The Street Guide on How to Hire a Part-time CFO

The Street Guide on How to Hire a Part-time CFO

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 by Toptal Finance Expert Scott Hoover looks at answers to all three questions, and is intended to be a practical guide based on nearly a decade of experience as a freelance CFO for privately held companies.

Executive Summary

For mid-sized companies, a part-time CFO often makes more sense than a full-time CFO.
  • Very few companies magically require 2,000 hours of a CFO's time each year.
  • Part-time CFOs often have multi-industry experience which provides fresh perspective and out-of-the-box solutions to problems.
  • Using part-time CFOs allows companies to hire different experts for each specialized need (e.g., fundraising, monthly financial oversight, forecasting, etc.). Few full-time CFOs are the best candidate for all specialties.
Companies with these attributes stand to gain the highest benefit from a part-time CFO.
  • $1,000,000 to $30,000,000 in revenue.
  • 10-100 employees.
  • A strong bookkeeper or bookkeeping team to handle day-to-day routine transactions and regulatory reporting.
A part-time CFO will not always be the best option, particularly if a company has...
  • An executive team that views the accounting function as a bookkeeping or tax preparation role and has not caught the vision of customized financial reporting to enable robust growth.
  • Freewheeling executives who make decisions on the fly with little input.
  • An unstructured environment where chaos in the norm and attempts to implement financial systems and controls are looked at askance.
To find the best part-time CFO for your company, consider...
  • Whether your communication style matches with the potential CFO.
  • The industry experience of the candidate (the more industries the better).
  • References.

Four years ago, Joe and Gary started a printing business in their garage. The business took off and today they have a shop in the industrial park and 27 employees. Gary runs the production side, while Joe handles sales and finance.

Gradually Joe’s dual roles have grown beyond what he can handle. The partners have decided Joe will go into sales full-time and outsource the financial work. Joe sits down at the computer and taps out the following post:

Local printing company 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 will have experience with sales tax and preparation of S Corp income tax returns. At least 5 years of experience with QuickBooks is required. Other ad hoc financial projects, modeling, etc. as requested by the owners.

From Joe’s standpoint, this posting perfectly lays out what the company needs. And it does. Unfortunately, what he 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.

What is wrong with Joe’s post and how can it be modified to set the company and the desired CFO up for success? Should Joe and Gary be considering a part-time CFO arrangement at all? Are there situations where it does not make sense to hire a part-time CFO?

This short article looks at answers to all three questions. It is not intended to be an academic treatise, but rather a practical guide based on nearly a decade of experience as a freelance CFO for privately held companies.

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

The concept of an interim CFO (or outsourced, or part-time, or contract, or fractional CFO—whatever you want to call the role) is solid, for several reasons:

1. Very few companies, particularly small and mid-sized firms, 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. In The Horton Group’s white paper entitled Boosting Profitability with Flexible Overhead, Dr. Thomas Schleifer states “Companies should allocate 15 to 25 percent of total overhead as flexible, meaning it can be added or subtracted in a week or less.” Outsourced CFO services fit that definition.

Suggested share of flexible overhead vs. total

3. A fractional CFO brings diverse experience to each engagement. The number one thing I hear when I ask clients what they appreciate about their part-time CFO (me) is this: They like that I am connected to multiple companies and can leverage that experience to provide them with a balanced perspective.

This is not saying full-time CFOs do not have broad perspective, but I’ve noticed there is a tendency to get a bit industry-centric or even company-centric over time. It’s one of the major reasons I chose to be a freelance CFO and I suspect many of my colleagues share the same perspective.

4. Annual cost of a part-time CFO is generally much less than a full-time counterpart. Depending on the locale, a highly-skilled full-time CFO will run between $100,000 to $200,000 in the mid-market. Add in payroll taxes, benefits, obligatory training and conferences, office space, etc. and the all-in cost soon escalates to between $125,000 and $250,000 annually.

Even at $250 per hour, a part-time CFO working 20 hours per month would result in a significantly lower annual cost of $60,000. The hourly rate is higher, but 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.

In an informative article on outsourcing CFO services, The Wall Street Journal listed cost savings as a top reason to hire a part-time CFO.

The average pay for a Chief Financial Officer is just short of a hundred and thirty thousand dollars annually.

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 small or mid-sized 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.

This point has gained 10-fold relevance with the rise of remote freelancing platforms, such as Toptal. Today, a small manufacturing company in rural Wisconsin can access a highly effective manufacturing CFO in Pittsburgh, with the click of a button. That has truly changed the way companies should look at the CFO function.

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 accounting software. Very few full-time CFOs would be the best in all three specialties.

6. A part-time CFO ensures critical things (such as financial reporting) actually get done. I’ve joked with clients that sometimes my highest value is simply providing a deadline for them to get their routine financial work done. Without that recurring deadline, some clients find even critical month end reporting just doesn’t happen. The same is true about monthly owner financial meetings and cash flow projections.

Back to the question: When (or under what circumstances) does it make sense to hire a part-time CFO? Every company is different, but here are some common attributes I’ve noticed in companies that gain the highest benefit from a part-time CFO arrangement.

They have:

  • Revenue in the $1,000,000 to $30,000,000 range. Much larger than that, and a full-time CFO is needed. Much smaller, and it isn’t cost effective. Keep in mind these are broad generalities. A complex company, or a startup seeking funding, may hit the full-time CFO stage long before $30,000,000. For a deep dive on when it makes sense for a growth startup to hire a CFO see Scott Brown’s excellent article on that topic.
  • 10-100 employees or contractors. Same comments as Point 1.
  • A strong bookkeeper or bookkeeping team to handle day-to-day routine 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:

  1. 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.
  2. 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. The other employees will not appreciate someone who comes in at 8 and leaves at noon, when they must work from 7 to 5. A remote arrangement mitigates this problem, but the mentality can make the arrangement difficult even then.
  3. An unstructured environment where chaos is the norm and attempts to implement financial systems and controls are looked at askance. 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.
  4. Owners who take pride in their accounting skills and financial acumen. This point may sound harsh, but owners with this trait will struggle to see the value in a CFO, when they could theoretically be doing everything themselves and perhaps even better. Best for both the owner and CFO not to even start.

Setting the Arrangement Up for Success

Going back to the illustration of Joe and Gary, by all indications their situation is ripe for a part-time CFO. Yet based on their posting, most CFOs would not be attracted. What is wrong with the posting?

  1. 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 would be equivalent to paying a doctor to give you a haircut. Probably not the best use of their time or your money.
  2. The focus on tax preparation indicates a management team that still views accounting as tax preparation and hasn’t caught the vision of powerful managerial accounting that enables robust growth through highly accurate and informative financial reporting. Tax preparation is easily outsourced to tax accounting firms and in fact, a highly-skilled tax specialist likely will not be the best candidate for a CFO role.
  3. 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.
  4. The job description includes too many day-to-day tasks. It feels like anyone who steps into the role will be hit with an endless stream of tasks no one else has time to deal with. To make a part-time CFO engagement cost-effective and productive, avoid this ditch.

The CFO's Role

For the best results, Joe and Gary should cut the bookkeeping, tax preparation, and software mentions from the posting and focus on strategic items a part-time CFO is best suited to help with. Here is a reboot of the original posting:

Rapidly growing printing company seeking a part-time CFO to provide high-level financial oversight and collaborate with management on strategic items such as pricing, plant expansions 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 I’d care about if I were hiring a part-time CFO (this list assumes you’ve already covered questions about personality, integrity, etc.):

  • How do you communicate? Each person and company has their “way.” Some use email, others messaging channels like Slack, 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. There are vastly different approaches. 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.

    Even in industries where the accounting is more straightforward, such as consulting, technology services, retail/wholesale and e-commerce, there is still great benefit in finding a CFO who can “talk the language” and knows the foundational metrics and KPIs.

    On a side note, I would prefer a CFO who has worked across several industries. There can be great benefit applying concepts from a completely unrelated industry to your business.

  • 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.
  • Can you provide a reference or two? I don’t enjoy giving references, and I find very few entrepreneurs follow through with contact even when I do provide them. But what better way to really find out unbiased information about a candidate?

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. Start with a specific project like a chart of accounts reboot, cash flow projection, or financial model. 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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