Without knowledgeable and dependable financial leadership in place, a business is operating blind.

Good business decisions depend on good information and analysis; your information needs to be presented well and refined enough to cut through the swathes of data all businesses generate.

Not every business can afford to hire a full-time finance lead, or they may not have sufficient need for a full-time hire. Fortunately, there are various ways in which a third-party expert can help a business with its finance function.

For these businesses, an Outsourced Finance Director (FD) or Fractional CFO (Chief Financial Officer) can be extremely valuable.

A note on terminology

A Fractional CFO may also be called a part-time CFO or outsourced CFO. In the accounting industry, Fractional CFO is more commonly used in America than the UK. It is a good idea to bear this in mind when researching these roles, to make sure you are fully aware of its remit.

All of these roles involve tailored financial support to businesses without a full in-house finance function. Broadly speaking, they are actually very similar.

The differences between an Outsourced FD and a Fractional CFO

These terms are sometimes user interchangeably, and they do overlap in several key areas. However, there are important differences between them, which become more distinct as a business grows.

They may focus on different things

• An Outsourced Finance Director assists with day-to-day financial management, administration and operations. This includes bookkeeping, managing cash flow, taking care of financial reporting and ensuring things remain compliant. They may also be involved in high-level strategy and decision making in accordance with the company’s needs.
• A Fractional CFO may be involved in all the above, with the primary focus of higher-level strategy, often with a seat on the board.

Should you hire an Outsourced FD or a Fractional CFO?

If you are reading this blog, the chances are you are looking for assistance in improving your finance function, improving efficiency and ultimately driving a greater profit. It may not be immediately obvious which is best suited for you. Here is what we at Gravitate advise:

An Outsourced FD may be more suitable if:

• You are struggling to keep on top of day-to-day financial tasks, including bookkeeping, financial reporting, paying taxes and managing your payroll.
• You have a limited budget and need cost-effective and flexible assistance.
• You need help setting relevant financial targets for your business.
• You want to minimise financial risk and detect potentially fraudulent activities.
• Your financial processes and controls are unreliable, inefficient (or non-existent!)
• You are concerned about compliance with financial, tax and data regulations, and need someone to ensure you are operating correctly.

Whereas a Fractional CFO (or equivalent) might be suitable if:

• You need assistance in developing your company’s long-term financial strategy.
• You have an in-house finance team with the capacity to keep up with the company’s needs, but it lacks overall direction.
• You have a major project coming up, such as an investment drive or merger, and require top-level guidance on a project basis.
• You do not need hands-on assistance with your business finances

Remember: There are no hard-and-fast rules in place for this. If required, a good Outsourced FD can perform most/all of the duties of a CFO.

There are a lot of similarities – and the right choice may not be obvious

There is plenty of overlap in the skills and duties of an Outsourced FD and a Fractional CFO. An experienced FD can also be involved in high-level strategic discussions or planning, making them an extremely useful and flexible asset for small businesses with big plans for growth.

For example, if you bring in an Outsourced FD to focus primarily on accounts, bookkeeping and financial reporting, they will still be able to help you with high-level financial strategy and major projects.

It isn’t the case of one or the other

FDs and CFOs, whether outsourced or working in-house, both play essential roles in ensuring a business operates efficiently, profitably and within the law.

Smaller businesses will often combine these roles into one position with responsibility over all aspects of the company’s finances. This is where outsourcing is especially useful. As the business grows, it may be necessary to have an FD focusing on day-to-day financial operations and a CFO providing strategic financial planning and high-level decision making.

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If you are unsure about what exactly you need, but know you need some level of  assistance, we are happy to offer you a free consultation to provide an objective assessment of your business and its requirements.

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