How far can you go with an outsourced CFO?

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Ink Factory Studio is a “small but mighty women-owned business,” as described by chief operating officer Lindsay Wilson. In financial matters, though, the Chicago-based company knows its limits.

Launched in 2011 by Wilson and two fellow cofounders, Ink Factory specializes in visual note-taking. Its team of artists—who translate speeches, strategy sessions, and other spoken words from corporate customers into text and pictures that appeal to visual learners—has grown to 13.

The founders recently decided to stop managing their finances themselves. “We got to a point where we just realized that math is not our strong suit,” says Wilson, whose clients include Amazon, Ford Motor, and NBCUniversal Media. “We draw pictures all day.”

So Ink Factory, which already had an in-house accountant, turned to a local outsourced CFO firm. Last summer, ORBA Cloud CFO Services paired it with chief financial officer Kimberly Stanley.

“Kim really matches our energy and our curiosity and wants to understand our business,” Wilson says of Stanley, whose engagement spans financial forecasting, accounts receivable, and strategy. “I can speak about our business, and I can talk about everything that we do, but when it comes to the numbers, she can help tell that story so much better and differently.”

Catering to businesses large and small, outsourced—also known as fractional—CFO firms offer a host of services, from basic accounting to high-level strategy. These outfits, which have proliferated over the past several years, help companies gain access to relatively scarce talent. As a business grows in size and complexity, it may need to recruit an in-house CFO.

Director Chris Arndt founded what is now ORBA Cloud CFO Services in 2011 under a different name, originally focusing on startups. “[We] kind of became known as the entrepreneur’s CFO, and then we started building the company,” recounts Arndt, who sold his business to CPA firm Ostrow Reisin Berk & Abrams (ORBA) in 2016.

His division—many of whose clients are in the e-commerce, manufacturing, cannabis, and not-for-profit sectors—now accounts for 25 of ORBA’s roughly 170 staff. As the business has grown, so has its median customer size to about $10 million in annual revenue.

True to its name, the unit serves clients virtually. In addition to outsourced CFOs, it offers bookkeeping and controller services, which contribute the bulk of its revenue, Arndt says. “When you look at our business, 90% of our work is the core accounting and controllership.”

For that, ORBA Cloud CFO Services charges a flat monthly fee of $1,000 to $25,000. Clients needing CFO support pay an extra $2,000 to $5,000 a month. “We also will just do ad hoc CFO services for 300 bucks an hour with some of the smaller clients,” Arndt says.

On the CFO side, nearly all businesses need a budget, forecast, or plan to figure out where they are and where they want to go, he observes. “It’s a pain point because a lot of companies don’t operate with it, and a lot of companies we see don’t even have a good budget to start off. So they close a month, and they don’t report back against the budget.”

A company’s choice of CFO services must be grounded in its business model, says Wes Bricker, vice chair and U.S. trust solutions coleader with PwC. “But I would say in this period, for nearly all companies, where there is rapid transformation, transition, and high expectations, this is the time for the operational CFO.”

Whether an operational CFO is outsourced or in-house, the role is the same, Bricker maintains. “Strategic, expert-driven, connecting operations to finance, in order to then help a management team and a board understand whether things are on track,” he says. “That CFO needs to be a truth-teller on a lot of dimensions of the business.”

LJ Suzuki is founder and president of CFOShare, a fractional CFO, accounting, and financial management firm in Denver. Demand has grown thanks to rising awareness, says Suzuki, who leads a team of 26. “A lot of people know they need to do accounting but don’t necessarily understand the benefits of financial planning, analysis, strategy, things like that. But it’s becoming more and more common.” Businesses also have more options now: “There’s a lot more fractional CFOs working in the marketplace now than even six years ago when I started.”

Arndt can attest to the consolidation of his industry, which once mostly consisted of individuals with a handful of clients. “Ever since 2015, 2016, every CPA firm out there wants to be in this space because they like the revenue size,” he says. “The average contract size of this type of work is much, much higher than typical CPA tax and audit work.”

In the past couple of years, a new kind of buyer has emerged, Arndt notes. “There’s a lot of private equity money also going into the space, acquiring CPA firms and firms like ours as well.”

Suzuki doesn’t know what effect those acquirers will have—“if they’re going to be successful and edge out the small players that are here right now, or if the small players are going to be able to outmaneuver them and outperform them on quality.”

Technology has helped drive the rise of the outsourced CFO, says Arndt, whose business has used Zoom since 2012. Scarcity of talent is another factor: “There’s the overall staffing shortage of people in the accounting space specifically, so it’s tough for businesses to hire good talent.”

Wilson can relate. “To have a full-time CFO, we didn’t think that we could attract the right caliber of talent to be able to do that, being that we’re a small business,” she says. “So this is the absolutely right fit for us right now.”

With Ink Factory, outsourced CFO Stanley began by spending a month getting up to speed on the company, Wilson recalls. Now the team meets with her once a week to check in on the financial forecasting. “She’s helping us really understand our cash flow,” Wilson says. “We’ve set a big revenue goal this year, and we want to make sure that we are on track to meet that.”

As for strategy, Stanley has helped Ink Factory understand how it turns a profit. “We do a lot of stuff in-house where our artists stay put, but then the other half of our business is sending an artist out to client sites,” Wilson explains. “So understanding our profitability from a travel standpoint and our profitability across our different service offerings has been paramount on how we can grow the business.”

When does a business using outsourced services need its own CFO?

For Bricker, it’s a question of knowing what’s next. “When companies really understand their future prospects, then they can really commit to a set of capabilities that they need in the CFO,” he says. “An outsourced CFO provides companies with expertise, but that’s a tradeoff against understanding the specifics of the business, the specifics of the team who might be there every day, understanding the culture.”

Investors like to see an in-house finance director or chief financial officer, says Gillian Sheeran, Cork, Ireland–based CFO of Pricefx, an international pricing software platform. Sheeran also flags business size and complexity. “If you [operate in multiple] jurisdictions, with all the tax complexity that goes with it, then you’d probably want a full-time finance person to be able to advise on how you navigate those waters.”

At the $50-million revenue mark, Arndt says, generally speaking, it’s time to hire a CFO. “We’ll actually recommend it our clients,” he adds, noting that ORBA will keep doing their accounting up to the controller level.

For its part, CFOShare has customers with $500 million in annual revenue. “It’s going to depend on everybody’s individual situation and if you have the resources available to your company,” Suzuki says of the move to an in-house CFO.

If you’re shopping for an outsourced CFO, do your homework.

“I’d think about the journey you want to go to as an organization, and I would look for somebody who’s lived that journey,” Sheeran says. “Whatever your aim is, whatever market you’re going into, I would try to closely align that as much as possible with the CFO.”

One mistake businesses make is dwelling on the hourly rate for their fractional CFO, Suzuki says. As he points out, those charging a lower rate tend to work more hours because they’re less efficient. His advice: Set a monthly budget.

Arndt suggests finding out where the outsourced CFO firm’s services end. For example, you might encounter a provider “that wants to kind of wave a wand and say, ‘You need to change how you do this or do this, or change your accounting here,’” he explains. “And then they don’t want to roll up their sleeves and get involved in the execution and the operational or the executional accounting side to make that happen.”

In that case, decide who will follow through, Arndt counsels. “I don’t think a lot of business owners actually think about the difference between a strategy and the execution of it.”

Bricker’s recommendation: Ask about an outsourced CFO’s achievements. “What’s the track record of performance over business cycles and across business models, and with a full range of stakeholders?” he says. “What’s the track record with employees, with customers, with investors, supply-chain partners? Is there credibility there? And then check it.”

Businesses’ urgent need to reinvent themselves will power a shift toward more full-time CFOs, Bricker reckons. “As the marketplace continues to mature around the next level of business—technology is changing, business models are maturing—as that matures, I think we’ll see stability across management teams,” he says. “We’ll see maturity of bringing CFOs in-house, the CFO who has built credibility across the management team, who’s built credibility with the board and with outside stakeholders. That stability, I think, is important for building the trust that companies ultimately need with multiple stakeholders.”

Back at Ink Factory Studio, expansion is on the drawing board for Wilson and her partners. As they put those plans in motion, they’re happy to let an outsourced CFO sweat the numbers.

“I feel like we have an additional member of the team that has given me back my focus so I can help grow the business, I can help service the clients,” Wilson says. “If we’re working with these big clients, we need to also be just as big and fortified. So by partnering with ORBA, that’s one more way to fortify our services and our offerings.”