This blog appeared on Inside Indiana Business on Friday, May 28, 2021 as part of their daily email. We are appreciative of the opportunity with Inside Indiana Business.
Every organization has a myriad of skill sets that make them unique and successful. However, we all have our own personal blind spots and places where we could use assistance. The same can be true of your business. As your business grows and scales, your organization may reach a point where you need additional finance & operations assistance, however, the business isn’t quite ready for bringing on full time talent.
While national fractional CFO firms do exist, they can have boilerplate methodologies or inflated pricing (at least 30-40%) to satisfy overhead and other costs akin to national CPA firms. Find someone local - Hoosiers helping Hoosiers.
Effective CFOs will listen to the needs of the organization and tailor advice to the organization. Here are some instances when a fractional CFO could be a benefit to your organization:
Financial Strategy & Long-Range Planning: Developing a long-range financial plan is important to anticipate needs of the organization. This planning process can illicit important questions about business needs that might not be readily apparent. These might include: the need to finance working capital; how to stagger the opening of new locations to allow free cash flow to finance future locations; information system needs; what type of talent would you need to add into your organization and when to do so. All of these can be the result of a healthy dialogue around a long-range planning discussion.
Transactional Support: A fractional CFO can assist in a myriad of ways from obtaining financing, to negotiations on new operating agreements or financial contracts, to underwriting new investments or acquisitions, raising equity, dealing with complicated waterfalls, or an assisting with an exit. These can often require skills sets beyond the organization’s capacity.
Redesign Accounting Processes: Owners know their businesses extremely well. However, they may not know enough about an accounting close process to challenge well intentioned accountants or to make it more efficient. A skilled CFO can help cut through that and to help focus in on what is important. If you are not getting your results within 10 days, then your process needs help.
Enhancing Management Reporting & System Implementations: A good CFO will listen to the business discussions and help provide the necessary data to the organization to enable better decision making. Obtaining this information can often mean having an understanding of the systems and processes that generate information and who performs them. In addition, sometimes the results of system implementations are suboptimal because the organization says, “give us just this” without asking the question of “what should we be doing?”
Bridge Growth Period / Stability Between CFO’s: Finally, perhaps your organization is between CFO’s and you want to take the time to find the right new person. Alternatively, maybe your organization is in a period of growth that needs assistance but cannot afford a full time CFO. Fractional CFO’s can fill these gaps very effectively. In fact, it can also be a way to try out a CFO on a part time basis to see if there is a mutual long-term fit.
In addition, maybe you have an incumbent CFO that you like but they are lacking in a certain area and you can supplement with a fractional CFO on a project basis. Fractional CFOs will vary in their skills and talents. The truly good ones will check all these boxes and more. They should be able to range from complicated contract negotiations and waterfall calculations, understanding of finance and maximizing ROI, systems and processes re-engineering, to nuanced accounting and tax questions all the while being willing to roll up their sleeves and get their hands dirty when necessary. To be honest, they should also be willing to tell you what you need to hear not what you want to hear.
Fractional CFO’s may operate hourly, on a project basis or as a recurring monthly retainer and they should want to align the service to your needs.
Conclusion: Finally, make sure you underwrite the person who will help you. Regardless of your choice, you should ask for more from your finance organization that just counting numbers. Make sure they are providing the necessary insights to enable profitable growth for your organization to achieve your long-term objectives.
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