need an interim CFO? 3 risks of going virtual.

Ongoing digital transformation isn't just reshaping the economy at large, it's reshaping traditional org charts, as well. From a high level, the trend is toward flatter, more decentralized org charts — but how far up should that trend go?

At some companies, the answer is "all the way." Enter the virtual or outsourced CFO, a new approach to finance leadership that's emerged in recent years, primarily as a lower-cost alternative for startups and companies lacking mature processes and infrastructure.

Typically, these virtual or outsourced CFOs: 

  • work 100 percent remotely 
  • serve clients on a part-time basis 
  • provide basic support for the finance function — budgeting, cash-flow management, reporting, interpreting results and so on   

But any company considering the leap to a virtual or outsourced CFO model should first have a clear view of the risks that entails, especially when it comes to the following business priorities. 

1. mergers and acquisitions

Private equity (PE) firms have unprecedented levels of dry powder on tap right now: about $1 trillion globally in uncommitted capital that's just waiting to be deployed. At the same time, the space is becoming more competitive, in turn forcing many PE firms to bid for and buy portfolio companies at entry valuations and EBITDA multiples that make additional value-creation a greater challenge than ever before. 

In the context of mergers and acquisitions (M&A), therefore, developing the right value-creation plan prior to acquisition, and subsequently executing on it, is critical to these firms' success. And it's an area where virtual CFOs will leave you in the lurch. 

You can certainly count on these outsourced officers for light advisory and analysis. But how about a months-long due diligence project? Forget about it. In most cases, they simply don't have the know-how, resources, capabilities or bandwidth to deliver. More fundamentally, they aren't aligned with you around a shared strategy and vision. 

In this crucial respect, virtual CFOs lack buy-in or "skin in the game." Instead, they look like the vendors and service providers they actually are. 

2. digital transformation  

It's almost impossible to overstate the importance of digital transformation generally, and leveraging data to drive business value specifically, for companies today. It's a mandate that CFOs are acutely aware of. According to one report, for example: 

  • A full 81 percent of CFOs believe identifying and targeting areas of new value is one of their main responsibilities to the business. 
  • A similarly large majority (77%) say that leading business-wide transformation projects has become one of the key elements of their role. 

On a macro level, that means CFOs are being asked to use new tools to increase organizational efficiency and streamline reporting processes. It also means they're actively collaborating with other C-suite leaders to define business strategy. And zooming in a bit, it means CFOs must leverage enterprise data sources — CRM and ERP data, in particular — to generate value-creating insights. 

So consider the following questions in that context:

  • How would my virtual CFO plan for the adoption of new onsite technology, evangelize its adoption with key stakeholders and ensure successful roll out on the ground? 
  • How effectively would they build relationships or seamlessly collaborate with other members of the C-suite? 
  • What would their role be in managing finance-related IT systems?
  • What level of access should they have to proprietary enterprise data or CRM/ERP systems? 
  • How could they help reduce organizational exposure to finance-related cybersecurity risks and other vulnerabilities?

In all of these areas, virtual CFOs come up short. 

3. market expansion 

Sure, there are use cases where outsourced or virtual CFOs make sense. If you primarily need help identifying key finance-related metrics, or implementing a reporting schedule and structure, for example.

But those aren't exactly high value-adding activities, and they won't help position your company for growth — it's the difference between taxiing on the runway versus really taking off.

That's why CFOs at leading companies today are looking beyond traditional functional boundaries. They're collaborating with CEOs and other leaders, developing data- and insight-driven strategies and increasing the productivity of finance processes — the latter, in fact, was cited as the top priority in a survey of over 700 senior-level finance executives. 

In that context, how does your organization plan to gain an edge on the competition and thrive in an economic environment characterized by ongoing change and disruption? Because with an outsourced or virtual CFO, the answer, sadly, is you won't.

key takeaways 

Digital disruption and new technologies continue to drive significant changes in the workforce and reshape traditional org charts in the process. Organizations will adapt to these changes in different ways, and with varying degrees of success, of course. But they'll do best if they proceed with caution — and have a 360-degree view of the associated risks. 

In the case of virtual or outsourced CFOs, we've outlined some of those higher-level risks in this article. But others are far more prosaic. For instance, virtual CFOs often come as part of a "package deal": say, one virtual CFO, one tax manager, one accountant. What happens when members of that team change — without your consent or input, or for that matter any visibility into the decision-making behind it?

When that happens, you're right back at square one. 

That's why we take a different approach at Tatum. We believe flesh-and-blood CFOs — seasoned professionals who share your goals and have demonstrated expertise in your industry and market — can unlock tremendous business value. Connect with our team today, and we'll show you how.