Comparing a virtual CFO vs an in-house CFO: A Business Guide

Most business owners would prefer to have an in-house staff than a virtual CFO when it comes to finance and accounting. Is this, however, the wisest move for their company? In this essay, we will analyze the two choices and assist company owners in determining which is best for them. We will examine many industries, including real estate, healthcare, SaaS, restaurant, retail, automotive, entertainment, and education, and their unique demands for CFO services.

One of the primary advantages of virtual CFO services is the ability to boost cash flow by gaining insights and implementing the VCFO’s recommendations for improving certain business areas. We will also cover the benefits and drawbacks of having a virtual CFO vs an in-house CFO for these various businesses kinds.

The role of a Chief Financial Officer (CFO) is crucial in any organization. He not only makes important financial decisions, but he also takes care of critical aspects and jobs related to business finance such as:

• Analyzing financial statements and books
• Account reconciliation to match income and expenses
• Defining financial models
• Building budget model
• Forecasting business finance model and position
• And more

In this blog, we will look at all of the significant differences between the two models in order to help you pick the best one for your company.

Why do you need a CFO?

The CFO is responsible for the financial management of your company, including

• Budgeting and forecasting
• Financial planning and budgeting
• Financial reporting and analysis (IRS compliance)

Which Is Better: Virtual CFO Services or In-House?

When deciding whether to engage a virtual CFO versus a local CFO, you may make an informed choice based on the following comparison –

What exactly is an in-house CFO?

• The position of a chief financial officer may change from one firm to the next, even if there are basic tasks that all CFOs must complete. A virtual CFO for a small firm, for example, may have different issues than an in-house CFO for a large corporation. Thus, the first step in evaluating the difference is to define the primary tasks of your in-house CFO for your company.
• The Chief Financial Officer is an essential aspect of any business, having the primary task of analyzing the company’s financial status based on historical and present data. The CFO’s responsibilities extend beyond the administration of a company’s financial resources. They must decide on the company’s capital structure, strike a balance between debt and equity, and decide when and where to invest
• The CFO may also collaborate with other financial personnel to oversee their work and provide the necessary coaching to help them perform more efficiently. An in-house CFO is one who does all of his or her tasks while sitting at a dedicated workstation on the company’s premises.

What exactly is a Virtual CFO?

• The alternative to an in-house CFO is to outsource the CFO function, which any organization may utilize to undertake all of the responsibilities of an in-house CFO.
• A CFO outsourced service is one that is managed by an offshore accounting and finance firm. The company manages the day-to-day operations of an in-house CFO. They will also work with your in-house staff to teach them how to do financial tasks more effectively if necessary. The only difference here is that everything will be done entirely remotely.
• In the context of an in-house CFO, virtual CFO services are extremely cost-effective and efficient. You may outsource CFO chores to top outsourced organizations that provide the best remote CFO services, such as Velan. Here, you may appreciate and feel the impact that highly experienced CFOs can make on your business and finances. All competent financial services will be provided digitally, which will benefit a corporation in every way.
• A virtual CFO may boost your company’s or organization’s cash flow and profit without placing further strain on your financial resources.

In-House CFO vs. Virtual CFO

Cost

One of the most important factors to consider when picking between a virtual CFO and an in-house CFO is cost. In general, a VCFO is less expensive than an in-house CFO. Virtual CFOs often charge hourly or monthly fees, whereas in-house CFOs receive a greater pay and benefits package. A virtual CFO may be a more cost-effective solution if your company has a limited budget.

Expertise

Another crucial factor to consider when deciding between a VCFO and an in-house CFO is expertise. A virtual chief financial officer has generally worked with several organizations in a variety of industries, giving them a broad breadth of skills. An in-house CFO, on the other hand, may have greater industry-specific knowledge but not the same breadth of experience. An in-house CFO may be a better choice if your company requires particular experience or industry understanding.

Flexibility

A virtual CFO may provide a corporation with greater flexibility since they can work remotely and on-demand, allowing them to focus on certain projects or activities. In general, an in-house CFO is more regimented and may demand a more regular work schedule. A virtual CFO may be a better option if your company wants a flexible CFO who can concentrate on specific projects or give financial assistance as needed.

Accountability

Accountability is another key factor to consider when deciding between a virtual CFO and an in-house CFO. A direct employee is less accountable to the firm than an in-house CFO. A VCFO may not have the same amount of accountability, even if they have a contract outlining their roles and expectations. An in-house CFO may be a better choice if your company demands a high degree of responsibility.

Corporate Culture

Finally, while deciding between a virtual CFO and an in-house CFO, consider corporate culture. An in-house CFO can better integrate into the corporate culture and collaborate with other departments.
A virtual chief financial officer may not have the same amount of sight into the company’s operations and culture, which can make collaboration with other team members more challenging. An in-house CFO may be a better option if your firm appreciates having a CFO who is integrated into the company’s culture and operations.

Also, read What Are the Benefits of Outsourced Bookkeeping for CPAs?

The Advantages of Using a Virtual CFO Service

• Virtual CFO services might help you save money on the expense of hiring a full-time CFO. If you already have staff and are investing in technology, virtual services may be the ideal solution for your company because they save money in terms of both time and resources. Virtual CFOs have been around for years and have grown in popularity as a result of the following benefits:
• Cost-cutting: Hiring a full-time employee is costly. However, with virtual employees, you only pay them when they work, which means less money is wasted. Furthermore, if an employee departs after being hired or before their contract expires. Still, there’s no need to pay them before they start working because they weren’t employed in the first place.
• They provide the same degree of experience as an in-house CFO: A virtual CFO is a corporate financial management specialist. Rather than working for the firm directly, they are employed and controlled by their clients. They may also help you save time and money by managing your books and improving cash flow at the end of each month or quarter.

A virtual CFO will have access to all of the same resources as an in-house CFO, including spreadsheets, applications like QuickBooks and Xero, and so on, but they will also have greater freedom because they are not bound by an office job (or any work).

The Benefits and Drawbacks of an In-House CFO

After examining the benefits of working with a virtual CFO, let’s examine the benefits and drawbacks of having an in-house CFO. The biggest benefit of hiring an internal CFO is having someone on staff who is entirely responsible for managing the finances of your business. This implies that they will be accessible when you need them and possess a thorough knowledge of your company.

The ability to work with an internal CFO on long-term financial planning is another benefit. This covers tasks including creating a budget, predicting cash flow, and establishing financial objectives. Additionally, having a CFO on staff can lower risk and provide tax savings.

One of the primary drawbacks of hiring an internal CFO is the cost. Their salary, benefits, and other related expenses must be covered by you. For startups or small firms with little funding, this might be an issue. The fact that an internal CFO might not have enough time to do all the tasks you require them to do is another drawback. As a result, you might need to hire more employees to help with the workload.

What is the requirement of the CFO?

The CFO should have a good knowledge of accounting and finance. They are responsible for managing your business’s finances, so it’s essential to find someone who can do that well. The CFO should also be able to handle the financial department, budgeting, payroll, and taxes.

A Chief Financial Officer (CFO) can bring significant value to your business by providing financial leadership, expertise, and guidance. Here are some of the ways a CFO can help your business:

Financial Strategy: A CFO can help you develop and implement financial strategies that align with your business goals, such as growth, profitability, and risk management. They can provide insights into industry trends, market conditions, and potential risks and opportunities.

Financial Planning & Analysis: A CFO can help you create and manage budgets, forecasts, and financial models that provide a comprehensive view of your business’s financial health. They can also analyze financial data to identify areas for improvement and make recommendations to increase efficiency and profitability.

Cash Flow Management: A CFO can help you manage your cash flow, ensuring that you have enough cash on hand to meet your financial obligations and invest in your business’s growth. They can also help you manage debt and credit facilities, negotiate with lenders, and optimize your working capital.

Financial Reporting & Compliance: A CFO can oversee your financial reporting and compliance obligations, ensuring that your financial statements are accurate, complete, and in compliance with regulatory requirements. They can also help you prepare for audits, manage tax obligations, and mitigate financial risks.

Strategic Decision-making: A CFO can provide financial insights and analysis to support strategic decision-making, such as mergers and acquisitions, new product development, and entry into new markets. They can also help you evaluate investment opportunities, assess the financial impact of business decisions, and make data-driven recommendations.

Types of CFO services

• Financial planning and analysis (FP&A)
• Financial management (FM)
• Financial reporting.
• FP&A determines how much money you need to make every year and what you will do with it.
• FM focuses on keeping track of all aspects of your company’s finances so they can be optimized for maximum efficiency while maintaining proper financial controls. FM may include signing contracts with vendors or freelancers, managing payroll expenses, etc.

5 Advantages of Having a CFO (Chief Financial Officer)

• Creates distinct business strategies

Every firm should have a formal business plan. If a firm does not have a strategy, it does not know where it is going and its workforce does not have the necessary leadership. One of the CFO’s most important jobs is to define this path.

• Reporting Accuracy

The CFO must produce financial reports that are precise, thorough, and truthful. These reports comprise the company’s financial statements, budgets, and other financial papers, such as an analysis of general and administrative costs, profit predictions, projections, and proformas, among other things.

The CFO must also guarantee that the reports are accurate, full, and simple to interpret. Aside from financial statements, the CFO will produce reports on how the firm is doing, how it is functioning, and whether or not it is profitable.

This is also where the financial soundness of a corporation comes into play. When the CFO generates these reports, he or she will compare them to previous financial statements to see how the firm is performing. For example, the CFO may create a cash flow report that indicates how much money the firm is taking in and if it has enough cash to meet its financial obligations.

• Reduced Oversight

The CFO is often the boss’s right-hand guy. In most businesses, the CFO works closely with the CEO or president. This means that the CFO will be in charge of gathering information about the company’s performance and creating reports for the CEO/President.

If a firm has a board of directors, the CFO will be in charge of presenting the company’s financial health during board meetings. The president and/or board of directors will then make choices depending on how the firm is functioning and where it is headed financially. Because the CFO will handle the hard lifting in most circumstances, the CFO may assist lessen the amount of monitoring that the president and their board undertake.

• Saves both time and money

The major advantage of hiring a CFO is that you will save money, time, and effort. Because a CFO is in charge of the company’s financial health, they will investigate all financial reports and numbers. They also do monthly and quarterly forecasting assignments to assess the company’s performance.

A CFO may also assist a firm in cutting expenditures. Part of the CFO’s responsibilities includes cost analysis and identifying areas where the organization may be overpaying.

• Easy Scalability

Scalability is necessary for any company, and having a CFO ensures that it’s covered. A CFO will help to identify the best growth opportunities for the company. One perfect example is helping the company invest its money to increase profits and cash flow. This is better than holding onto the money and not doing anything since it won’t do the company any favours.

Businesses that may be starting out or growing might benefit from a capable virtual CFO if they lack the funds or other resources necessary to recruit an internal full-time employee at this time. This benefits companies that might not require a full-time CFO but only a little amount of input to assist them optimize their current processes and boost profitability.

Conclusion

It’s time to choose which kind of services could be the best for your organization now that we’ve discussed what a CFO performs, how they might assist you, and the distinctions between an in-house and virtual CFO business model. Velan trust that this blog has made it clear to you how important it is to always have a solid finance department.