The way businesses operate has undergone more profound changes as a result of digitalisation. The vast majority of companies now employ tactics like data analytics, artificial intelligence, and data-driven software. A finance department is necessary for every company that must produce financial reports on a regular basis. The Chief Financial officer (CFO) is referred to as the head of this department. However, most small businesses need more funding and personnel necessary to staff an in-house finance department. These businesses then either outsource their work or use numerous virtual CFO services. But what exactly is the difference between a traditional CFO and a virtual CFO?

Virtual CFO vs. Traditional CFO

Full-time in-house Chief Financial Officers have been the standard all along. However, as the start-up ecosystem continues to flourish with diverse entrepreneurial ventures, not all companies can afford to onboard an in-house CFO. This is where the role of a virtual CFO comes into play. Small and medium-sized companies can partner with virtual CFOs, acting as a shared resource for more than one firm.

The Functions of a Virtual CFO

A virtual CFO provides experienced financial service at a fraction of the cost of a full-time CFO. Their services differ from company to company, but usually, a virtual CFO:

• Monitors the financial health and welfare of the business, typically with cloud technology
• Offers financial insights and guidance on all decisions and concerns
• Handles all the responsibilities of a traditional CFO but works remotely and on a part-time basis
• Provides back-office functions, such as managing accounts ledgers, depending on the client’s requests and needs

Why Virtual CFO Roles Become More Common

Virtual CFO servicing is considered a value-added service, and trends in the accounting profession have led it to become more common:

• Higher competition and advanced technological improvement
• Tax preparation and compliance are becoming commodity services
• Automation of basic accounting and financial functions, devaluing traditional services
• Small businesses are outsourcing non-core functions such as Singapore accounting to lower their costs while obtaining a better talent
• Software provides accurate and real-time cash flow insight for better decision-making

Why Virtual CFOs Are More Preferred

Here are some of the most prominent benefits of engaging a virtual CFO:

• Multiple Industry Experience. Virtual CFOs bring a sea of knowledge from various industries to the table because they are not only involved with just one company. This creates an opportunity for multilayered networks and insights that tycoons might not have otherwise had. 

• Excellent Industry Practices. While most CFOs bring in several of their style or preferences into how they format files, reports, or documents, a virtual CFO is more likely to have embraced the most widely accepted and standardised practices for formulating and generating client reports and deliverables. 

• Cost-Effectiveness. An in-house CFO is a full-time salaried employee, while a virtual CFO’s pricing is based only on the amount of time or deliverables your company needs. Hence, a virtual CFO is a more practical option compared to an in-house CFO. Also, you can save on benefits, paid vacations, and bonuses since a virtual CFO is not a full-time employee. 

• Expansive Network. Many CFOs spend ages in the industry before having branched into becoming virtual CFOs. This indicates that they are armed with a wide network of key individuals such as lenders, financiers, and other experts that business owners can leverage. They also do not work in isolation; they are usually backed by a team of wealth management professionals or office experts. So, if you are looking to raise funds or expand into new products or services, a virtual CFO is well-positioned to help you connect with the right people.

Should I Consider Getting a vCFO?

Virtual Chief Financial Officers are becoming increasingly common due to the continuous expansion of the start-up economy. Access to a virtual CFO can be a big win for small companies as they can create budgets and forecasts, pinpoint problem spending, and validate or discourage business decisions. If you have a newly minted firm, consider engaging the services of a virtual CFO from corporate service provider in Singapore for the financial guidance you need but with minimised costs. They help start-ups and small and medium-sized companies operate leanly without compromising on financial compliance.