With financial management evolving, more and more companies are looking outside their doors to meet their fiscal needs. Two popular options that have emerged are virtual CFO services and finance services outsourcing. While both offer valuable support, they differ significantly in several key areas. Knowing the differences between the 2 services is, thus, very important for any business when decisions relating to financial management strategy have to be taken.
Scope of Work
The most fundamental difference between VCFOs and outsourced finance functions lies in their scope of work.VCFOs work at the strategic level, where they provide high-level financial management and decision-making. They also offer advice on financial planning, risk assessment, and growth strategies. Outsourced finance functions, however, take over the operational bookkeeping, payroll processing, and financial reporting functions.
Level of Expertise
VCFOs provide C-suite experience, which involves a wide and seasoned background in business finance and strategy. The level of this expertise gives them a view into what would best set up a company's financial future. An outsourced finance team, even with skilled members in their niche, generally comprises accountants and bookkeepers, which are the implementers of finance tasks, not setters of strategic vision.
Engagement Model
The model of engagement is quite different for these services. VCFOs typically engage on a part-time or project basis, offering periodic strategic input. They may be deeply involved at the critical stages of fundraising or expansion but less so during routine periods. Outsourced finance functions generally offer ongoing, regular support, being integrated into a company's daily operations.
Decision-Making Involvement
VCFOs are influential in strategic decision-making. They make contributions and give recommendations that may have a significant impact on setting a company's financial strategy and overall direction. Outsourced finance teams, while vital for providing correct and precise financial data, normally have less input on strategic decisions. Their role is generally more involved in carrying out financial processes and ensuring compliance.
Cost Structure
The cost structures for these services can vary considerably. VCFO services, due to the high level of expertise and strategic focus, usually come at higher costs. However, they usually are engaged in flexible ways that can be quite affordable for businesses that do not require full-time CFO services. Outsourced finance functions, while providing ongoing support, usually come at a lower cost and are therefore a very attractive option for small to medium-sized businesses to reduce overhead costs.
Scalability and Flexibility
Similarly, scalability for both services is present but varies in application. VCFO services can be scaled up or scaled down depending on the strategic needs of the business, whether these are high periods of growth or financial restructuring. In the same way, scalability in volume for outsourced finance functions means handling volumes of work that keep on increasing with ease in line with changes in operational demand as the business grows.
Technology and Tools
With advanced financial modelling and forecasting tools, many VCFOs these days are able to draw strategic insights. Most outsourced finance teams use accounting software and systems designed for efficient day-to-day financial management and reporting.
Choosing the Right Option
The choice between fractional CFO services and an outsourced finance function depends on various factors, including the company's size, growth stage, financial complexity, and specific needs. Some businesses may find that a hybrid approach, utilising both services, provides the most comprehensive coverage of their financial management needs.
In conclusion, while both virtual CFO services and outsourced finance functions offer valuable support to businesses, they serve distinct purposes. By understanding these key differences, companies can make informed decisions about which service, or combination of services, best aligns with their financial goals and operational requirements.