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By Tony Fremarek | A Fractional CFO, LLC
A CFO is responsible for managing the financial operations of a business, this includes accounting, financial reporting, cash management, budgeting, maintaining controls, capital structure issues, and financing. Additionally, the CFO is involved in strategic planning and financial analysis related to daily operations. Many CFO’s also have experience dealing with issues involving HR, IT, and insurance. They also provide guidance to business owners to maximize cash flow, minimize business risk, and increase the overall value of their business.
The role of CFO differs from the services traditionally provided by the external CPA. Since the most common corporate structures are either an LLC or a S-Corp, the CPA is focused on taxes in most small to mid-size businesses. The CPA spends most of their time and efforts looking backwards and reporting on the past. The CFO, on the other hand, is more focused on the present and working towards the future. Don’t get me wrong, the CPA plays a vital role in the business, but they are more effective when working with a CFO.
Most small and mid-size businesses employ an accountant or bookkeeper who maintains the financial system and records transactions on a day-to-day basis. The external CPA produces the tax returns and, at times, may do some light analysis work at quarter- and year-end. This leaves a significant gap in the information and management reporting available. Without regular reporting, business owners lack the critical financial information needed to make an informed decision.
The CFO works closely with the owner to define the future for the company. This involves setting realistic goals and helping to plot the roadmap to achieve those goals. Working with the internal team, as well as working with external vendors and stakeholders, is yet another key function. This includes setting and managing expectations, presenting financial information, and often working with bankers, creditors, and lenders.
Most small to mid-size businesses cannot justify hiring a full-time CFO. Aside from the costs involved, there is just not enough work to be done. The solution is to hire a Fractional CFO. A Fractional CFO allows all businesses to have the advantages of a larger organization. The business gets the advantage of a C-level financial expert, but on a fractional, affordable basis. Often times these Fractional engagements can last forever, or until the organization grows to the point it can justify a full-time CFO. In the case of growth, the hand-off from the Fractional CFO to the full time CFO is seamless.
Key advantages of hiring A Fractional CFO include:
- Better Financial Information – Accurate and timely financial statements and management reports that include projections, actual results versus forecasts, cash flow forecasts, and other KPIs that improve insight and promote proactive management. The goal is to increase visibility and efficiency to increase net income.
- Improved Decision Making – Basing decisions on accurate and relevant financial information allows the business owner the opportunity to avoid making wrong or costly decisions. Key decisions include growth strategies, cost management, financing and business investments, and staffing among others.
- Team member – The CFO becomes embedded in the company and acts as part of the management team. The CFO, while virtual, is always available given today’s technology. It’s like having them sitting in the office with you.
- Internal Controls – Financial controls can provide many benefits including accurate financial statements, improved control of company assets, and greater financial visibility. Another “set of eyes” also reduces the chance for errors or fraud.
- Specialist Skillset – A Fractional CFO is, first and foremost, a business professional with experience within various business enterprises. A Fractional CFO is exposed to many other businesses through their clients, and they bring that knowledge to their business. A significant difference between a CFO and a CPA is that a CFO can solve many financial and business problems because they have experience doing just that. They can quickly identify and address issues and bring their experience to bear using best practices to solve those issues.
- Increased Productivity – Hiring A Fractional CFO to perform the financial and administrative functions of the business frees up the business owner so they can focus on “doing” the business, rather than trying to “run” the business. In addition to bringing financial and accounting expertise – a CFO can deal with administrative areas such as human resources, facilities, insurances, legal and compliance, IT, and banking relationships.
- Perspective – A CFO can improve the decision-making process by helping owners ask the right questions and base decisions on facts. A Fractional CFO provides a fresh perspective to the owner and often seeing things in a different light. A Fractional CFO can be a sounding board and trusted advisor for new ideas and initiatives. There is also the added benefit of making life a little less lonely for the entrepreneur. We all know it’s lonely at the top.
- Flexibility – By using A Fractional CFO, the level of involvement can be varied and customized to the needs of the organization. The ability to ramp up or down the efforts of A Fractional CFO, allows the organization the ability to increase the level of support when needed, and then adjust it down when not needed. That flexibility is not an option with a full-time CFO.
- Stakeholder Confidence – Stakeholders, such as lenders and creditors, react positively to the knowledge that a professional CFO is part of the management team. This takes on additional importance when looking for outside investment, debt financing, or positioning the company for sale.
- Cost – A Fractional CFO can bring all the benefits in terms of skills and knowledge of a full- time resource, at significantly less of the cost.
To summarize, A Fractional CFO brings all the benefits of a full-time resource, but at a fraction of the cost. They work for an agreed upon amount of time on an ongoing basis. The benefits, which are numerous, range from improved reporting and decision-making, better vision into the business for planning and forecasting, and stronger financial management and controls. I believe the biggest benefit is the owner’s ability to transfer the financial and administrative burden to the CFO, and free themselves to work on other parts of the business. Business owners are forced to wear many hats and the financial and administrative hat is usually the worst fit.
Tony Fremarek is the Founder of A Fractional CFO, LLC with offices in Plainfield, IL and Fort Myers, FL.