Regardless of the size of a company, the need for strategic financial expertise is essential for its long-term growth and development. The role of a Chief Financial Officer (CFO), whether internal or external, is particularly important in this context. The Financial Director, often called the CFO, has the ability to provide clarity in business figures, a cohesive perspective on financial operations, and support, at the same time, the company’s development strategy.
Entrepreneurs and managers often face an important dilemma: what is more suitable for the company – an outsourced CFO or an in-house CFO?
To provide a broad perspective on the similarities and differences between the two options, we invite you to discover and analyze in detail the advantages and disadvantages of each role.
What does an externalized/outsourced CFO versus internal CFO mean??
An outsourced CFO is a professional or a company specialized in financial management services, which offers strategic financial solutions based on a service contract. Depending on the needs of each company, an outsourced CFO can have a flexible involvement in the company – a few hours a week, or a constant involvement – as a permanent support.
In contrast, an internal/ in-house Financial Director is a member of the company’s management team, permanently employed within the organization and present daily in its life and operations.
The role of each is similar and particularly important for any company. In short, they carry out annual/quarterly/monthly financial planning, analyze the company’s financial performances, propose solutions to streamline costs and increase revenues, contribute to attracting investments and manage financial risks that may arise in the company development.
Although the role of an outsourced CFO is the same as that of an in-house CFO, these options offer different advantages and disadvantages to a company.
Advantages of an outsourced CFO
Flexibility and scalability – Depending on the company’s needs, the involvement level of an outsourced Chief Financial Officer can be adjusted.
Access to diversified expertise – Due to extensive experience in various industries and companies, an outsourced CFO has extensive expertise and diverse perspectives on implementing financial management solutions.
Lower costs – Compared to a full-time employee, an outsourced CFO involves lower, predictable and optimized costs based on the company’s real needs.
Rapid integration – An outsourced CFO benefits from a shorter contracting and integration process than an internal employee, the risks of wrong choices being lower.
Disadvantages of an outsourced CFO
Limited involvement in organizational culture – An outsourced CFO may have a less profound perspective on the company’s internal values, but this will not necessarily affect their performance.
Partial availability – Depending on the company’s needs, the availability of an outsourced CFO may be limited to a few hours per week or month, not having a full-time contracted schedule.
The need to communicate effectively – For a partnership to be functional, it is necessary to set up a clear and regular communication flow between the company and the outsourced CFO.
Advantages of an internal Chief Financial Officer (CFO)
Direct control and permanent presence – An internal CFO is present in the company daily and has the ability to respond quickly to any need that arises.
In-depth knowledge of the business – As part of the internal management team, the internal CFO has a deep understanding of the operations, culture and organizational dynamics.
Loyalty and long-term commitment – An internal CFO’s career is closely linked to the company success, therefore he is motivated to actively contribute to high-performance financial management implementation.
Continuous participation in the decision-making process – Present in management meetings, the internal Financial Director can actively and constantly contribute to the business strategies formation and implementation.
Disadvantages of an Internal CFO
High Costs – An internal CFO requires a consistent salary, benefits package, related taxes, and a budget for professional development, which generates significant costs for a company.
Difficult recruitment process – Identifying and recruiting a CFO with experience and outstanding results can take a long time and require considerable resources.
Risk of professional ceiling – Without continuous exposure to various industries or best practices, an internal CFO may develop a limited vision of the financial activity. However, it all depends on the person and their personality.
Which is the right option for your business?
Now that we have outlined the advantages and disadvantages of the roles of an outsourced CFO and an in-house CFO, you are probably wondering which is best for your business. There is no one-size-fits-all answer, as it depends a lot on the business specific needs, the objectives and the strategic directions. However, choosing one of the two options must take into account several aspects:
- Company size and available budget: A small or medium-sized company may see the opportunity to collaborate with an outsourced CFO, as this is a cost-effective solution.
- Business growth rate: Companies in an expansion stage can benefit from an outsourced CFO flexibility and diversified expertise.
- Complexity of financial operations: Businesses that need ongoing support in managing complex day-to-day operations may consider hiring an in-house CFO.
- Long-term goals: If a company has a complex development strategy, we recommend as more appropriate the cooperation with an outsourced CFO as this can bring a broad perspective on operations that can be implemented
Conclusions
Both options analyzed in this article play a crucial role in a company’s success and the advantages and disadvantages that accompany them must be carefully analyzed and weighed depending on the business stage, resources and objectives and the specific needs of the company.
At ELFWISE we are a guide and support for companies that desire clarity and performance in numbers as we are the perfect strategic partner for efficient financial management implementation. With us, you have the opportunity to collaborate with an Outsourced CFO with over 17 years of experience in medium and large companies from various industries in Romania and with a complex perspective on a company’s finances – Dalia Buga.
Do not hesitate to contact us, the ELFWISE team at any time, by using the email address office@elfwise.ro or the phone number +40 769 638 834.
In case you would like to stay close to us and discover useful and educational information in the field of financial management, do not forget to follow us on social media: Linkedin, Facebook, Instagram.