Businesses seeking to optimize their finances inadvertently look to hire a capable CFO (Chief Financial Officer) to optimize their operations. But if you are getting started, it is vital to understand the right kind of CFO (in–house or virtual CFO) for your needs before you make your move.
An analysis by Christ Kolder Associates of 679 Fortune 500 and S&P 500 companies unveiled an interesting stat—the average tenure of CFOs fell from 5.3 years to 5 years in the last decade. There are two sides to this increase in CFO turnover—one is the change in corporate structure over the years.
The other is the evolution of the CFO role—organizations now expect more from CFOs. Instead of letting them handle only the finance side of things, modern businesses see them as catalysts to their long-term success. Finding the right CFO, whether virtual or in-house, thus becomes important for every company.
In this article, we examine the key differences and benefits of different CFO types to help you determine which is best for your business.
Understanding Virtual and In-house CFO
It is possible to meet different business needs with both virtual and in-house CFOs. Let’s look at what sets them apart first before we get into the details:
Virtual CFO
A Virtual CFO or VCFO is an alternative to the traditional CFOs who function like the latter but with a few exceptions. These individuals operate remotely and handle all the functions of a regular financial executive. They are also readily accessible when your team needs them.
In the case of a VCFO, all functions would be performed remotely, which means the organization need not bear the additional cost of their office space and amenities. Since they are not on the payroll, the company is not responsible for their payroll taxes and insurance or other health-based amenities, either. This makes a VCFO a more cost-efficient alternative to the regular CFO in managing organizational finances.
In-house CFO
In-house CFO are professionals who work for your business and are a part of your payroll. It means they are dedicated exclusively to your entity and spend most of their time looking to optimize your company’s finance side of things.
For this, the organization covers their salaries, payroll taxes, insurance, office expenses, and other official needs, and they can even get equity for their services. But like any other full-time employee, if the CFO falls ill, the company often does not have any alternative to manage their roles and responsibilities, which can be troublesome.
Which option is better for your business – Virtual CFO or In-house CFO?
Now that you understand what separates the two, let us delve deeper to understand which choice would be better for your organization –
Responsibilities
From managing liquidity to ensuring accurate forecasting and reporting, the responsibilities of a CFO are intense and well laid out in advance by a company. Organizations often use these to choose which option would be better for them—an in-house CFO or a VCFO. A CFO is answerable to all the stakeholders of a business, be it internal or external. An in-house CFO is also responsible for preparing the business’ financial roadmap and leading the accounting team to ensure the economic and related targets are achieved.
In most cases, entities prefer outsourcing their executive-level planning, reporting, and strategic services to ensure they no longer have to hire a full-time executive for the same. In return, the VCFO is thus responsible for only the services assigned to them and may not be held accountable for other services of a regular CFO.
So, if a business thinks it would be well off with the complete range of services a CFO provides and requires them to be present on the premises, it would be better with an in-house CFO. If it is more flexible with its requirements and only needs a few or more services from its CFO, hiring a VCFO would make more sense.
Responsiveness
In-house CFOs are thorough professionals who know their functions, which can prove vital for the business. These executives play a vital role in optimizing the accounting and related teams to propel businesses to achieve their short—and long-term objectives. But when you hire an individual who may not be well acquainted with specific scenarios that require high expertise, your organization can struggle to find the solution in a timely manner.
The case of VCFOs services is different. The business only outsources to the most experienced individual with proven expertise in handling the tackiest situations with relative ease.
For example, an SME is considering picking up a lucrative project but is unsure of it because of the huge capital influx. So, they want their CFO to create a revenue forecast for the project to ascertain its feasibility. In some cases, the in-house CFO may not have the requisite expertise to draw an accurate revenue picture. The VCFO, on the other hand, is someone with in-depth expertise, which can prove vital for decision-making in such times.
Cost Effectiveness
The CFO is the third-ranked individual in an organizational hierarchy and sits at the top of the financial team. So, the cost of hiring them can deter startups and SMEs as they may find it too burdensome for their business. In such cases, having a VCFO lets you take care of the specific business requirements without having to take care of their ancillary costs, such as insurance, healthcare, and more. Also, you may only require them for specific functions, which means that these individuals charge significantly less than their traditional counterparts.
In contrast, a large entity with abundant resources would have sufficient bandwidth to afford an in-house executive. For them, feeling the absence of a finance head during a crunch could prove fatal, and hence, they would be better off having a regular CFO for their needs.
Productivity
An in-house CFO needs some time (a couple of months or more) to understand your business and its nuances. Once they comprehend your business’s specific needs, they may be able to optimize their workflows and prove to be the most beneficial for the company. In the meantime, if your workflows are unoptimized, it can prove fatal and push your business a few years back in terms of growth and long-term goals.
One of the major VCFO benefits is prior experience working in diversified sectors and handling complex situations. These individuals are more flexible and have a smaller learning curve to get used to your business and its specific needs. So, if your company is looking for immediate action, having the services of a VCFO can propel it to make better decisions and improve its productivity sooner.
Team Support
Hiring an in-house CFO means you avail the services of an individual who works as a part of your organization. These individuals work in tandem with your existing workforce to optimize the financial and other related aspects of the business and push it to deliver better results. Since they are an individual, they can often struggle to handle specific issues and their time and energy may be insufficient to meet the business needs.
When you look to hire a VCFO, you get in touch with a VCFO consulting, which is a team of reliable finance specialists. While you may work with only a specific person on the team, the entire team can bring up their experience and ensure your business handles even the trickiest situations with relative ease. It gives you the leverage that is inadvertently missing in the case of a regular, full-time executive.
Access to Global Talents
An on-premise professional is more likely to be of the region you belong to. In many cases, your business is barred from hiring exceptional global talents because of local rules and regulations. This can be detrimental to the business in the long run and can cripple its growth. Also, these individuals may only have exposure to the local legislation, protocols, and business and finance standards, which may be limiting if you are looking to expand beyond borders.
Because of their flexibility, a virtual CFO or VCFO often comes with exposure to global brands and can prove to be a vital cog in your international expansion plans. These individuals can prove invaluable for small businesses looking to expand or for existing entities looking to grab new markets.
Decision-making
Virtual CFOs and in-house CFOs stand on par in their decision-making capabilities, but it’s the company policy that plays a key role. For example, most companies let their in-house executives handle the critical finance and related decisions. When it comes to VCFOs, most entities are happy to treat them like their in-house CFOs owing to their experience and expertise. At the same time, some entities can seek their service and knowledge but can choose to keep the decision-making to themselves.
Wrap up
Now that you understand the points that differentiate a VCFO from an in-house CFO, the decision between an in-house CFO and a VCFO should be less tormenting. In most cases, if you are looking to avail yourself of the wide range of services a CFO has on offer, having them in-house would be a better choice. But if your business is only looking for guidance in some specific areas/scenarios, getting in touch with a VCFO may serve right for it.
If you are unsure which option would suit you better, get in touch with us today. Our experts can help you understand the best option for your specific needs and even find the right individual.
