A great idea is the foundation of businesses. The firm finds itself in the course of a quickly expanding business. It happens when an idea catches on, and the services are in high demand. Unless the entrepreneur is also an economic expert, the one thing they'd struggle with is financial management. Hiring a CFO is a crucial step forward in developing any business. Because every business differs, you don't want to approach the issue with a "one-size-fits-all" perspective. When hiring a CFO, it's easy to need clarification on whether to employ a traditional CFO or use virtual CFO services for critical decisions.
The answer will depend on your business. It also depends on what you want from your CFO. We will compare these two with some crucial differences. This article deals with the selection between a virtual CFO and a traditional CFO. Let's explore it.
Who is a CFO?
The Chief Financial Officer (CFO) oversees an establishment's accounting. They are responsible for analyzing financial data, managing costs, reporting financial performance, etc.
A CFO is an essential element of the organization for businesses. Its responsibilities are not limited to managing the firm's financial resources. They decide on the businesses' capital structure and when and where to invest.
A virtual CFO outsources work that gives economic assistance to a firm. It is more cost-effective. It is also more efficient than hiring a traditional CFO. As a result, by using virtual CFO Services, you can access highly qualified financial specialists who can increase your cash flow and profitability. It can be done without spending a fortune.
It would help if you employed a CFO based on your specific needs. But, all CFOs will assist your company's financial management systems and processes.
Different types of CFO Hires
CFOs collaborate with companies in various ways. It includes:
1. Full-time/Traditional CFO
When most people think of a traditional CFO, they imagine a full-time position. Industries will often hire full-time CFOs with annual revenues of $10 million or more to handle economic management and any situation that destabilizes operations.
2. Fractional CFO
A fractional CFO works part-time with numerous businesses to fill out their workweek. Establishments with less than $10 million in annual revenues that need constant CFO expertise may seek fractional assistance to meet their necessities.
3. Interim CFO
Interim CFOs work with industries to manage their economic demands for a limited time. They provide part- or full-time aids for specified periods. It is usually one to twelve months, instead of fractional CFOs who work part-time.
4. Virtual CFO
A virtual CFO is a cross between a fractional and interim CFO and engages with your business through remote work. They are also known as outsourced CFOs.
It's worth noting that these many CFO types overlap. Also, the titles are interchangeably used. For example, a full-time virtual CFO could be considered "virtual," while any form of CFO who provides aid from your office is regarded as "traditional."
Read Also:- Virtual Accounting Services vs. Traditional Accounting: Which Is Better?
Choosing between traditional and virtual CFO services
We have to choose between traditional and virtual CFO aids under certain circumstances. It involves:
1. Finance and accounting costs
A full-time or traditional CFO comes with a price tag involving salaries, software, equipment, and office space. For example, the expense of onboarding and training new CFO recruits is high. After all, choosing and implementing an effective digital accounting platform is a significant expenditure. Businesses can save money by using virtual CFO aid. This model accounts for all costs associated with people, processes, etc.
2. Responsibilities
A traditional CFO manages the economic aspects of the company where they work. As a result, they are responsible for stakeholders, board members, etc. The accounting team assists the CFO in preparing a roadmap for the company's future victory. Virtual CFO extends all CFO functions but only provides them when the company demands them. Economic planning, reporting, and strategic aids are provided without hiring a CFO or accounting staff.
After all, it can simultaneously handle many financial services for various businesses because the virtual CFO has a team. You will only have to pay for the aid you rendered to the virtual CFO.
3. Financial management
The organization is associated with a traditional CFO. Close involvement in the company's operations assists the traditional CFO. It helps in developing detailed financial strategies and proposals.
The traditional CFO may devise elaborate strategies. It is because they completely understand the firm and its activities. Making strategic plans, adjusting essential modifications and monitoring their implementation is critical. It is simple for a traditional CFO. It is always beneficial to any business.
A virtual CFO works with clients and is exposed to different situations and issues. The virtual CFO can provide intelligent solutions with a broad client base and excellent outcomes. It is because of their overall vision. They know the proper economic approach that works flawlessly. Such a variety of financial management skills saves them time making trial-and-error decisions. It also guarantees their client’s profit.
4. Security
Fraud costs the average corporation roughly 7%. According to a study, these are the company's annual earnings. A typical business has a small team of finance professionals. It can be, say, two or three. As a result, just a few economic experts have complete authority over the financial department. Thus, such companies are subject to fraud.
Small and medium-sized companies can get aid from a virtual CFO. It helps them overcome this obstacle. It has a dedicated group of accountants. They work within a system of regulations. The virtual CFO aid experts are highly dependable, reputable and trustworthy. They give company executives consistent and accurate data reporting. After all, these people speed up the implementation of new operations.
5. Revenues
There are essential factors to consider before deciding between traditional/virtual CFOs. It involves the size and revenue of your business. At the same time, this isn't a rule of thumb or a guide. Various companies only engage a traditional CFO if their gross revenues are USD 10 million.
You'll have to pay full-time salaries and give extra gifts if you hire a traditional CFO. You'll also need to provide gifts like paid time off. It would help to consider whether giving for all these expenses is worthwhile.
Employing a virtual CFO may be cost-effective if you have a lot of work to perform in your economic management. If you have a lot of daily work that needs to be supervised by a CFO and many accounting records that need to be completed weekly or monthly.
6. Focus on core
Entrepreneurs need to gain the experience and knowledge required to perform specialized duties such as economic management. They need more information and skills to report and analyze the company's accounting activity. As a result, businesses need the assistance of expert financial professionals who can lead them to success. They need strategic counsel. They help in managing a company's accounting difficulties.
Businesses can address this gap with the help of virtual or traditional CFOs. They provide a company with an economic strategy. They also allow owners to concentrate on their primary businesses. They also set safeguards to ensure that a company only spends what it should.
Giving such aid offers business owners adequate time. It helps to concentrate on expansion. Hiring traditional CFOs is a difficult task. It is challenging because they have to check the whole group. Business owners must collaborate with full-time virtual CFOs to handle accounting and bookkeeping,
Closing Remarks
Suppose your enterprise has reached the point where it needs the assistance of a CFO. A virtual CFO might be a perfect choice because they give considerable cost benefits. Consider hiring a traditional CFO who can focus solely on your business finances. It shall be considered if your company generates substantial annual revenue. While both traditional and virtual CFOs offer advantages in certain situations. After all, it’s worth noting that virtual CFOs are becoming more widespread. Consider your company's needs when deciding between a traditional vs a virtual CFO. Kindly connect with Fino Partners for more assistance.
