Virtual CFO vs. Traditional Accountant: Which does your SME need?

For entrepreneurs in India running lean and resourced with a triple hat of growth, compliance and day-to-day, strategic financial management and planning can fall by the wayside. 

Entering this world is virtual CFOs who bring world-class financial expertise, without the expense of a senior full-time leader. With the advent of AI-enabled tools and contracting flexibilities, Indian start-ups and SMEs are increasingly able to leverage this model and gain financial insights remotely like the rest of the world.

Virtual CFO Meaning: What It Is and How It Works

A Virtual CFO (or vCFO) is a part time or offshore financial officer who offers strategic planning, forecast management, cash flow management and advisory services. A vCFO unlike internal CFOs works on a part time basis (<40 hours a month) using video conferencing, cloud accounting facility and shared dashboards services.

The term “virtual” is used mainly to explain the way in which a CFO services are delivered remotely but with the same responsibility that is carried out by an in house CFO. This way companies are able to access a professional experience.

What Does a Virtual CFO Do Day-to-Day?

Strategic Financial Planning focuses on building up long term financial strategies, business models, targets, roadmaps etc. based on your industry expertise and knowledge.For example, for a manufacturing startup in Pune, this could be planning an expansion plan in terms of capacity.

• Cash Flow & Runway Management: Tracks inflows & outflows, detects deficits and recommends measures to bring expenditures in line with income. This is essential to E-commerce firms that have a seasonal business.
• Fundraising & Investor Relations: Sets up financial forecasts, data rooms, presentation decks, enabling you to raise capital from angel investor/venture debt companies based in India.
• Systems & Compliance Oversight: Deploys or streamlines accounting software (Zoho Books Tally etc.) and oversees GST/income tax compliance.

They align closely with the fundamental purpose of virtual cfo services i.e., to impart financial clarity that in turn, enables you to concentrate on your core business.

Virtual CFO Benefits: Why Indian SMEs Are Making the Switch

The advantages of a virtual CFO extend well beyond just saving money. As reported by Preferred CFO, they’ve the benefits of an in-house CFO without the costs of a hundred thousand dollar plus salary along with benefits and office space. I’ts even more true for Indian companies.

• Affordable Professional Advice: You can employ a full time CFO in India at a cost of anywhere between Rs. 30-50 lakhs p.a. plus perks. A virtual CFO would usually charge you a monthly retainer of between Rs. 50K to Rs. 1,50,000, thereby saving you between 60% to 70%.
• Access to Diverse Experience: Virtual CFOs have multiple clients from different industries (retail, SaaS, logistics etc.) and bring the cross-pollination of experience into the insourced team.
• Scalability on Demand: Company no longer needs the virtual CFO to work additional hours? If there is a rush of activity then they can temporarily increase hours of work. As soon as the project is finished they can unwind again. No redundancies or uncomfortable discussions.
• Credibility with Banks & Investors: An experienced vCFO brings instant credibility to your accounting. It will be easier to obtain working capital loans or Series A funding.

With assistance from virtual cfo services, Indian entrepreneurs can finally be successful in terminating their “buried in spreadsheets” episodes – an observation shared by Mark Barnett, vice-president at Mastercard.

Difference Between Traditional Accounting and Virtual CFO 

Accounting that we are all used to (old accounting) is tied to the past: record keeping, compliance. tax filing etc.

New or modern accounting spans the entirety of the business platform i.e., integrating real time data, business modeling, and overall guidance of the company’s direction. A virtual CFO combines old and new accounting.

Accounting from the old school is a must, but not enough in the growth stage. The virtual CFO adds a strategic layer to your current accounting by turning through reports into actionable intelligence.

What Is Included in Virtual CFO Services? (Core Components)

A typical virtual CFO engagement would encompass:

• Bookkeeping & Accounting Oversight: Making sure all your transactions are correctly coded, reconciliations are carried out each month, trial balances carry in.
• Financial Reporting & Dashboards: Weekly /monthly reporting of KPIs such as gross margin, burn rate, customer acquisition cost, working capital days.
• Budgeting & Cost Management: Assisting you in preparing achievable budgets and controlling deviations. For e.g., This could catch any rise in ingredient prices in a restaurant chain early.
• Payroll & Tax Compliance (Strategic): More than simply running payroll, but identify where optimisations are possible to reduce directors remuneration, TDS and advance tax payments and thereby hold onto more cash.
• Simulating the impact: Of a new employee, a price change, or a capital purchase before you make it.
• Fundraising & Due Diligence Support: Preparing data rooms, financial models, and investor Q&A.

Integrating these services with outsourced accounting is how Indian companies build a single-ended, end-to-end finance function. And with the support of a specialist partner such as Foxtax, a virtual cfo services provider, you can customize to your needs.

How Much Does a Virtual CFO Cost in India?

Using industry averages and the data:

• Monthly Retainer (most frequently used): Required to pay around Rs.40,000 – Rs.1,50,000 per month to under to provide strategic ongoing support 
• Project-Based Fee: Rs.2,00,000 – Rs. 5,00,000 for certain results (Fund Raising, Model Implementation, Due Diligence)
• Hourly Consultation: Rs.5,000- Rs.15,000 per hour for ad hoc advice.

As a point of reference, the median annual compensation for virtual CFOs in California is approx $50,000 (42 lakhs).

And in India, freelance virtual CFOs earn between Rs. 8-15 lakhs. Thus as a business, you are not paying for what you are not utilizing. Foxtax provides below market-entry level retainer plans starting at merely Rs. 35,000/month for start-ups in survival mode.

When to Hire a Virtual CFO – Key Triggers for Indian Business Owners

Obviously, the reasons to attract a virtual CFO are associated with some pain points. Being aware of such lag points early helps you to prevent serious mistakes.

• Mental Overload / “Running on Fumes”: When you’re drowning in numbers and high level tactical ideas, it’s time to pass the buck – a vCFO takes the financial mental load off of you.
• Fast growth: Revenue has doubled, but cash flow is irregular. You need better planning and planning for working capital.
• Fund raising Preparation: You’re considering raising Rs. 2-5 crores and should set up one credible data room, financial model and investor pitch.
• Profitability Plateau: Revenue is flat or costs are increasing. A virtual CFO can carry out a detailed analysis of costs to find quick wins.
• Bigger Business Pivot: From B2C to B2B, new product area, going into export markets there are probably 10 different scenarios to think through.

Do any of the above ring a bell? Well, virtual cfo services can always help.

Conclusion

Virtual CFO services are no longer a luxury for companies. For Indian SMEs and start-ups, they represent a cost-effective and practical means to engage senior financial management.

This can range from alleviating the transition pains that come from shifting from conventional accounting practices to near-real time, strategic fundraising support, to being the catalyst that propels your business into the next stage of development, a virtual CFO can be your trusted partner.

Foxtax combines local knowledge, flexible dollar-terms and a willingness to grow with you. You can be buried under hours of financial spreadsheets or preparing for your next funding event, Foxtax’s virtual CFOs are ready.

Frequently Asked Questions (FAQ)

Q1: How much does a virtual CFO make as a professional in India?

Depending on experience, clientele, and location, an independent virtual CFO or one working through a firm can earn anywhere between ₹8 lakh to ₹20 lakh per annum. Senior roles in larger firms may be compensated with ₹25-40 lakhs. This is the cost of hiring a virtual cfo services, which is usually a lot less than a full-time CFO.

Q2: Are virtual CFO services available across India (not just USA)?

Of course, Indian companies such as Foxtax can provide virtual cfo services not only in a major city such as Mumbai, Delhi, or Bangalore but also in any tier-2 city as the business is carried on remotely. Therefore, “near me” is not that important. Still, most business owners prefer a local connection and Foxtax has partners across India.

Q3: How to become a virtual CFO in India?

You will usually have a CA, CMA, or MBA in Finance along with 8-10 years of experience working as a financial controller or FP&A. Being comfortable with cloud accounting and business analytics software is a must. Many start as freelance consultants. Some even join companies such as Foxtax which train and deploy virtual CFOs to several clients.

Q4: What is the difference between a virtual CFO and an outsourced accountant?

The main difference lies in the scope of work. An outsourced accountant takes care of bookkeeping, payroll, and tax returns on a daily basis. In contrast, a virtual CFO is the strategist – doing financial modeling, raising funds, preparing budgets, and advising on the growth of the company. Sometimes a virtual CFO is the one who manages an outsourced accountant to make sure the financial data is correct.

Q5: Can a virtual CFO help with MSME loan applications in India?

Yes, virtual CFOs can assist by creating the financial models, cash flow statements, and business plans required by banks and NBFCs for loan approvals under schemes like CGTMSE or SIDBI. Besides that, they assist in making your company financially healthier by improving your bookkeeping.