How does a fractional CFO help my business?

A CFO (Chief financial officer) is a financial professional who can turn the strategy and vision you have for your company into an actionable, financially viable plan and then provide ongoing accountability to that plan. A qualified CFO will help you identify when the plan may need to change and whether a strategy is working well or not.

A full-time CFO will cost between $200,000 - $500,000+, meaning the cost benefit analysis is not in favour of hiring a full-time CFO for a small/medium business. Hiring a fractional CFO alleviates this problem by bringing the expertise needed in line with your business budget

The scope of work for a CFO is broad, below we will go through some of the key tools and functions of a fractional CFO.

‍

Forecasting

When making decisions in your business, you will always need to look at the financial capability of your business to take action. The action you take must also avoid putting the business into unnecessary risk. The goal of a forecast is not to predict the future with a crystal ball but rather as a tool to help identify opportunity and minimize risk.

The aspects of a good forecast

-      Includes an income statement, statement of cash flow and balance sheet

-      Displays the core drivers of the business

-      Clearly states assumptions

-      Ability to do scenario planning

Once your business has a good forecast you will be able to use it to anticipate the impacts of large decisions such as hiring, buying equipment, purchasing another business, implementing a new product line, and pricing. After a large decision is implemented, you will have a way to quickly tell if something is going according to plan or if action needs to be taken to get back on plan.

Cashflow management

You need to know where your cash is going on a short-term basis so that you can pay your bills and grow your business. A CFO will help you ensure customer payments are coming in on time while expenses are being managed effectively.

A tool that helps with this will be the 13-week cashflow forecast. The 13-week forecast looks at one quarter and should be updated at least weekly. By using this tool you can quickly identify at a granular level what actions you need to take to move forward.

You can learn more about a cash flow forecast in our article Cashflow Forecast Example and Instructions.

Financial statement review

Your financial statements are the history book of your company. A CFO will review the financial statements on a regular basis. This includes looking at the actual performance of the business compared to the forecast or budget. Any major discrepancies and areas of concern will be investigated and discussed to see if further action needs to be taken.

As part of a review process the CFO will also make sure critical numbers are on track such as profitability, contribution margin, cash reserves, etc. Some of the critical numbers a CFO will be looking at can be found in our 5 Critical Numbers – Know Your Numbers Part 2 article.

‍

Goal setting

Setting goals within your business is critical to growth.They help your employees know what to aim for and keep the business on track.Poorly set goals however can easily decrease morale and run the business into problems. A CFO is able to use the tools mentioned above along with others to link the goals of a business to specific actions and numbers.

Bad goal example:

We will hit $1,000,000 revenue.

There is nothing actionable in this number and you don’t know if hitting $1,000,000 will leave your business profitable or not. When you track just your revenue you also won’t know what actions are helping you achieve the goal and what actions aren’t helping.

Good goal example:

We will sell 100 units by December 31. This will be achieved through spending $1,000/mo of ad spend and making 5 calls per day with qualified leads.

This goal is very actionable. You can track units, ad spend and conversion metrics and how many calls are being made and if the calls are converting to sales. You will be able to quickly tell if the actions will help achieve the goal or if something needs to change. Prior to setting the goal in this example a CFO will have looked at the break-even point to ensure these units are profitable and sustainable to make.

Conclusion

By hiring a fractional CFO, you can gain access to expert financial knowledge for significantly less than a full-time hire. As your business grows, having a financial expert on your team is critical to ensure you have a viable action plan and avoid costly mistakes.

‍

Happy Business Building!