We compare the two based on some of the main factors that come into play.

Experience

Finding an in-house CFO isn’t a quick interview away. It may require an extensive search to find a CFO who has prior experience working with your type of business. However, a virtual CFO (or vCFO, short) tends to have more experience in a variety of SMBs since they tend to work with more clients overall. Plus, they often work for companies that have other CFOs they can collaborate with to give you the best service.

Cost

When you hire an in-house CFO, you’re looking at paying a full-time salary, plus benefits and paid vacation time — a significant chunk of change for startups. Now, this may be cost-effective for you if you require a lot of work done every day and can factor in the cost of benefits, etc. On the other hand, you can find a full-time, part-time, or fractional CFO who only charges for the work they actually do for you — and don’t require any extras.

Plus, when you have an “employee” who doesn’t actually work in the office, you’ll save on overhead by not having to have a desk and/or office set up for them. Perhaps you only have a home office or small space to work in, so it’s beneficial for you to not have extra people on site.

Fit

Whenever you hire a new employee to work in-house with you and the rest of your staff, there’s always the question of “fit.” Will they fit in seamlessly into your office and work well with the rest of your employees? Company culture is an essential part of a working environment, but when you hire a virtual CFO, this is one less thing to worry about.

Communication & Training

Training a new employee generally means a lot of face-to-face time and being on-site to clarify anything as they need it. While this might be true, vCFOs have a lot of experience working with a variety of businesses, meaning they can slip into a position quickly. They also tend to have knowledge of different computer systems, formats, and reporting styles so they can adapt to the way your organization does things. 

Any employee on-site is there to address any questions or solutions that crop up on the spot, but that isn’t to say that a virtual CFO won’t understand the importance of quick responses. Working on multiple projects means they’re excellent multitaskers, so they’ll know how to respond promptly.

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Net income and EBITDA are two important KPIs that measure financial performance. It’s especially important for startups to understand the difference between the two, and to know when to use them to measure their financial success.

We know – there’s a lot of ‘alphabet soup’ to learn in the world of finance. Here are the basics you need to understand when it comes to net income and EBITDA.

EBITDA
EBITDA stands for ‘Earnings Before Interest, Taxes, Depreciation, and Amortization.’ It sounds like a handful, but it’s a pretty basic concept. In brass tacks, it’s a measure of the profitability of a company. In other words, it’s how much money a company brings in, before accounting for any of its expenses: depreciating assets, amortization, cost of revenue, overheads, and interest.

Think of it like when you were a kid with a lemonade stand. When you counted out your nickels at the end of the day, that was the only number you cared about, right? You didn’t think about how much your mom spent on the lemonade and cups, or how much time you had to spend in the hot sun. You were only counting your EBITDA.

Net Income
On the other hand, net income (or net earnings) is your company’s income after accounting for all those expenses EBITDA ignores. It’s all the money brought in, minus all the money that goes out, to the cost of goods, general and admin expenses, operating expenses, depreciation, interest, taxes, and the like.

Going back to our lemonade stand example, you’d care more about your net income if your mom actually made you pay her back for the lemonade, or if you have to split your earnings with the next-door neighbor who helped you out all day.

The Right KPI for Your Startup
Like with most KPIs, there are times when it makes sense to use either net income or EBITDA, and times when it doesn’t.

Remember that EBITDA measures the pure profitability of a company. For this reason, it can be an extremely helpful KPI for startups, which are often looking to maximize sales, and may also be more susceptible to uncontrollable factors, given their tight budgets. Understanding your EBITDA can be great to keep track of growth.

That said, EBITDA can also overstate cash flow, so it shouldn’t be the only KPI you track. That’s why net income, which ultimately calculates earnings per share is often a better KPI for more established companies.

The reality is that each company is unique, and navigating this ‘alphabet soup’ of finances is best done with the right guidance. In other words, CFOs are often in the best position to help you determine which KPIs are right for your startup – along with how to track them.

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