Your Chief Financial Officer (CFO) steers the finances of your organization. They analyze your financial records to help management make informed business decisions, they build models to guide pricing and budgets, and they take care of other critical business essentials. A CFO is a nonnegotiable element of a financially robust business, but you don’t necessarily have to hire an in-house professional for this role. Instead, you can opt to outsource your CFO.
Wondering which path is right for your business? The optimal answer depends on your budget, your goals, and other unique factors about your business. To help you out, this guide outlines the differences between a virtual CFO and an in-house CFO. It explains what these two professionals do. Then, it outlines the key elements you should consider when choosing between an in-house or virtual CFO.
What Is an In-House CFO?
An in-house CFO works for your business. They are on the payroll. As their employer, you will cover the cost of their wages, paid time off, payroll taxes, and office expenses. Depending on the structure of your business, you may also provide them with equity shares in the company. An in-house CFO is exclusively dedicated to your business. They understand your financials inside and out, and they do their work with your short and long-term goals in mind.
Unfortunately, when they go on vacation or get ill, you won’t have anyone to cover this role. If they leave your business, you will have to recruit, onboard, and train another in-house CFO. This can take away valuable company time and resources.
What Is a Virtual CFO?
A virtual or outsourced CFO is a financial professional who doesn’t work directly for your company. Instead, they work for a third-party accounting or financial services firm, and you pay that company for their services. Like an in-house CFO, an outsourced CFO gets to know your business, and they work with you to develop an in-depth understanding of your goals. Then, they leverage their expertise to guide, develop, streamline, and improve your approach to finances.
Virtual CFOs can work in several different capacities. You can hire a fractional CFO to provide CFO services as needed. This is ideal for companies that want an experienced CFO but don’t have the need or the budget to hire a full-time in-house professional.
Alternatively, there are also interim CFOs. These professionals provide CFO services on an as-needed basis. Generally, this is ideal for companies that have recently lost their in-house CFO and plan to hire a CFO but need temporary CFO services until they hire a permanent in-house CFO.
When you hire an outsourced CFO, they can work with your existing in-house accounting and bookkeeping team. Or you can outsource all of your accounting needs. Then, the virtual CFO can work with your external team. At DHJJ, we provide all of these services so that you can customize what works best for your business.
Virtual CFO vs In-House CFO
When comparing the differences between virtual CFO vs in-house CFO, you need to examine several different categories. Here are the elements you should consider.
1. Cost
For most businesses, a virtual CFO is more cost-effective. When you hire a virtual CFO, you pay a predictable fee and you only pay for what you need. In contrast, an in-house CFO requires you to incur all of the costs of an employee such as wages, payroll taxes, benefits, training, and office space.
2. Responsibilities
A full-time CFO is necessary for large-scale businesses. On the other hand, many smaller-scale businesses don’t need a full-time CFO. As a result, if they hire an in-house CFO, they often end up handling tasks that are below their experience level such as doing payroll, filing sales tax reports, or bookkeeping. Unfortunately, this is a subpar use of the CFO’s time and experience, and it often means that the business ends up paying more than necessary for these services.
In contrast, when you hire a virtual CFO, they can focus solely on CFO activities. This includes high-level tasks such as building financial models, auditing reports, and ensuring your executive team has the right financial data to make effective decisions.
3. Experience
When you hire an internal CFO, their experience is often limited by what you’re able to pay. By outsourcing and hiring a fractional CFO, you get access to their extensive experience and education, often at a lower cost.
Which Is Right for Your Business?
If your business requires comprehensive financial services, engaging a fractional CFO may be the ideal solution for you. However, determining the right solution depends on factors such as your business’s goals, budgets, and unique characteristics. If you’re unsure about which option suits you best, don’t hesitate to contact us today. We would be happy to answer your questions and discuss your specific needs.
At DHJJ, we specialize in providing a range of financial services, including interim CFO, fractional CFO, and other project-based CFO services. In addition, we offer accounting, audit, assurance, exit strategy planning, and advisory services tailored to meet the needs of businesses like yours.
