Finance Guides

The Future of work: A case for a part time CFO

The statistics look promising but we should ask ourselves how many SMEs stagnate in their lifecycle because they cannot afford the right caliber of talent to grow, what is the nature of jobs they create and how possible it it to improve on the job quality, what can be done to reduce the mortality rate of these SMEs?

Future of work: A case for CFO on call services

Small and Medium Enterprises (SME’s) are said to be the engine behind every economy. According to the World Bank, SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies.
The statistics look promising but we should ask ourselves how many SMEs stagnate in their lifecycle because they cannot afford the right caliber of talent to grow, what is the nature of jobs they create and how possible it it to improve on the job quality, what can be done to reduce the mortality rate of these SMEs?

Is it time for SMEs to consider CFO on call services?

Having access to a virtual CFO can be a big benefit for a small business. Most of them can’t afford an experienced, knowledgeable CFO on a full-time basis and may never consider hiring one. That’s a problem, because many small businesses fail within the first three years.

When does it make sense for a business to consider hiring a part-time CFO? Are there situations in which it doesn’t make sense at all? What attributes and criteria should businesses use to filter and select candidates? This article looks at answers to all three questions, and is intended to be a practical guide to how an On-call CFO can be leveraged.

Case study

Janelle is a single mum with several years experience in sales and marketing and a passion for baking.
Jannelle started a bakery 6 years ago in her unutilized room at her apartment. The business took off, thanks to her networks and repeat customers. Today, she has 4 outlets where she distributes her products consistently and guarantees a certain level of revenue and operating cash flows.

Janelle currently handles the production, supply chain, bookkeeping, sales and marketing single handedly. As the weekly volumes increase, Janelle’s roles have grown beyond what she can handle. Her business has gained admiration from potential investors who would like to discuss potential areas of collaboration that may necessitate tapping into the export market.

Overwhelmed by the volumes of work, Janelle considers outsourcing the financial work to focus more on sales and partner relationships. She drafts the following job post and shares it on the various platforms:

“Local bakery seeking a part-time CFO to assist with all things accounting, including but not limited to: AR, AP, bank reconciliations, payroll, and month end/year end reporting. Will also assist with quoting, as well as HR management and oversight of company benefit programs. Ideal candidate should be at least 5 years of experience with QuickBooks and be ready to take on other ad hoc financial projects, modeling, etc. as requested by the owner.”

This posting perfectly lays out what the bakery needs, however, what she described is probably not the best solution to meet those needs. Any experienced part-time CFO will recognize the warning flags and steer a mile away.

Some considerations to make are:

How can the job post be modified to serve the bakery better and set up the desired CFO up for success?
Does Janelle need to be considering a part-time CFO arrangement at all?
Are there situations where it does not make sense to hire a part-time CFO?
Let’s delve deeper and attempt to answer the 3 questions above based on my experience in the Finance world.

When Does It Make Sense to Hire a Part-time CFO?

1. Very few SMEs magically need 2,000 hours of a CFO’s time each year. They may have stretches where they need a full day or week of work, followed by extended periods of nothing. A part-time CFO fills that need nicely.

2. Flexibility is good. It’s one of the reasons companies rent equipment and enter short-term leases. Companies should allocate 15 to 25 percent of total overhead as flexible, meaning it can be added or subtracted in a week or less, CFO on call services fit that definition.

3. A fractional CFO brings diverse experience to each engagement. The value of diversified knowledge can be leveraged by SMEs to provide them with a balanced perspective.
This is not saying full-time CFOs do not have a broad perspective, but there is a tendency to get a bit industry-centric or even company-centric over time.

4. Annual cost of a part-time CFO is generally much less than a full-time counterpart. A highly-skilled full-time CFO earns a minimum of $50,000 annually without consideration of additional costs like taxes, benefits, obligatory training and conferences, office space, etc.

A CFO- on-call earns on average 60% less than a full time CFO and yet many of the key benefits of a full-time CFO can be extracted through a part-time arrangement at a far lower overall annual cost.

5. Outsourcing brings access to a level of talent that might not otherwise be available. Many highly experienced CFOs would not commit full-time to a SME operation, mostly because it wouldn’t be challenging. They may, however, be very happy to devote 25 hours a month to high-level oversight and assistance.
Outsourcing also enables hiring specialists for each need. For example, a startup might hire a part-time CFO to develop a business plan, a different expert for a pitch deck and fundraising, and later a different specialist for setting up their finance function and business processes, competencies which may not be had by one CFO.

Qualities of SMEs ready to take on CFO on call services are:

Revenues of between USD 150,000 and USD 500,000, above that you can afford a full time CFO

Over 10 employees

A strong book keeper to handle day to day transactions
A management team that is analytical, values solid financial reporting, and seeks to make decisions based on metrics rather than gut feel.

When Does It Not Make Sense to Hire a Part-time CFO?

It is quite possible for a company to be in the right size range, and have a legitimate need for CFO oversight, but still not be an ideal candidate for a remote or part-time CFO arrangement.

Here are a few of those situations:

Freewheeling management team that makes decisions on the fly and doesn’t think to reach out for the CFO’s perspective if he/she isn’t with the team that day. Obviously, a part-time CFO is part-time and will not be present for every big decision. The CFO becomes a waste of money if management constantly forges ahead with big decisions without incorporating the value of the CFO’s insight.

Culture where everyone in the company is expected to be at the office and put in full days. In this scenario, a CFO who isn’t around every day will struggle to fit in and make an impact. This can be a big deal even if management is on board with the concept. A remote arrangement mitigates this problem, but the mentality can make the arrangement difficult even then.

An unstructured environment where chaos is the norm and attempts to implement financial systems and controls are overridden. Some entrepreneurs/owners will simply never understand why they need approval from the sales manager before giving a major sales discount, or why it’s not wise to give a raise to an employee who bypasses HR and comes straight to them. Owners who always barge ahead and do what they want regardless, will not work well with a part-time CFO (or a full-time one, for that matter). As companies mature, so must the management structure.

Owners who take pride in their accounting skills and financial acumen have the illusion that they could theoretically be doing everything themselves and perhaps even better. Best for both the owner and CFO not to even start.
SO what was wrong with the job posting?
The list of bookkeeping duties indicates a lack of understanding of the CFO role. Bookkeepers generally handle A/R, A/P, payroll, etc. While an experienced CFO may enjoy some of those activities as a break from strategic tasks,it is probably not the best use of their time or your money.

Focusing on experience with particular software packages ignores the reality that a quality CFO should be able to quickly get up to speed in virtually any software environment. It is far better to hire a good CFO without specific software experience, than a mediocre CFO who has experience with your software.
The job description includes too many day-to-day tasks. To make a part-time CFO engagement cost-effective and productive, avoid this pitfall.
Understanding the CFO role

Let’s take a moment to rephrase the job posting:

“Rapidly growing bakery seeking a part-time CFO to provide high-level financial oversight and collaborate with management on strategic items such as pricing, supply chain management and project costing software. The ideal candidate will streamline the company’s financial processes and operations and help the owners set the stage for going to the next level.
The CFO will be responsible to manage the bookkeeper who handles day-to-day financial operations. The company currently uses QuickBooks, but is open to migrating to a more robust platform, at the recommendation of the new CFO. A finance expert who sees the big picture but doesn’t miss the details will thrive as part of this company and management team.”

Finding the Perfect Fit

Finding a part-time CFO that “fits” right in with your company is extremely important, but also hard. Here are a few questions over and above integrity and personality you may want to consider:
How do you communicate? Each person and company has their “way.” Some use email, others messaging channels like whatsapp, some need an actual voice on a phone call or video conference. If your communication methods don’t connect, the engagement will struggle.

What is your average turnaround time for communications? This is a question for both CFO and owner. Some people are “always live” and respond at 10pm to an email. Others feel a 2-day wait is completely acceptable.

What industries have you worked in? This question is especially important for industries with niche accounting needs. For example, accounting for manufacturing, construction, consumer lending/banking, investment firms, etc. is relatively complex and requires specialized experience.

What specific task do you enjoy the most in the CFO role? This will give you a quick sense where the CFO’s heart is. Is it in month end reporting, financial projections, fundraising, or strategic planning with the leadership team? See how that aligns with what you need.

How much time do you have to commit to us? Freelancers, like business owners, can be guilty of taking on too much. Make sure the CFO has the current bandwidth to do what you need to be done.

Hiring a part-time CFO can be an intimidating step, but if done right, can be the ticket to the next level. Take the time to find someone who fits with your company. Wait to settle on any ongoing work until after that first project. That gives all parties a chance to grow into the arrangement and provides a mutual opt-out point.

Unlike a full-time hire, the risk with an outsourced CFO is pretty minimal. If it doesn’t work out, you end the engagement. More likely though, you’ll look back after six months of success and wonder how you ever got by before.

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