There are many reasons why hiring a contract CFO is a sensible idea.
1. Most companies do not require a full-time CFO.
Small and mid-sized firms, in particular, usually do not require a CFOs work for extended periods. Contract CFO services are ideal for these situations.
2. It’s a flexible arrangement.
From renting equipment to entering into short-term leases, companies need to maintain a certain degree of flexibility for business expenses. A contract CFO is beneficial in this regard.
3. A contract CFO has a broad perspective.
Because of their connections with multiple companies, a contract CFO can leverage those experiences to provide their clients with a very balanced perspective.
Of course, full-time CFOs can also bring diverse experience to the table. However, they are more susceptible to becoming too focused on a particular industry or company over time.
4. The annual cost of a contract CFO is typically much less than a full-time one.
In Lubbock, a full-time CFO will command a base salary between $80,000 to $250,000. If we include payroll taxes, benefits, bonuses, and other expenses, the total cost rises to between $100,000 and $275,000 annually.
On the other hand, paying an exceptional rate of $250 per hour for 20 hours per month of contract CFO services would result in a much lower cost of $60,000 annually. While the hourly rate is higher, most of the benefits of a full-time CFO can be obtained through a contract arrangement at a significantly lower annual cost.
5. Outsourcing enables access to a higher level of talent.
Due to a lack of challenges or career advancement opportunities, most experienced CFOs would not be willing to work full-time for a small or medium-sized firm. However, they might be more than happy to commit 20-25 hours a month providing general assistance and oversight.
Outsourcing also comes with the benefit of being able to hire specialists for different projects. For example, a company could use contract CFO services to hire a contract CFO to create a business plan, and then a different expert to set up their accounting software. A full-time CFO is unlikely to be a specialist in both fields.
6. A contract CFO makes sure that critical tasks are completed.
Some firms tend to ignore routine financial reporting, such as financial meetings or cash flow projections. Hiring a contract CFO provides a deadline for companies to finish this work.
Common Attributes of Companies That Benefit From a Contract CFO
While every firm is different, we have identified some common attributes of companies that benefit the most from using contract CFO services. In general, they have:
- Revenue between $1,000,000 and $30,000,000
- 10-100 employees or contractors
- A strong bookkeeper or bookkeeping team
- An analytical management team that values financial reporting and makes metrics-based decisions
When It Does Not Make Sense to Hire a Contract CFO
Despite a company needing a CFO and the many advantages of a contract CFO, there are certain situations where it would be an unsuitable arrangement.
1. A management team that likes to make impulsive decisions.
Given the nature of the work arrangement, a contract CFO will not be present for many decisions and will therefore not be consulted to give their perspective. It is simply a waste of money to have a CFO if management consistently makes important decisions without seeking their insight.
2. A company culture where everyone is expected to work full days at the office.
In this situation, it will be challenging for the contract CFO to conform and be impactful. While management might be OK with the arrangement, it could cause the other employees to become resentful.
3. A chaotic, unstructured work environment.
Some entrepreneurs tend to make decisions on things such as sales discounts or employee raises without obtaining approval from their sales or HR departments, respectively. Owners who engage in this type of behavior will not mesh well with a contract CFO.
4. Owners who value their accounting/financial skills and knowledge.
An owner with this trait will probably fail to see the need to use contract CFO services when they could theoretically handle those tasks themselves.
Finding the Perfect Contract CFO
Hiring a contract CFO can be complicated and intimidating. We suggest taking it slow and starting with a specific project (like a cash flow projection or financial model) to better understand the arrangement.
Worst case, ending the engagement is easy, so there’s minimal risk. In all likelihood though, we think you’ll be delighted with your decision.
