company for years can be invaluable. Not only can dedicated employees maintain a long-term view of your business's future, but they can be on hand for daily operations and challenges that crop up with a large, mature business.

2. High Revenue

High revenue levels are essential for any business that wants an in-house CFO. Why? CFOs are expensive. According to Salary.com, the average CFO is paid between $319,600 and $537,100; additional costs include medical insurance, retirement benefits, expenses, training, and more. If your organization can't afford to tie up these funds on a single hire without jeopardizing your cash flow, a full-time CFO might not be the right fit. 

Also, without high revenue, there may not be enough financial activity in your organization to warrant that high-cost full-time CFOs. Traditional estimates put the magic number at $10 million: if your organization's revenue is higher, an in-house CFO can be a great idea; if it's lower, a fractional CFO may be better.

3. On-Demand Reach

In-house CFOs also offer more in-office availability for immediate financial concerns. They're salaried and not contracted for a set number of hours, so they'll be more accessible without stepping outside the employment agreement. While an outsourced CFO can be just as responsive and available, the full range of responsiveness and services depends on the contract.

When to Hire an Outsourced CFO

According to Fortune, "5% of businesses break the $1 million revenue mark, and only about one in eight of those reach $10 million." So for the vast majority of businesses, hiring a full-time CFO may not be the best use of time, money, or other resources. Instead, a part-time, outsourced CFO can be a much more flexible fit while still protecting your business and giving it a strong financial future. Here are three indications that an outsourced CFO is the right fit:

1. Financial Plateau

No business has a smooth journey as it grows. Your business may see stretches of slow growth, rapid rises, slow off-peak seasons, and everything in between. But if your business is in the middle of a plateau, it's often because your business processes aren't aligned with the current market. You may not have sufficient growth strategies in play, or you may be spending too much for your current leads. At this point, a financial advisor in the form of a CFO is crucial, but a traditional CFO is out of reach. Fractional CFOs can be contracted to perform the services you need without a long-term, costly commitment. This strategy is a good fit for any business with less than $5 million in revenue.

2. Plans to Scale

There's a difference between a growing business and a scaling business. You can grow your business by gaining more leads, getting more equipment, and growing your team. But that growth isn't necessarily scalable. To achieve scalable growth, you need a financial foundation established by an expert CFO who can create a sound financial plan for future profitability. A fractional CFO can help you create sound financial models of scale at times of crucial growth in order to build that financial plan.

3. No Succession Plan

Succession planning is crucial for businesses of any size. But a small business without a plan for succession can quickly put the organization at risk if under times of duress. Being vulnerable to sudden gaps in leadership, and knowledge amid disruptive markets and competition can shortchange the value of your firm. Building a successful small business is a work of a lifetime. Taking the time to develop an exit strategy with financial counsel tailored to your generational goals can protect your legacy, family, and finances. 

A fractional CFO can help you create a long-term vision for the company, shorter-term objectives, and strategies for realizing those short-term and long-term pursuits  — without the cost or commitment of an in-house CFO. 

Find the Right Financial Experts for Your Business's Journey With Dillon Business Advisors

At Dillon Business Advisors, we give small and growing businesses the financial expertise they need to thrive. Investing in a fractional CFO can make your business more financially sound without the high costs of hiring a traditional CFO. Contact us today to learn more about our fractional CFO services and see how we can help you focus on your business more holistically.

CTA Image