Over the last 4-5 years, there has been a significant increase in
Is the outsourced CFO here to stay or just a passing fad?
Answers
Part-time/interim/fractional/outsourced CFOs have been around for many many years, however in the last 4-5 years (which is from the time of the crash) there has been a glut of individuals on the market.
Some have CFO skills, other Controller skills, other CPA skills and still other no skills. They all hung out the shingle "Outsourced CFO/Consultant". Thus the term Consultant has been diminished by many of these individuals, because they are not Consultants, they were out of work individuals who needed to make an income.
Let me be clear; most of the individuals are fully qualified to be CFO's, etc, but they don't understand the Consulting (independent contractor) business. As such, they priced themselves at ridiculously low rates figuring they'd work 40 hours a week for 52 weeks a year and make a decent living while finding that final resting place, the full-time job.
Consultants know that one doesn't work 40 hours a week. As such, we are priced accordingly. The Consulting industry (at least the CFO/Controller) industry hasn't fully recovered (neither has the job market yet; do you see a correlation?).
As far as the title; most people don't know what a CFO is and does (whether in a small business, mid-sized or large). Thus there is an incorrect blending of CFO/Controller/Accountant as well as the role of the CPA in the concept of the CFO.
As Samuel Dergel points out in his new book (this is a uncompensated plug) you don't need to be an Accountant or a CPA to be a CFO and in fact a diverse background might even be a better qualification. Funny thing is, when was the last time you saw a CFO advertised with someone with a Finance Degree or Liberal Arts?
Finally, to answer your last aspect asked; the part-time/interim/fractional/outsourced CFO will be around for a long time. Companies need this role fulfilled, and many times it is not a full-time job. Interim will be here since gaps between full-time hires are unavoidable, and slots need to be filled by qualified individuals.
Wayne
I want to add to Wayne's observation about the economy not being fully recovered. That is the perception (or even reality) that many of the formerly unemployed people have started their own businesses, becoming entrepreneurs. Entrepreneurs may not be able to afford to bring in a CFO, controller, or a similar function, or even have the need for one yet, therefore they will hire someone with that experience through an interim or contract role.
To that extent that is why I think what Wayne said about the part-time/ interim/fractional/outsourced CFO being round for a long time is absolutely true. I am starting to think that big businesses are diminishing, thus we will see more of a micro-business culture. The world is getting smaller with its technological advances, so are businesses (or so it seems to me).
What is said by Wayne and Chris are accurate. There is still a flood of unemployed finance and accounting managers type trying to make a living in this interim space. However, there is also a real need in the small to medium private businesses for long term part time as required senior financial accounting expertise. This is not going away.
I don't think the outsourced CFO is a passing fad and share the thoughts put forth by Wayne and Chris. I do think that the CFO skill-set should not be misconstrued or "diluted". A true CFO brings a lot more to the table than accounting acumen.
The way you approach your re-branding depends a great deal on the experience and level of your offerings. I wouldn't shy away from using the term CFO, provided that you are not offering staff level services alongside CFO advisory level services.
If you want to include room for both, then you might consider branding / operating each as separate divisions of your business. I don't provide advisory or outsource services, but I have observed it done this way. I'm sure others can offer you better feedback!
I think the part-time CFO makes a lot of sense for small companies, as it gives them access to the right amount of senior talent well before they can afford or need to put a full-time person into that position. It's important, though, to know when to bring it in-house full-time. Most entrepreneurs don't understand the value a "real" CFO can bring to the table, as they usually haven't worked closely with one before. So, unnecessarily delaying the hiring of a full-time CFO can result in a significant opportunity cost to the business.
Outsourcing as a strategy is an approach that makes tremendous sense and is highly recommended for a small to medium-sized business, i.e. outsource until you can afford to build it internally. So is it going away – No. Instead, you are seeing more and more Accounting firms offer Outsource CFO Services. This offering is a natural diversification for them. The inexperienced small business will use this service. It only makes sense to seek advice from a professional that knows the accounting details of your business.
The optimal target for a new or existing business specializing in CFO services is the medium-sized entity. It is this type of organizations that is in hyper growth mode. They will need help in many tasks including – Accounting
Wayne’s description of how this market sprang up is 100% accurate; as well as his prediction that outsourced CFO’s will be around for a long time. I would keep the CFO name, but ensure your target market, specialization is clear. This differentiator will help single you out among the more general services that are all things to all people.
Thank you so much everyone for your responses, especially Wayne and Regis, those were particularly helpful. I do indeed concur that the rise in outsourced CFOs happened after the bottom dropped out in '08 and many CFOs and related professionals were put out of work. My concern was that the rapid rise in those
I also want to stress that I am not intending to function as a freelance CFO biding time until I go back into the workforce, but rather, operate a full-fledged CFO practice with the goal of enlisting other CFOs to join the practice, expand the name, and solidify the brand.
I also agree that the ideal client is one that is in hyper-growth mode; I am actually working with two clients that are currently in the start-up/pre-revenue stage and one that recently sold their existing business and is in the process of starting another that is introducing a new concept to the local marketplace with the goal of rapid growth so that they can eventually sell or merge that business.
They all are ideal clients, though the industries are all different as night and day; my goal is to center my practice around one primary industry as my niche so that I can brand myself as the best CFO for that industry. I then plan to re-name/re-brand my practice accordingly.
But unlike some outsourced CFOs, this is not intended to be a string of pseudo-employee freelancing jobs, but a true-to-form CFO practice with a distinct competitive advantage and like-minded professionals on board bringing their unique talents and abilities.
In short, thanks to the feedback here, I will keep the "CFO" moniker as part of the name, although I am still debating on what to name the firm and how to brand it in the interim. Hopefully, Samuel Dergel will post feedback soon (and I definitely plan to buy his book - btw, thanks for the plug, Wayne!).
I don't think it's overused in the market b/c the CFO position has gained more importance as not just an accounting guy or gal. Small businesses will need this service b/c they can't afford the price of tag of someone who actually knows what they are doing. And I don't think it is just hyper-growth clients. I think most small businesses need help to clean up their accounting processes, find financing, or to simply create a budget for the first time, for example.
I agree with the comments made previously here. In addition, I wanted to point out the small and medium sized organizations often don't ask the right questions when hiring an outsourced CFO to make sure that the person has the skills to effectively complete the broad range of tasks and responsibilities that come with the CFO job in a small and medium sized group.
Several times I have seen small groups hire a former Fortune 500 CFO or top 10 b-school grad as a consultant for a job like this to have them fail magnificently. It is true that if they find the right outsourced CFO it can give them access to talent that they might not otherwise be able to afford. In order to find the right fit the organization should hire a consultant who has done the same job for similar organizations (e.g. size, industry, phase of growth). They also need to recognize that a consultant is never going to be as engaged in the business as a full-time employee and that hiring an employee is likely to be better for the organization for the long run.
I think the part-time CFO is part of our free agent business culture. I am not sure there has been a firm definition of a CFO for quite some time. I have seen "accounting" CFOs with a strong FP&A #2 and strong "analytical" CFOs with a strong accounting focused #2. The part-time person has been used to fill both these types of roles.
Great conversation on the topic. Thanks to Jason for starting it and for everyone else that contributed.
(FYI - I have not paid Wayne for plugging my book. Yet).
This is a topic that continues. The "Consulting CFO" product has developed over that last 15-20 years. At one point in time, I was a Consulting CFO as well (15 years ago).
The biggest challenge to the experienced CFO that wants to become a "Consulting CFO" is that they need to understand what it means to be a Consultant. Too many confuse it to be a job. It's not a job. It is a business.
The biggest challenges to companies that can use a "Consulting CFO" is that the market is very diverse. It is not like buying accounting firm services, because those services are regulated and (somewhat) standardized. There is a lot of choice, many of the potential buyers (with the need for the help) are not sophisticated enough to understand what they need in the first place, and will be attracted by the wrong things such as price.
In my book, I say that for CFOs never to be out of work, they need to be
- Visible
- Branded
- Networked.
The same applies, maybe even more so, to Consulting CFOs, who, by the very nature of the work they do, are almost out of work even when they are working.
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Sam, can you elaborate on "It is a business"?
Concur on your very last point. When I started my CFO practice in 2001, I learned that when I was working, I was not marketing. When I was marketing, I was not working. Working and marketing is a delicate balance.
For CFOing business veterans, my comment is slightly inaccurate. Some of my best clients are my best referrals.
Jason, please what does LPA stand for?
Kehinde, LPA stands for Licensed Public Accountant.
CFOs help businesses grow sustainably and manage their assets in such a way that will benefit the company in the long-term. Most of the small and medium-sized businesses use outsourced CFO services during their start-up phase when they need the advice of a skilled financial professional but they don't get ready to hire one on a full-time basis as part-time CFOs help them in growing their business efficiently.