5 Reasons why a Fractional CFO is good for your business. Especially in a recession…
With so much turbulence in the world these days, it may seem like a stretch to bring in outside help. And, while a proprietor or CEO might ONLY be thinking about the added cost of another position filled, a fractional CFO may be one of the most lucrative and/or cost effective decisions to effectively plan and manage your financial resources.
Let’s begin with – what is a fractional CFO and why do they exist? A fractional CFO is a bit like the name implies; a Chief Financial Officer who works part time. Typically working alongside Sr. leadership, such as the founder or CEO, as well as critical finance team members and other department heads. Fractional CFOs can help plan, organize and execute against finance related business goals. What part of the business’s goals relates to Finance? Every part actually. A short list of what a fractional can help with: strategic planning, forecasting, budget creation, financial modeling, month end close process improvements, reviewing and analyzing monthly and quarterly statements, financial reviews with outside accounting firms, year-end close, tax preparation, compliance, contract negotiations, cash flow analysis, BOD presentations, capital raises (debt and equity), and much, much more – all from the perspective of the most senior level and strategic financial manager on staff. Additionally, good fractionals will come armed with decades of industry and financial leadership experience that they will apply to a handful of clients at a time. They will help evaluate and manage the current finance team, operations, processes and will help drive improvements that will impact the organization from day one. Fractional CFOs exist because adding an FTE in this position is a big step for a small/mid-sized organization, or one that is financially unstable and oftentimes isn’t warranted or affordable.
Without further ado, here are 5 reasons why an organization should consider a fractional CFO:
Planning – CFO’s, Fractionals included, are all about advanced planning. Consider: A company may have done it all on their own up until now. A good fractional is a resource who will help review the company’s track record, assess what talents and resources it’s armed with and provide a financially and strategically sound plan forward. A fractional CFO understands the industry, can perform a SWOT analysis and get up to speed on the business’s needs quickly. They can help plan the best use of resources in order to meet the company’s objectives, using metrics that focus on the baseline facts within and surrounding the organization. It’s one thing to plan with the existing team – likely leadership coming from areas of the organization like operations, admin, sales and marketing. But a Fractional CFO can help plan business critical items, in the best and worst of times, such as: cashflow, costing, time to revenue creation, KPI’s, macro and microeconomics effects on the business, logistics, production and SOPs that could be hampering the company’s performance. Consider, even just a few percentage points of gain in revenue, improvement in costs or reduction in expenses may be all that is needed to succeed in a tough environment.
Cash – It’s a big deal when the company is profitable (and even more important when it’s not) but how a company is using cash is of the utmost importance, always. How much additional is needed to be successful next year? What are its uses? When is it needed? When will it get tight or loosen up? Can cash flow be improved? Can more effective uses for excess cash be found? A fractional CFO can help figure out these questions and streamline financial structures to be the most efficient when it comes to cash and its uses. Moreover, a good fractional CFO can help raise debt and equity in ways that may have not been considered and help evaluate just how much is needed and when. Finally, most good fractional CFOs come with a network of commercial lenders and private equity partners who can help the organization get through tough times or grow the business to the next level by helping raise cash to expand.
Objectivity – because they are contractors and work with several clients; drawing on years, sometimes decades of experience, fractional CFOs are fantastic resources that provide pragmatic and objective feedback, always. They are naturally good communicators who focus on the facts surrounding the business and can unemotionally help build credibility for big ideas and help plan when companies are under duress and short on time and resources. As a contracted advisor, a fractional CFO comes without the overhang or biases of working for the company previously. They’re a great litmus test and filter ideas with a perspective that is wholly their own, without the influence coming from the CEO, ownership, or the rest of management.
Cost Effective – maybe the best part of a fractional CFO is that they are simply put…cheaper than many FTE positions. Not simply on a dollar basis but also considering, they are typically more senior than a small/midsize firm may be able to attract on a reduced budget for a full-time hire. Meaning: an organization gets more bang for their buck! It might not seem that way when a quote is first received for $250-$500/hour but in lieu of an FTE that can cost the company: recruiting fees, onboarding costs, vacation + sick pay, taxes, bonuses and all the other comps that come with a full time hire, a fractional CFO is contracted and if you don’t like their work, you can simply end the engagement. Moreover, their workload can be dialed up or down depending on the needs and performance of the organization. They are recession proof partners.
Efficient – Which brings up one last great point, fractional CFOs are efficient. Because a fractional CFO is capped on the number of hours they spend at each client, they’re incentivized to find support and resources to get the job done efficiently. They don’t have the time, nor do they want to bill the hours, waiting on deliverables from their team or other departments. They need the work done quickly and effectively. Moreover, fractional CFOs are adept at farming out little items so a company isn’t spending big $’s or wasting time and focus on tasks that can be more cheaply and effectively outsourced to other individuals, departments, or outside agencies. Fractional CFO’s will help drive efficiencies throughout the organization for the simple fact that they don’t have the hours to spend and they need to get their job done in a finite amount of time for their clients.