A virtual CFO, also called a VCFO or fractional CFO, is a consultant or company that provides CFO services to one or more businesses on a part-time or ad-hoc basis. In the past, a true CFO was usually a highly paid, full-time employee that only large corporations could afford to hire. But in today’s volatile economy, the need for a CFO’s expertise and service has become increasingly needed by smaller enterprises and even startups. Hence the recent introduction of the virtual CFO option.
According to research done by Salary.com, the average full-time CFO in the United States earns $394,200 per year as of June 28, 2021. The range is generally between $300,100 and $501,100 annually. This is more than most small and medium-sized businesses can afford to pay. This means smaller businesses must risk financial strategy by giving CFO responsibilities to an underqualified employee, forego CFO-level strategy altogether, or seek a highly qualified and experienced virtual CFO.
How Much Does a Virtual CFO Cost?
Because the position is flexible, your cost will vary based on the time and responsibility involved. In any case, the cost will be far lower than that of hiring a full-time CFO. For a highly experienced virtual CFO, you can typically expect between $3,000 to $10,000 per month, with many retainers falling between the $5,000 to $7,500 range. The amount may be higher based on your needs and the complexity of your business or lower if you have a competent financial team providing controller, bookkeeping or accounting functionsto support the virtual CFO role.
In order to understand the cost of virtual CFO services, it is important first to discuss what a virtual CFO is and what functions may be involved with this role. It also helps to understand how a virtual CFO differs from a bookkeeper, an accountant, a controller, or a full-time chief financial officer. The words “virtual” and “CFO” are very significant here. Let’s explore these roles and terms.
What Is a Bookkeeper?
A bookkeeper is someone who focuses on recording financial transactions and preparing financial statements for company executives to review. A bookkeeper collects and records data, categorizes revenue and expense information, and reconciles accounts to make sure the financial statements are accurate. A bookkeeper works primarily with the company’s general ledger, balance sheet, and income statement. The disposition and interpretation of these records are left up to others.
What Is an Accountant?
An accountant generally has more education and experience than a bookkeeper and has the responsibility not only to gather data but also to interpret it. The accountant may evaluate operations to identify problems and recommend best practices. This person will typically look for ways to reduce costs and enhance revenue. The accountant also prepares tax returns and ensures compliance with applicable regulations and laws.
What Is a Controller?
A controller is a senior-level employee who manages a company’s accounting operations. The controller ensures that financial records are kept up to date and comply with generally accepted accounting principles (GAAP). The controller sets and enforces accounting policies and determines how records are stored. Financial forecasts, budgets, shareholder reports, and debt servicing are all typical components of the controller’s job.
Why Hire a Virtual CFO?
The primary reason for using a virtual CFO is cost savings. Because a virtual CFO is employed part-time and remotely, the cost is significantly lower than paying a salaried employee. In addition, there is no need to pay for taxes, medical insurance, paid holidays or retirement contributions. In most cases, there is also no need to provide office space or equipment because much of the virtual CFO’s job can be performed remotely.
A virtual CFO generally has an advanced degree, a CPA license or other certification, and broad experience in multiple industries. These qualifications help assure that the person will be a true asset to your business. It is especially valuable to find a virtual CFO who has experience in your specific industry.
If you obtain a VCFO through a virtual CFO firm, there are additional advantages. For instance, should the individual prove unsatisfactory or become unavailable, a quick replacement can be made. Also, the firm will typically have a staff of controllers, accountants and bookkeepers who can provide backup and additional resources at a reduced rate, helping to reduce your overall cost for CFO services.
A virtual CFO can help your business bridge the gap between the startup phase and the point where you are ready to take on a full-time CFO. The virtual CFO may even be able to help you find a permanent CFO when the time is right, either by training an in-house employee or hiring someone from outside.
What Does a Virtual CFO Do?
A virtual CFO can provide most of the services of a traditional CFO but on a part-time or flexible basis. Some of these services may include:
- Short-term and long-term financial planning and advice
- Accounting management
- Raising capital
- Budgeting and variance analyses
- Cash flow analysis and projections
- Profit maximization
- Measuring key performance indicators (KPIs)
- Technology analyses and optimization
- Employee education
- Breakeven analysis
- Assessment and improvement of internal policies and financial controls
- Audit support
- Debt planning and management
- Legal compliance
- Corporate governance
- Cost controls
- Risk analyses
- Exit strategies
The specific duties and responsibilities of your virtual CFO will vary depending on your needs and the amount of time you allocate to the position.
When Is It Time to Hire a Virtual CFO?
If you need financial guidance, have trouble managing cash flow, want help in making financial decisions, are facing tough financial challenges, or simply want a financial expert on your team, you may want to look into hiring a virtual CFO. The nice thing is that you can be very flexible, using the virtual CFO as much or as little as you like, and delegating as much or as little responsibility as you like.
In these uncertain times, businesses need to be prepared for financial challenges of all kinds. A qualified CFO can make the difference between financial success and failure. Virtual CFO services make it possible for small and medium-sized companies to obtain the kind of financial expertise that used to be available only to very large firms.
If you would like to learn more about virtual CFO services, we invite you to contact Preferred CFO today!
About the Author
Eric Dorfman is a growth- and results-driven CFO with over 20 years of diverse experience in strategic finance leadership for public & privately-held companies in a wide range of industries.
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