It might have crossed your mind to ask if an outsourced or ‘virtual’ CFO is all about advantages while other similar services have more disadvantages. We would rather be objective, especially since a business can even shift from one service to another depending on their needs and appropriate timing.
It is important for business owners to understand the pros and cons of different options available within your finance team, particularly from a leadership perspective. Business owners can consider an internal CFO, an outsourced CFO, or even a tax accountant.
Let’s look at the benefits and drawbacks of each.
IN THIS ARTICLE
→ Pros and Cons of an Internal CFO
→ Pros and Cons of a Virtual/Outsourced CFO
→ Pros and Cons of Tax Accountants Doing CFO Work
→ Final Takeaway
→ What is Best Value for Your Business?
Pros and Cons of an Internal CFO
Pros of an internal CFO:
They have more time for your business
Internal CFOs are there all the time. This is one of their biggest advantages. They don’t have any other clients. They don’t have any other distractions. They are there focused purely on your business. They have all the time possible to give you insights into your business. Their investment in time is far greater than someone not working in the business outsourced or an external basis and they can put daily focus into your business.
They can push your people easier
This is especially true when your internal CFO is dealing with non-finance team members. For example, in the case of an outsourced CFO or a tax accountant, it’s easier for your team members to smile at them and agree with them on how operational-related strategies should be implement, but as soon as the outsourced CFO or tax accountant leaves, they go back to the old ways (or not embracing the new way) of accomplishing things.
Internal CFOs can monitor team members virtually all the time. Yes, that may sound like they are baby-sitting and handholding, so to speak, but that degree of accountability is better than when you have an external party overseeing this area of your business.
You can get someone elite in your industry
Whatever industry you're in, whether it's construction, wholesale, manufacturing or even more specific than that, you can get someone with ten, 20, 30 years of experience working for a competitor or like industry. When you have succeeded in getting him or her to work for you, they will bring this information and knowledge across to your business. For an internal CFO, you can get someone who is elite in your industry.
They may fit your organisation's size better
This is a practical concern especially at a certain point in your business's growth, evolution and journey. There will be a certain point in your journey where it's more practical to have an internal CFO there all the time due to the workload.
Cons of an internal CFO:
They can get lazy
That is the bluntest way to put it. This can happen especially for people who have been with your business for a long period of time. One of the factors for this is, unlike an external provider you cannot easily fire internal CFOs because of the laws governing their employment status in most countries. You can easily end your engagement with consultants even in just a matter of days’ notice and you will not be penalized, but with internal CFOs, even if you are dissatisfied with their performance, you must go through law-mandated processes of letting go of them.
The workload may not justify the salary
Is there enough workload at a high level to justify the high salary? Or are you risking certain tasks being completed by somebody who is very expensive relative to the task? You don’t want to pay CFO rates for a 50% of the time role.
They're more expensive
Like the workload raised in point 2, the pure cost is high. An internal CFO does not come cheap at most likely over $200,000 per year.
Pros and Cons of a Virtual CFO
Pros of Outsourced CFO:
They are most likely cheaper
Simply put, outsourced CFOs are unlikely to cost the same or cost higher than internal CFOs. Outsourced CFOs are cheaper, due to the fact your business is not burdened with their cost on a full-time basis.
They bring a broader perspective to your business
Virtual CFOs are most likely working with a diverse group of businesses. They can take ideas and experiences from different scenarios and bring these to your business.
Outsourced CFOs may bring ideas that work at a particular business or industry they have been involved in and bring the same winning principles and concepts to your own business. The assumption here, of course, is that they're not working for a competitor and there's no ethical problems to deal with.
By the same token, they can ensure that your business will not have to go through the same pain of failure by avoiding challenges (or trying to avoid!) they have experienced from previous clients and engagements.
They should be motivated to give their best now
Outsourced CFOs should be motivated to give their best because they're a not an employee with a contract. Unlike an employee where there are far more restrictions in place to remove them for failing to perform. They are compelled to provide value and high-quality work because if they fail to do so, you as business owner can quickly end their engagement, unlike in the case of an internal CFO whose contract is more bound by employment laws and processes.
Cons of a Virtual CFO:
You won't be their only client
Because they serve as an advisor, it is highly likely you are not their only client. The downside is they may not be able to respond to you immediately should you have pressing concerns. An internal CFO may just be one quick phone call away or even just a room away in your office for easy access. You don’t enjoy easy access with an outsourced CFO compared to an internal CFO. You may both have to work around certain schedules as well which works for both parties.
They may not be as familiar with your industry lingo
Outsourced CFOs may face constraints or challenges in knowing your industry and not as familiar with the industry lingo. Although, this is under the cons, financial information though is very consistent. So, it wouldn’t matter if your business deals with haircuts or selling cars, principles and concepts of financial information remain the same.
You may feel like you are on the clock
Outsourced CFOs can charge by the hour. That is most likely how the outsourced CFO business model works. Usually, outsourced CFOs stick to being fair to with their clients. There are times when you aren’t talking about work and financial matters and may feel like you are being charged to have a conversation about the weather or the game on the weekend.
They can’t always be there
Outsourced CFOs are not always there so they can’t always push your team. Your team can smile at an outsourced CFO, give their agreement on what needs to be done, but consciously or subconsciously they know they won’t be there all the time following them up. An internal CFO has easy access to your team. They are always there to push your team. An outsourced CFO simply does not enjoy this same benefit an internal CFO has in this circumstance.
Pros and Cons of Tax Accountants Doing CFO Work
The advantages and disadvantages of a tax accountant are like an outsourced CFO with just one additional each for pros and cons entries.
Pros of Tax Accountants:
They may also cost you less
Tax accountants are cheaper because the time and cost might be capped or agreed upon already, making the investment lower compared to an external CFO.
They may be more motivated to work better
Like outsourced CFOs, tax accountants should be motivated because you can easily no longer use their services if they’re not giving you value or performing well.
They have broad experiences
Similar again to an outsourced CFO, a tax accountant can boast of multiple experiences. They have worked with other businesses and other industries, and they can apply the insights they learned from these experiences to your business.
They are already familiar with your business
The additional advantage of a tax accountant is that they already know you. They already know your structure and understand how your business is set-up which can have a big benefit in terms of who you share your information with.
Cons of a Tax Accountant:
Internal push may not be there
Like outsourced CFOs, the internal push might not be there because tax accountants are an external worker. They are not there all the time and are not as easily accessible to your team, unlike an internal CFO. A tax accountant may only visit your office once a month, or once every quarter or work case once a year.
If you're trying to build an initiative, with the help of your tax accountant, it's a lot easier for your people within the business to ignore and not feel like they're being held accountable. And to be frank, just forget what was being done.
They are also not as familiar with industry lingo
Like an outsourced CFO, a tax accountant may not be as familiar with your industry lingo, although, financial information is consistent in nature.
Same feeling of being on the clock
Like outsourced CFOs, you will have constraints consulting or even having a simple discussion about work and business with tax accountants beyond the hours you are billing them for.
Less specialised than internal and external CFOs
The additional con for tax accountants is the fact that CFO is a very specialist-oriented field. Both outsourced CFOs and internal CFOs devote their life's work in terms of building expertise on financial management and financial performance. Tax accountants by name spend a lot of time looking at tax, and we've found with tax accounting offerings is they are often quite high-level. You will get a report and a management meeting, but tax accountants won’t necessarily work as intensively in your business in the same way an internal and external CFO would. Especially in terms of the day-to-day operations of your business as you try to bring projects to life. This may be a compromise when availing the services of a tax accountant.
Final Takeaway
What is Best Value for Your Business?
All three, whether internal CFO, outsourced CFO or tax accountant have their respective strengths and weaknesses. Ultimately, what's most important is adding the most value for your business.
