Financial mismanagement is one of the prominent reasons businesses, especially MSMEs, fail globally. It’s also understandable why. Poor financial decisions can have a rippling effect on your business and impact all its facets, from sales to administration.
Hence, the role of a capable CFO (Chief Financial Officer) in an organization cannot be understated. They are amongst the top three executives in a company and are bestowed with handling and managing financial decisions.
However, startups, SMEs, and other companies are often undecided about whether to have an in-house CFO or a VCFO (Virtual CFO).
If your organization is also stuck between choosing the right CFO for their business, this article will clear all the doubts and pave the way for a more-informed decision-making.
What differentiates an in-house CFO from a VCFO?
An in-house CFO is on the payroll of the organization and works at the premises of the organization like a traditional CFO. On the other hand, a VCFO is a modern concept wherein a CFO fulfills their allotted responsibilities remotely for the company.
Here are the aspects we can use to differentiate a VCFO from an in-house CFO –
| Feature | In-House CFO | Virtual CFO |
| Employment Type | Full-time employee | Outsourced or part-time role |
| Cost | Higher cost (salary, benefits, overhead) | More cost-effective |
| Flexibility | Fixed working hours and commitment | Flexible engagement and hours |
| Availability | Always available during business hours | On-demand, as per contract |
| Expertise | Specific to industry/organization | Diverse industry experience |
| Scalability | Less flexible; fixed capacity | Scalable services based on needs |
| Focus | Strategic and operational finance roles | Strategic financial management |
| Resources | Limited to internal resources | Access to a broader network of resources |
| On-site Presence | Constant on-site presence | Primarily remote with occasional on-site visits |
| Training & Development | Responsible for training and developing the team | Not responsible for team training |
| Contract Flexibility | Complex termination process | Easier to scale or terminate VCFO services |
| Technology Use | Depends on company infrastructure | Utilizes advanced cloud-based tools |
| Long-term Commitment | Long-term commitment to the organization | Project or retainer-based, short to mid-term |
Employment Type
An in-house CFO is a full-time role, and the chosen executive is part of the organization’s payroll. They lead the accounting department and are answerable to all the organization’s stakeholders (internal and external).
A VCFO operates remotely and is not on the organization’s payroll. Their job profile is similar to that of an in-house executive, but they are only required to handle the responsibilities that the company needs them to. These responsibilities are specified in the contract, and they can be offered employment on a fixed-time or contract basis.
Cost
While the company is paying for the services of the in-house CFO and VCFO, the cost structure and the overall amount can vary considerably. Traditional CFOs are part of the payroll and are eligible for all the benefits and perks that come with it, which entails higher costs for the business.
Virtual CFOs are hired on a contractual basis and are only required to fulfill the tasks laid down in the contract. So, VCFO benefits are dependent on the contract with the organization and their amenities vary from a regular employee. So, businesses usually pay less for the same level of expertise.
Flexibility
In-house CFOs are expected to perform a wide range of duties and can often go beyond the scope to ensure the organization’s well-being. However, their compensation rarely varies based on their performance or the umbrella of services they provide.
In contrast, a Virtual CFO possesses all the skills of a regular CFO, but since their association with the business is contractual, the latter can fiddle with that to find the right fit for themselves. In most cases, organizations also keep updating their contract terms to suit themselves better, which also affects the financial part of things. Thus, having a VCFO offers more flexibility to the company.
Availability
Traditional CFOs are regular employees who work for your organization. So, in most cases, their accessibility is defined by the tasks that the company has allotted to them. These individuals serve according to the country’s legal business hours.
Virtual CFOs operate remotely, and their accessibility is flexible based on the business’s specific needs. These individuals may operate in a different timezone but are usually available during the official working hours of the organization they work for. In most cases, their availability would depend on their scope of service and the arrangement you have with them.
Expertise
An individual would require certain minimum qualifications to qualify as a CFO. So, irrespective of whom you choose, you can be assured of securing the services of a highly experienced individual. Traditional CFOs usually prefer to operate in a single or a handful of industries. Their expertise would be in-depth but can often be limited.
A Virtual CFO often has the edge when it comes to the range of expertise. These individuals work with multiple clients across industries and can offer invaluable input across scenarios because of their wealth of experience.
Scalability
Scalability is another area where VCFOs hold a clear edge. Traditional CFOs come with a fixed set of abilities that can change only to an extent. Hiring a VCFO means you get access to a team of experts who have been working in diverse situations. They are thus better equipped to handle your varying needs and grow with you.
Focus
One of the most significant roles of a CFO is of a strategist. The in-house CFO plays a vital role in the organizational strategy development and execution as a finance head. They understand key business drivers and use their financial expertise to drive growth and innovation.
A VCFO’s primary focus is limited to strategic financial management. While they perform all the functions like a regular CFO, they are not as involved as the latter. Also, often organizations prefer keeping the role of a strategist within themselves when they hire a Virtual CFO. Therefore, they prefer limiting VCFOs to the role of a strategic financial manager.
Resources
The responsibilities of a CFO require them to make the best use of resources available. With a traditional executive, their resources are usually limited to internal assets as they are embedded within the organizations and have limited access to the outside world. While valuable, it can often mean that the in-house executive’s expertise remains limited to a specific niche or industry.
In contrast, a Virtual CFO gets access to a wider external network because of how they operate. They have worked across industries and use their experience and varied knowledge to make better decisions. VCFOs also allow organizations to gain access to a broader perspective and diverse resources when they place them at the forefront.
On-site Presence
Organizations require their in-house CFOs to be present at the site whenever feasible. It means that a traditional executive spends around 90% of their time or more on the premises. On the other hand, a VCFO operates remotely. They primarily handle things from away, apart from occasional on-site visits for specific purposes.
Training & Development
The organization plays a vital role in training and developing the in-house CFO and their team. The process is often elaborate and can last a month or more. So, companies end up investing their time and resources significantly in the hope that the induction of an in-house executive will bring better results.
The organization is not responsible for VCFO’s development and training. The experts are required to come prepared, and businesses expect them to have access to all the resources themselves. Plus, the wide experience of a Virtual CFO also entails that they are better prepared to understand the organizational nuances, which allows the latter to get access to experts with limited additional support.
Contract Flexibility
A CFO is a full-time employee, and like any other person on the payroll, their contracts are very rigid. This means that the organization has to fiddle hard to make changes in the contract and often has a long waiting time before the changes are live. In contrast, VCFO contracts are known to be more flexible, and businesses do not have to struggle to make changes to find the right one for their needs.
Technology Use
The importance of cutting-edge technology in today’s business language cannot be overstated. So, any business looking to topple its competition has to make the most of it, and its C-suite executives play a major part in making that happen. Traditional CFOs may rely on legacy methods and tools for their strategy and financial reporting, which can be counterintuitive for the organization. Plus, businesses have to upgrade their tech stack consistently, which can prove costly constantly.
With virtual CFOs, companies get access to the latest technology to aid strategic decision-making and financial management. The outsourcing company will bear the associated costs for the latest tech, so the business is also saving a lot of money otherwise spent on constantly upgrading their tech to keep up with their peers. Today, modern VCFO consulting partners deploy cloud-based financial management systems to ensure optimum financial performance and accurate teamwork for holistic growth.
Long-term Commitment
A CFO signs a long-term contract and is expected to be a part of the organization for a few years at least. Traditional executives are also reluctant to change and have been instrumental in the long-term growth of an organization.
VCFOs, on the other hand, are easier to hire but their hiring is usually on a retainer basis. These contracts are periodically renewed, but they tend to switch easily if they find more meaningful opportunities. So, businesses constantly have to ensure that they are offering enough to these remote executives to prevent them from switching loyalties.
Wrap-up
CFOs play a vital role in the financial and strategic management of a company. They are one of the key decision makers and finding the right one can make or break a business. The choice between an in-house CFO and a VCFO would ultimately depend on your needs and what you expect from that position. If you prefer the individual to be at the premises, having an in-house CFO can be a better choice. Similarly, if you are looking for more flexibility and diverse expertise, a VCFO can yield better results for your organization.
At MyFinnar, we specialize in consulting with our partners to find the best CFO for them. So, if you are looking for a VCFO consultancy to help you make a more informed choice, consider getting in touch with one of our experts today.
