Looking to solve your financial woes as you scale? Contact us to learn how a fractional CFO can transform your business
When your small business hits the growth phase, you’ll be looking to expand your operations. That’s the good news.
The challenge is you may need additional financial skills and strategies that you’re not equipped with. Now you’ll have a few sleepless nights wondering how you’re going to solve this problem and where you’ll find the resources.
Very normal problems for a small business that’s about to expand its capabilities.
In this article, we will pitch you an idea to help you navigate successfully through what is an exciting and stressful time. Our solution is based on what we’ve seen in action and know can offer tremendous value to your whole team.
It’s called, an outsourced, fractional or part-time CFO. Keep reading as we explore how the outsourced CFO relationship can work for your business and bring your vision to life.
Why Your Small Business Might Need a CFO
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As a growing small business, you'll face challenges distinct from those you encountered in the startup phase. Employing a CFO can bring immense value to this transformative process. Here are 10 compelling reasons why you would consider a CFO joining your team.
The growth phase often necessitates a more complex financial strategy. A CFO can help craft a financial model that will support and sustain this growth.
Cash Flow Management
The risk of running into cash flow problems increases as you expand. A CFO can build a reliable cash flow model and help manage working capital more effectively.
Growth usually comes with increased costs. A CFO can identify areas where efficiencies can be realized, thereby managing costs while supporting growth.
If you're planning on taking on investors or debt to fuel growth, a CFO can help structure the best possible deals to minimize dilution and optimize capital structure.
Expanding often exposes a business to new types of risk. A CFO can identify these risks and develop strategies to mitigate them.
Effective deployment of new capital is critical for achieving growth. A CFO can prioritize spending on the most impactful areas, ensuring that resources are allocated in the most efficient way possible.
Financial Reporting and Compliance
Growth often necessitates a more complex financial reporting framework, which could be required by new stakeholders like investors or regulators. A CFO ensures that all reporting and compliance requirements are met.
Market Entry Strategy
Entering a new market or launching a new product involves considerable financial planning and risk. A CFO can offer insight into market conditions, helping to formulate a robust market entry strategy.
Negotiations and Partnerships
As the business grows, it may enter into more complex contracts, partnerships, or mergers. A CFO can lead or assist in negotiations, ensuring terms that are favorable to the business.
If the growth strategy includes an eventual exit or sale, a CFO can prepare the company financially and strategically to ensure it receives optimal valuation.
Sound like what you need? So then let’s talk about the elephant in the room. What will this cost?
The Dilemma: Can You Afford a CFO?
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Yes, it is true that qualified professionals such as CFOs are professionally qualified as CPAs or CMAs, and that attracts higher fees.
A qualified CFO can command an annual salary of up to $180,000. That might be quite a chunk out of your revenue for the year.
The bigger consideration is whether you forego top-tier services in order to save some money or cast your efforts toward a better alternative. We’d like to suggest you take our recommendation to get an outsourced CFO and here’s why.
The Solution: Fractional CFO Services
Enter fractional CFO services—your middle-ground solution. These CFOs aren't full-time employees; rather, they lend their expertise to multiple businesses.
This arrangement offers the best of both worlds: top-level financial direction without the cost of a full-time position. Fractional CFOs or CFO service providers are typically self-employed or own their own accounting firm. This allows them to take on a number of clients without having to work full-time for one company.
They will charge about $3,000 to $10,000 monthly, with retainers ranging between $5,000 to $7,500.
If it’s per hour, the average base salary of an outsourced CFO is around $65.00.
That’s more manageable for most businesses than employing a full-time professional. But the important question still remains, ‘What will they do for this price?’
What Does a Fractional CFO Do?
An experienced CFO will assess your financial situation, evaluate your cash flow, and scrutinize your financial reports. They will collaborate with you and your management team to develop strategies for growth, which can include raising capital, setting KPIs, and deciding on suitable business models.
The Benefits of Outsourced CFO Services
The advantages of having small business CFO services can't be overstated. They offer strategic insights and can act as an independent source of information, providing you with the coaching and guidance needed for your business's next growth phase.
There are a number of pitfalls that an outsourced chief financial officer can help you to avoid. This is especially true of someone who has experience in the industry you want to make an impact in. Let’s examine some of these pitfalls and talk about how a fractional CFO can help you maneuver through the muddy waters.
Avoiding common pitfalls of business expansion
Overextension of Resources: Many small businesses make the mistake of spreading their resources too thin during expansion, leading to a lack of focus and efficiency. This could mean overcommitting on inventory, manpower, or locations without a guaranteed return on these investments. This can really limit your business finances.
Neglecting Existing Customers: In the rush to capture new markets, some small businesses overlook their existing customer base. Failing to maintain quality service levels for current customers can lead to attrition and negative reviews, jeopardizing the business's reputation.
Insufficient Market Research: Diving into new markets without adequate research can result in poor product-market fit. This could result in low adoption rates and high customer acquisition costs, creating a financial burden on the business.
Cash Flow Mismanagement: Expansion usually requires a significant financial outlay. Poor planning can lead to cash flow issues, potentially leaving the business unable to meet its short-term liabilities. This can halt expansion plans and even lead to business failure.
Inadequate Talent Management: A growing business has increasing human resource needs. Failing to recruit the right talent, or to properly train existing staff for new roles, can lead to operational inefficiencies and decreased productivity, affecting profitability.
First meeting - what to expect
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Once you find someone you can work with and trust you’ll set up a first meeting to discuss your needs and strategies. The CFO will meet your team and listen carefully to the ideas that you have for expansion.
At some point they’ll take a look at your financial reports, assess the financial health of your company, and look at the cash flow situation - cash management is usually a hot topic of discussion at the first meeting.
Furthermore, the CFO will examine the financial infrastructure, assess business performance in sales, and collect data from your financial forecasts.
After gathering this information, they will collaborate with you and your management team to develop strategies for business growth. This may encompass raising funds, establishing key performance indicators, implementing accounting services, and selecting viable business models for your industry.
As a business owner, you can’t overlook due diligence. This is a critical area where significant losses can occur, and the collective expertise of your CFO and management team can mitigate such risks.
Ready to take the first step? Contact us to schedule your initial meeting
Critical questions you can ask your CFO
As a small business trying to set down a good business strategy that works for you can be overwhelming. Even the thought of working with a CFO can feel daunting if you haven't had the opportunity to get all your ideas together.
Here are some critical questions you can ask the CFO to ensure you get maximum results from the first meeting.
Do you think our financial results align with the key metrics that we are looking at?
What steps can we take to address operational costs as we get bigger?
Will you set up and manage the annual budget with our team?
Do we have adequate financial forecasting processes in place?
How can our financial strategy be compared to other start-ups or small businesses in this industry?
What technology do you think will improve our business businesses and enhance efficiency?
What changes would you implement to ensure the financial health of our company?
What financial challenges do you think we should address straight away?
The Value of a Fractional CFO for Small Businesses
As you can see, a part-time CFO serves as a valuable resource and advisor, capable of offering specialized guidance. If they have experience in your specific industry, they can provide firsthand insights on enhancing profitability and identifying pitfalls to avoid.
Employing an outsourced CFO allows you to delegate financial responsibilities and gain the strategic direction needed. You choose an outsourced CFO because you trust them to provide the necessary information, share their expertise, and guide you toward your business goals.
Hall Accounting Company has worked with small businesses across industries. We are based in the United States in the Lone Star State and would love to meet with you if you need fractional CFO services.