How Much Does an Outsourced CFO Cost?
One of the most important questions in your mind regarding an outsourced CFO is how much it would cost you? The rates will vary depending on what you need, however we are going to attempt to give you a very informed understanding of the costs on a yearly basis.
How an Outsourced CFO Can Help Your Business
Establish Objectives
Before we begin, we need to establish what you specifically want to get out of this process. It generally revolves around four things:
- Improving the performance of your finance team
- Reducing the cost of your finance team
- Improving the financial reporting within your business team including the accuracy and speed of reporting
- General business improvement
Understanding your objectives must come before you even invest a single dollar in an outsourced CFO. Once those are clear, we can begin the first stage of the process.
Stage 1: Initial Review
After both parties are clear on what you want to get out of the process, the first stage is to conduct an initial review. It may sound fancy, but what we will do here is look at all the financial and operational elements of your business. From there we will put together a plan.
It is crucial to stress we need to understand your business to achieve your goals and objectives. It is imperative because we want to stay on the same page through the process. For example, you may feel that you want to improve the performance of your finance team, but after our assessment we find out that your finance team is running in a very efficient and excellent manner.
We don’t want you to invest thousands of dollars in something you do not need. The initial review is intended for you to understand what you need and what you don’t and then setting a priority around that.
The investment you need to make for that would range from $4,000 to $5,000 for a one off or one time investment.
Stage 2: Clean-Ups & Training
'Clean-ups'
Part Two comprises what we call clean-ups. The costs for the clean-ups in this area can go to the extremes from a relatively low amount to a significant investment.
For example, you are looking at improving the quality and accuracy of your financial reporting. You may be confronting a bigger challenge where essentially your financials are completely inaccurate and needs to be corrected until you reach a point where you can either establish or regain full confidence in your balance sheet and your profit and loss.
Such a process for some businesses can easily take dozens and dozens of hours (in the extreme scenarios) and cost $15,000 to $20,000, if the issues that need to be addressed and rectified are significant.
On the other end, there are also cases we have worked on where the cost is insignificant. For instance, your finance team already has accurate financial information- potentially the cost for the clean-up could even amount to none- absolutely zero dollars.
As you can see, the difference for costs can be extreme, from practically zero to over $20,000.
Training Your Finance Team
The next element involves training your team members- whether from your finance team or operations team, we need to train them to achieve the objectives we have outlined in the initial review.
A key element we need to stress is we must ensure we train your people in the areas they are comfortable and competent in. For example, we should not expect the bookkeeper who has been around for only a year to suddenly reach the level of a CFO and work the way a CFO does. It’s about understanding their strengths and weaknesses and working around those attributes. The training we give is to make you get the most out of your team’s performance, and then system sizing that.
You may wonder, what if we do train your team and a team member leaves? How will that affect your business? Therefore we implement processes and systems in place so your business will continue to run smoothly even through the period of losing a team member.
How much would it cost for the training of your team and putting systems in place? The prices can range from a starting point of $2,000 to $4,000 and go up to $10,000 and beyond depending on the complexity of the systems and processes required, as well as the competency of the staff to be trained.
If you already have staff with high level competency, the degree of training for them will not be as rigorous (if any) compared to junior staff who will require more focused and thorough training.
It is also vital to point out that all these price ranges starting with the initial review to the clean-ups all the way to the training and putting in systems are all one-time investments.
Stage 3: Maintenance
The third stage is where we maintain and improve the systems we already set in place. This is to ensure the success of the process. We want you to get your money’s worth and not suffer the same woes or problems after a few months into the process. Therefore, we need this stage to continuously monitor and ensure everything’s working as envisioned.
The maintenance stage is where businesses thrive after the first two stages. Here, you are looking at costs to be anywhere in the average of below $2,000 a month while in some cases, it can go up to $6,000 a month.
The cost for the Maintain Stage will depend on a few factors. First, the complexity of your business will matter, and the workload expected of an outsourced CFO. The more items your own team complete, the less cost for your business.
Second, the number of ongoing projects you have will impact the investment. The nature of these projects we have worked in the past can range from several hours to several months. These will impact your ongoing investment.
Outcome
If your costs for this stage are between $2,000 to $6,000 per month, on an annual basis your annual investment can range between $24,000 to around $75,000.
There are always exceptions to every rule but this we believe is a very fair starting point for most businesses.
CFO Dynamics Specifically
We have discussed the expected investments at every stage for an outsourced CFO. For us at CFO Dynamics, we choose to work on an hourly rate basis. The reason being, we don’t want winners and losers which fixed prices at each stage can result in. One element we do commit to for each prospect is a very good estimate of how many hours we expect their work to take depending on the position. For example, if their books are “neat” or not at the clean-up stage.
Proper Invoices with Breakdown of Work Done
We will give you our invoices clearly showing line by line work completed each time we engage with your business. Therefore, you can see what we have done and accomplished. You can also ask any questions around that process.
Conclusion
In the end, whoever you choose as your outsourced CFO, make sure the outsourced CFO doesn’t lock you into a contract without you getting the most out of your significant investment in their service. Keeping them on their toes, make them work hard to add value for you and your business!
