How Fractional CFO Services Empower Small Businesses

Working with small businesses over the years has shown just how many responsibilities founders carry, from salesperson and marketer to operations manager and financial decision-maker. Although many of these entrepreneurs know their product, understand their customers, and have a clear vision for their company, what many lack is a long-term financial plan rooted in forecasting rather than guesswork. That’s where a fractional CFO can make a meaningful difference, and why it’s worth exploring the true power this type of support can bring to a growing business.

Facing Real Financial Challenges

Starting your business is not about dealing with spreadsheets; you start a business because of a perceived need and the ability to provide a solution you think has value. However, as businesses grow, so does their complexity. Cash flow swings begin to happen, forecasting is more difficult to do, and business owners begin to feel the weight of making and managing strategic financial decisions for their businesses. At this point many founders hesitate. A lot of founders are familiar with that feeling of passion vs. uncertainty.

Many businesses have no financial leader. According to an article published by the Wall Street Journal, new businesses and small businesses often operate without CFO-level (chief financial officer) leadership, which becomes especially apparent when a company requires the strategic insight of a CFO, rather than just the tactical aspect of bookkeeping, to support the growth and development of the company. The fact that a company does not have a CFO is not a failure; rather, it is a gap in the growth process.

The Strategic Role of a Fractional CFO

As a business owner, you are entitled to the comfort of knowing where you stand financially and what direction your business is heading in. The role of a fractional CFO (Chief Financial Officer) is to give you access to an expert that will supply senior level financial management experience but will only be brought in when you need them.

The benefits of hiring a fractional CFO include having access to financial strategy, and business-growth strategies while maintaining the cost savings associated with not having a full-time CFO. A recent Forbes article stated that the majority of fractional CFOs provide a level of executive finance experience that is flexible enough to allow small-to-medium-sized companies to better control their cash flow, develop their growth plans, and make important financial decisions without the high payroll costs associated with hiring.

Another Forbes article highlights the increasing trend of fractional leadership, showing how companies no longer need to wait until they’re large enough to afford CFO insight, they can access it now, on demand. This flexibility makes strategic financial leadership attainable at exactly the point where it matters most.

What Fractional CFOs Actually Do for You

A fractional CFO can be a vital part of defining how a business will grow; they are not an outside source of accountants or financial management. They offer value through many different avenues.

1. Develop a Plan and Predict what is Next

A fractional CFO will assist you in projecting revenues, monitoring cash flux over the years, and being prepared for what may come next (not just where you are now). Being prepared in advance is essential for both potential opportunities and unforeseen challenges.

2. Budgeting & Operational Insight

Over time, the priorities for financing a business will shift. A fractional CFO will assist you in aligning your budgets appropriately to ensure your investments are used for growth instead of depleting your cash reserves.

3. Profitability & Cost Optimization

A fractional CFO will help you to understand your numbers. By analyzing how your companies are costing you (cost of goods sold; price of products; margin), your fractional CFO will identify areas where you can obtain a consistent and ongoing increase in profitability.

4. Cash Flow/Risk Management

When your cash flow appears inconsistent, it is difficult to make decisions with conviction. A fractional CFO provides oversight of liquidity and risk, instilling confidence in your ability to navigate unpredictable economic conditions.

5. Fundraising

If you are looking for financing from a bank or from equity investors, a fractional CFO can add authority to your funding request and assist in the preparation of your pitch deck, forecasting, and presentation of a solid business plan.

According to a Forbes article, these are not hypothetical benefits, recent industry analysis shows the rise of CFOs on demand correlates with increased operational experience and smarter financial decision-making. For small businesses facing multi-layered financial decisions, fractional CFO services bridge the expertise gap without the typical cost of a full executive team.

Your Story at the Center of Your Financial World

It is important to understand the distinction between being behind as a business because you don’t hire a dedicated CFO and actually being behind because you are trying to navigate strategic financial challenges with no senior input.

In a Washington Post Article, which discusses the stress small businesses are currently facing, it is evident that many small businesses that are trying to grow, hire more people, and deal with the uncertainty of the economy are being impacted by an increase in financial responsibilities as their businesses grow and become more complex. While the article does not specifically mention fractional CFOs, it does indicate that as businesses continue to grow and create greater complexity, they will feel greater financial strain, and thus the need for leadership support is critical when facing these types of challenges.

Having strategic financial leadership in your company, even if it is on a part-time basis, will reduce your businesses’ risk of uncertainty. Furthermore, it will allow your business to make better decisions, giving it the ability to succeed; rather than just survive.

Benjamin Graham, the father of value investing, once said:

“The essence of investment management is the management of risks, not the management of returns.”

That wisdom applies perfectly to financial leadership. A fractional CFO helps you manage strategic risk and align your financial decisions with your business goals, not just react to the next problem.

What It Looks Like

Consider the scenario of developing a product line. You know there is demand; however, you don’t know what price to charge or how much cash flow it’ll create or whether the marketing budget would need to be redirected toward supporting production costs. Leveraging all the elements needed (financial forecasts, scenario modeling, and a CFO) will allow you to run through all assumptions, understand all the risks and rewards for every option available to you, and confidently select your best course of action, rather than just randomly guessing at it. This is where fractional CFOs can help.

How Strategic Finance Fits Together

Behind every successful business are strong internal systems:

• Strong systematic business bookkeeping gives you detail on where your money goes, when, and how. This is just one example of how a Fractional CFO helps you in building a successful managerial bookkeeping service.
• Our financial consulting offerings provide a structured approach to successful business growth by providing you with ongoing financial strategy and planning, not just periodic checks.
• The services a Fractional CFO provides to help you prepare for audit-tax readiness allow you to be ready to continue your growth without being impacted negatively by an audit or issues related to a tax audit.
• Fractional CFO helps you understand the broader connection between your finances and business strategy, which you can read about on the Strategic CFO blogs.
  

Fractional CFO services do not replace these services, but rather provide you with an organized/strategic unified plan on how to lead your business with confidence and clarity.

As Ed Gines often remind business owners:

“Expert financial guidance shouldn’t be a luxury, it should be the foundation of your growth.” — Ed Gines, CEO of Strategic CFO

Your business deserves financial leadership that matches your ambition.

You’re Closer Than You Think

It isn’t having the right answers that causes a small business owner to achieve success; rather, it is asking the right questions and surrounding themselves with the right people to help them get answers.When hiring a part-time Fractional CFO, you aren’t admitting that you’re weak; rather, you are providing the needed tools and support for growing your business.

When you hire a Fractional CFO, you are creating an environment in which your company can grow, take controlled risks, and grow with certainty, confidence, and knowledge. That’s the type of leadership that allows your business to be successful!