Fiscal management becomes complicated as a company expands. What might have been dealt with in a simple bookkeeping and a few instances of accounting assistance, tend to become a requirement of strategic financial planning, budgeting, forecasting, compliance and investor reporting.

At this point, a significant number of enterprises start thinking about the need to recruit a Chief Financial Officer (CFO). But it is not always about the necessity of a CFO, the issue is whether the business should use a virtual CFO or a full-time CFO.

Each of the two has great potential in terms of financial leadership, and the two differ greatly in terms of cost, flexibility, involvement and situational appropriateness in the stage and the requirements of the business.

These differences can be used to understand what decision should be made by business owners.

What Is a Virtual CFO?

A virtual CFO is an expert financial advisor who offers CFO-quality services on an outsourced or part time basis.

A virtual CFO is not a full-time employee as such, but works remotely or on a flexible arrangement, and may be serving one or more businesses simultaneously.

A virtual CFO can be used to help with:

• Financial planning and analysis.
• Budgeting and forecasting
• Cash flow management
• Business strategy
• Investor reporting
• Risk management and compliance.
• Fundraising support

Startups, small businesses, and growing companies often use Virtual CFO services because they need the help of a senior financial advisor but do not need or cannot afford a full-time CFO.

What Is a Full-Time CFO?

A full time CFO is a senior executive who works with the company on a full time basis.

Besides financial strategy, a full-time CFO is usually engaged in day to day operations, management within the company, leadership conferences and long-term planning.

A full time CFO can supervise:

• Accounting and finance departments.
• Internal reporting systems
• Banking and investor relations.
• Major business decisions
• Financial governance and controls.

A full-time CFO is more commonly more entrenched to the organisation and often becomes a member of the leadership team.

Cost Considerations

One of the largest considerations that are made in selecting a virtual CFO or a full-time employee is cost.

Hiring a full-time CFO will entail:

• Salary
• Employee benefits
• Bonuses
• Office space and overheads.

This may be a huge financial investment to most emerging businesses particularly startups and small businesses.

A virtual CFO will tend to be significantly cheaper since the business only pays what level of assistance is needed.

As an example, a company can hire a virtual CFO to work a few hours a week or just in a particular time like:

• Fundraisin
• Annual budgeting
• Expansion planning
• Financial restructuring

This is flexible as it enables the business to tap into senior financial expertise at a lower cost than a full executive position.

Flexibility and Scalability

Virtual CFO is more flexible.

The degree of support may be raised or brought down as the business requirements evolve. It is especially the virtual CFO that is best applied to businesses that are growing very fast, shifting in their priorities, or seasonal.

To take an example, a startup might need to have only basic financial planning. The extent of support may be expanded as the company expands and prepares to take on funding or expansion.

A full time CFO on the other hand is more appropriate when the business is in constant need of daily financial management and management control.

Depth of Involvement

A full time CFO tends to have more participation in the day to day operations of the business.

Since they are in the organisation on a full time basis, they are usually in a better position to:

• Lead finance teams
• Be involved in management decision making.
• Build internal systems
• Act promptly on issues of concern.

A virtual CFO can be involved in all the details of operation, but he/she is not always involved.

This might not be an issue to small firms, but a full time CFO might be more advantageous to a company that has several departments, where reports are complicated, or where the risk is high and may be very substantial.

What Are the Businesses that Gain the Most by Having a Virtual CFO?

A virtual CFO can be a good solution to:

• Startup
• Small and medium-sized businesses.
• Companies at the initial growth phase.
• Businesses that are planning to raise funds.

Companies that require strategic assistance at no more than a full-time price.

These are the kinds of businesses who are in need of financial guidance but are not necessarily large or complex enough to employ a permanent CFO.

Is a Full-Time CFO the Right Choice?

The appropriate time to have a full-time CFO is when a business:

• Has big or complicated operations.
• Daily financial control is required.
• Supervises several teams or sites.
• Has major investor or board reporting requirements.
• Is merger/acquisition/massive expansion planning

At this point, the cost may not always justify the extra expenditure of a dedicated financial head.

Final Thoughts

Virtual CFOs as well as full time CFOs could be significant in the development of a business. The appropriate decision is dependent on the size, the financial complexity and the level of the company.

A virtual CFO can offer the right mix of experience, flexibility, and affordability especially to many businesses on the rise. The business can later upgrade to a full-time CFO as the firm grows to the extent that it will require a steady leadership.

The trick here is in making sure that the business is guided with the appropriate amount of financial guidance at the appropriate time.

At the Badami & Kamath Chartered Accountants we assist businesses that are increasingly growing by assessing their financial management requirements and offer strategic virtual CFO services that are intended to enhance decision-making, enhance financial transparency, and enable long-term expansion.