If you run a small or medium-sized business, you are likely no stranger to outsourcing. You’ve probably worked with a marketing consultant, freelance graphic designer, or a contract web developer over the years. Did you know that you can also hire a consultant to advise on your business’s financial decisions? Enter the fractional or outsourced CFO. In this post, we review what a fractional CFO is and how they can help your business thrive.
What is a Fractional CFO?
A fractional CFO (also known as an outsourced CFO, external CFO, CFO consultant, or virtual CFO) is a finance and accounting expert who is qualified to run financial operations for your business.
Fractional CFOs are strategy-based finance professionals who offer valuable experience as you develop your company’s financial and operational roadmap. You can hire an outsourced CFO on a part-time, full-time, or project basis.
What Does a Fractional CFO Do?
A seasoned outsourced CFO will take your business, and its financial health, to the next level. Here are some common services fractional CFOs offer:
- Budgeting: A fractional CFO can help you properly strategize your company’s monthly spending and annual financial plan so that you can stay on the path toward your goals.
- Cash flow management: Your CFO will help you manage cash flow and ensure that your daily expenses are in line with your revenue and goals. Many businesses face cash flow issues. It’s imperative to solve these problems for your company’s health and profitability.
- Forecasting: This is the long-range version of budgeting. Forecasting weighs your company’s current financial standing against its future potential. This involves analyzing industry competition, the economic climate, and more. It’s important to have a finance professional help with forecasting since this requires many complex considerations.
- Finance strategy: If you hire an outsourced CFO for one reason, financial strategy is it. Determining a finance strategy in the nascent stage of your business is essential to your growth and reaching your company’s full potential.
- Financial reports: Need someone to put together a series of charts and graphs and show you what everything means? An external CFO can help with this. Better yet, your external CFO will distill all of this information down into the most important facts.
- Investor relations: Utilizing a fractional CFO to communicate with your investors regarding your business strategy and financial health is highly beneficial, because a finance specialist knows which KPIs are most important to investors. Further, many investors view small companies having a full-time CFO as a waste of resources.
- Negotiations: When it comes to board room deals, mergers and acquisitions, and bank loan terms, you’ll need a finance specialist on your side. A fractional CFO can help your company negotiate bank loan terms. Further, CFOs know what financial leverage you have. They also know what contract terms could hurt you, which is essential when investigating mergers.
- Fundraising: If your startup made it past Series A fundraising and needs help with Series B, an external CFO can help you succeed. Your CFO will review your funding sources and ensure you’re making choices that won’t compromise your business plan, while also advising on how best to present your company’s financial health to potential investors.
How Can a Fractional CFO Help My Business?
A fractional CFO will help you make sound financial decisions and build a business with strong financial health. CFO contractors typically work part-time with your business, so this setup is ideal for smaller companies.
What Size Does My Company Need to Be to Work with an Outsourced CFO?
In most cases, you’ll want to be earning at least half a million dollars per year before hiring a contract CFO. On the upper end, an outsourced CFO is most useful to businesses earning at or below $40-50 million per year. At this point, you should strongly consider hiring a full-time, in-house CFO.
Can smaller businesses hire an external CFO?
Yes, smaller businesses can still benefit from outsourced CFO services if they are working to fast-track their growth or are entering a merger or acquisition.
If you have further questions regarding outsourced CFOs and whether one is appropriate for your company, don’t hesitate to reach out to us.