Most relegate the thought of having a “Chief Financial Officer (CFO)” to Fortune 500s and large businesses. While it’s true that virtually all of those have someone dedicated to overseeing the financial prognosis of the organization, it’s not exclusively for them. The benefits of having a dedicated financial officer have many startups and small businesses looking to bring someone into the role.
Tech disruption, the remote-work economy and even the definition of what a CFO does have created an opportunity for nearly every business to utilize this position in their business.
One of the fastest growing ways is through the services of a “Fractional CFO.”
What Exactly is a Fractional CFO?
Instead of paying the $300,000 – $500,000 salary of a full-time Chief Financial Officer, a qualified individual (or small team) offers the same services, advice and deliverables for a fraction of the price.
Sound like a good deal? It may be right for your business. However, there are a number of ways to be sure:
- First, check for signs that your business is ready to take on a part-time CFO
- Then, consider the benefits of the move
- Finally, know what to look for in order to choose the right service
The rest of this article covers each of these topics to help you make the right decision.
5 Signs You’re Ready for a Fractional CFO
1. Bookkeeping and accounting are running smooth
Basic bookkeeping, cash flow statements and other typical reports are the ground level for your business’ financial health. Have your basic accounting setup before getting a fractional CFO. If not, the service you choose is going to have to spend a lot of time getting to the point of doing their job.
2. Big decisions ahead
About to search for investors? Trying to plan an exit? Major expenses ahead? There are a number of large decisions in all companies. Having an outside perspective of a financial expert goes a long way in making the right choices. Outsourced CFOs have a solid understanding of your business model, without being “too close” to the decisions.
3. You’re business is growing
If cash flow is good and getting better, you need someone to help use it. A CFO understands the need to cover expenses while getting the most from each dollar of revenue. Growth also means hiring, which requires a detailed cost analysis. Selling more typically means more inventory, equipment and required space. All of these are better served with the foresight offered by a CFO.
4. You want to better understand financial data
If you have a bookkeeper or accounting service, reports come in all the time. You probably use them to understand what happened over the past month/quarter/year. While this is great to keep the lights on, understanding the present and future situation opens up many more opportunities.
Examples of this include:
- Negotiating rates on supply
- Taking advantage of low advertising costs
- Potential to buy competitors
5. The business is taking on investors
One of the most common reasons (especially for startups) to look for a CFO? They’re seeking or have received a funding round. CFOs track the details, often create the slides used in the presentation and can even set up the entire structure. As the CEO or Founder, these are to-dos you should not be doing.
Key stat: Nearly 7 in 10 CFOs see their role significantly changing due to advancements in fintech and automation.
3 Benefits of Having Financial Officer (Even Part-Time)
1. Get advice pulled from the data
Big decisions are an obvious benefit of having a CFO. The person in the role is there to guide you through the most expensive decisions that really change the shape of your organization. But there’s an argument to be made for the smaller data-driven “tweaks.”
Month-to-month, your fractional CFO is likely to have smaller adjustments. These bits of advice add up over time.
Things like:
- “We have the resources to pay down $10,000 in debt, saving us $200/mo in interest.”
- “Cost per acquisition of clients from Adwords is 2 times higher than Facebook ads, should we test moving some ad spend away from FB?”
- “If the forecast holds up, we need to begin ordering extra inventory for the upcoming busy season.”
- “Our cash utilization isn’t where it should be. We should consider our goals in our upcoming strategy session.”
None of these are the glamorous moves that we read about. However, each of these compounds to improve the health of your business — revealing the fully leveraged benefit of a CFO.
2. Avoid potential regulatory pitfalls
Tax laws change. Benefits and insurance are also (at least in part) tied to the financials. And privacy laws for transactional and personal data are increasing all the time. It’s just too much for one person to handle the vision of a company while steeped in maintaining regulatory compliance.
Pretty much every legislation that’s attached to dollars and cents should be understood by a qualified CFO. While bookkeepers and accountants know the tax regulations, there’s a lot more out there that can bite a business, if done incorrectly.
3. Raise more capital
As mentioned, startups typically search for CFOs before or after a funding round. The climate (for many startups) in the past decade has been to raise multiple rounds. Seed rounds, round A funding and so on. Venture capitalists and investment firms always take a deep dive into the financials of any company they consider adding to their portfolio.
The right fractional CFOs:
- Make sure things are in order from the investors perspective, knowing the metrics VCs want to see.
- Help Founders get an idea of what stakeholders expect in terms of ownership percentage and ROI.
- Prepare reports and potential talking points for the slide deck and presentation.
- Manage all details during and post funding as well as helping advise the best way to utilize the incoming cash.
Maximize Working With your Fractional CFO
Fractional CFOs are a growing part of the financial services industry. Just like any other service, some will be a better fit for your company than others. Finding the best solution begins with finding qualified candidates.
Here are three qualities to include in your search:
- Understanding Automation: According to one study, more than 40% of financial activities can be automated. This is great news, but only those who understand the tech leverage it properly. The right CFO will fully utilize the tools at their disposal to maximize their time and the result for clients.
- Incredible Focus: Spending time on activities that matter is essential, even for full-time CFOs. A fractional service will know how to find and laser-in on the right metrics and activities to move the needle toward your goals.
- CFO/Controller Experience: Someone who serves multiple clients, as CFO, must have experience in the role. Not only as the head of finances, but also as a bookkeeper, accountant and controller.
Pasquesi has the experience in accounting, financial automation and advisory services to meet all of your expectations. If you’re ready, we offer a full range of outsourced CFO services to help you realize every benefit of having a chief financial officer in your business.