Companies big and small can find value in using outsourced finance talent, according to Keith Miller, a partner in the financial services group at EisnerAmper, an accounting firm headquartered in New York City.
Miller, who works out of San Francisco, spoke with StrategicCFO360 about how outsourcing can bring in important new perspectives and contacts, lessen costs and help the finance team do more strategic work.
What are the benefits of outsourcing CFO capabilities?
Outsourcing provides flexibility to a company’s financial personnel needs, allowing effortless up and down scale to its staffing. It leverages the outsourced provider’s pool of talent and expertise, which usually extends significantly beyond the knowledge of one employee.
Additional benefits to companies that choose to outsource their CFO functions include increased access, lower costs and an easier way to prioritize responsibilities. Outsourcing is a gateway to additional capabilities, experts and experiences that a company can tap into. Moreover, companies that outsource the finance function avoid additional employee costs, such as healthcare, 401k/pension, severance or employment laws. In addition, outsourcing provides a way to bifurcate responsibilities and activities to allow internal staff to focus on complex areas and critical thinking pertinent to a company’s success.
In what ways does an outsourced CFO provide value to a company?
An outsourced CFO provides another brand name service provider to the stable watching over a client’s assets. It demonstrates a robust segregation of duties by delegating activities to a party outside the organization. As an external party, the outsourced provider can offer a different voice and perspective. This person or group can provide strong coverage and guidance in important areas where leadership may not possess detailed insight, such as compliance and operations best practices, HR benefits/recruiting and industry trends.
For larger organizations, outsourcing provides value by delegating important activities that can free up employees to focus on mission critical projects. For smaller organizations, outsourcing can provide the financial adult supervision the business requires. On the heels of the SEC’s recent proposals on transparency rules for private fund advisors and increasing climate disclosures for public companies, the outsourced provider’s own processes and research can help build new reporting and oversight processes that need to be put into place.
How does a company evaluate whether they need an outsourced CFO?
Larger firms that already have an in-house CFO may evaluate whether in-house staff are already overloaded with the wrong type of work, including too much preparation of accounting, financial reporting and other record-keeping activities versus too little analyzing and decision-making. Outsourcing provides the opportunity to delegate and realign activities so that internal personnel can spend more time on areas that are more complex or require critical thinking.
A smaller firm will evaluate whether to outsource its financial function from the start or defer until assets under management reach a given scale. Again, this evaluation considers the highest and best use of internal personnel time. If this is disproportionately weighted to recurring or low risk activities, outsourcing may be a cost-effective way to let key personnel focus on bigger priorities.
How do private equity, hedge fund and asset managers’ outsourcing needs differ from public companies?
Private fund and asset managers don’t have the complex distribution, logistics, manufacturing or procurement and sales cycles that a public company has and needs to manage. Investment firm personnel must prioritize investment performance, investment research and deal flow, capital fundraising and investor relations over other activities.
Other functions such as record-keeping, reporting, compliance, investor statements and year-end K-1/audit deliverables can be partly or fully outsourced. This ensures these necessary activities are still performed properly, timely and in accordance with best practices—such as investment valuations—without using a disproportionate amount of internal employee top talent, time and resources. Investment firms tend to be smaller than public companies, so outsourcing HR and benefits/payroll is a good way to handle these vital areas in a cost-effective manner.