The Fractional CFO: The Secret to Your Business' Success

Professional services businesses provide specialized knowledge in their field, but managing both the financial side of the business and providing services can quickly become challenging for a business owner. You need to think about cash flow, annual expenditures, revenue growth, and financial compliance, among many other factors of financial management.

Many practices and family offices ready to grow their business rely on financial consultants to shoulder some of that responsibility and identify more profitable opportunities. However, not all options may be suitable for your business. While hiring a full-time CFO, controller, and other financial leaders is beyond the financial scope of most small businesses, you can adopt a more versatile approach to strong financial leadership with fractional CFO services.

Here, we will be discussing the secret to your business' success when it comes to managing and scaling your financial goals with fractional CFO solutions. Keep reading to learn more and connect with Dillon Business Advisors to get started charting your financial success.

Table of Contents

1. What Is a Fractional CFO, and Why Do They Matter for Professional Services?
2. Why Professional Services CPAs Won't Satisfy Your Financial Needs Alone
3. 3 Key Reasons Not to Hire a Full-Time CFO
4. When to Hire an Outsourced CFO vs. In-House CFO
5. Controller vs. CFO: Why Both Are Critical in Accounting
6. Why Fractional CFO Services Will Dominate 2023
7. Breaking Down the Cost Savings of Fractional CFO Solutions

8. CFO, Controller, and CSM: What Is a Fractional Accounting Team?

What Is a Fractional CFO, and Why Do They Matter for Professional Services?

Fractional CFOs are experts in addressing financial difficulties faced by businesses. They work as a substitute for a regular CFO or work together with the current CFO in a consulting role to reduce costs, improve cash flow and establish standard operating procedures for efficient financial management. They are particularly valuable in these organizations because they can fill knowledge gaps.

A fractional CFO is a part-time consultant who offers financial leadership at a fraction of the cost compared to a full-time CFO. The main difference is that a fractional CFO is not a permanent member of the leadership team. However, they share the same responsibilities as other CFOs, such as managing financial teams, developing financial plans, creating financial models for predicting and evaluating revenue, and collaborating with other leaders like COOs within the organization.

Here are the biggest ways they matter for professional service providers.

1. A CFO can look at the historical results your business has generated to create long-term objectives, annual goals, and milestones that keep your growth on track without opening your business up to too much risk.
2. Fractional CFOs can help you overcome your biggest financial hurdles including:
   • Cash Flow Issues
   • Low Gross Margins
   • High Expenses
   • Outgrown Existing Systems
   • Need to Make Cost Cuts
   • Navigating an Audit

Dive deeper into what fractional CFOs are and what the real benefits are when managing your business by reading our blog post.

Why Professional Services CPAs Won't Satisfy Your Financial Needs Alone

When expanding your business, it's essential to view your financial team as a driving force for revenue growth. Many small companies employ a bookkeeper either internally or externally; however, today's successful businesses go beyond just traditional bookkeeping.

First, let's define the roles of a CPA (certified public accountant) and a fractional CFO.

• CPAs can help you manage the financial risk of your professional services business by focusing on tax laws and compliance. For example, a CPA will ensure you file the right documents for your business entity, your quarterly and annual revenue or profits, and your payroll.
• Fractional CFOs take on the role more akin to traditional CFOs than bookkeepers. Someone in this role will help provide forward-looking financial guidance on your objectives, your growth potential, and what strategic steps you should prioritize for the quarter or year ahead.

Many small businesses consider a CPA or bookkeeper to be the extent of their financial department. If you want to see your professional services department thrive, it might be beneficial to invest in a fractional CFO. Following are signs that it's either necessary or extremely beneficial to have a CFO in place:

• Your company has a lot of confusing financial and sales data.
• Your business infrastructure — equipment, personnel, network systems, etc. — isn't big enough to meet your growing needs.
• Your leadership team or financial team had a sudden bout of turnover, and you need a new financial leader at the helm as soon as possible.

Learn more why professional services CPAs aren't enough to accomplish your financial goals and how to drive more success by checking out our blog post. 

3 Key Reasons Not to Hire a Full-Time CFO

Hiring a full-time CFO might not always be the best option when your organization needs more hands-on financial management and guidance. It could come with a lot of drawbacks, not just advantages. Following are some of the key reasons why many businesses are hesitant to hire a full-time CFO:

1. You're limited to the knowledge and experience of one person. There is no guarantee that any CFO in your area is the right fit for your company's niche, size, and unique profile. Finding the perfect fit is challenging, and staking those hundreds of thousands of dollars on hiring the right one is a gamble. 

2. There is a high financial cost to hire and maintain an in-house executive, especially for small and growing businesses. The costs of this one employee can outpace spending for equipment, staff, and overhead, especially if you have a small and growing business. 

3. One thing every business will experience is turnover. Even a tightly knit leadership team can't stay in the same organization forever, especially as the business grows. This results in the need to repeat the process of training and onboarding for new CFOs, which could also lead to costs and disruptions in productivity.

When you first hire a full-time CFO, expect a lot of costs and drag on productivity during training and onboarding. Eventually, you'll need to repeat those efforts for a replacement CFO. If you decide to terminate a CFO, you may also need to pay unemployment in the meantime. There is also some risk that legacy knowledge will be lost, as traditional CFOs don't structure their work for flexibility in the same manner fractional CFOs do.

Explore solutions that offer the same positives as full-time CFOs without the costly drawbacks in this blog post.

When to Hire an Outsourced CFO vs. In-House CFO

CFO-level services are beneficial to business owners in professional service firms as they bring business and financial expertise to the table while allowing you to focus on the services and clients. While either an in-house and fractional CFO solution can be a good fit for businesses, it depends on your current financial situation, predicted growth, and the market. Let's explore when to hire and outsourced CFO and when to hire in-house CFO.

An in-house CFO is a full-time, salaried internal employee. They can be a valuable asset to your company if you have the following:

1. High Business Maturity: Mature businesses tend to be complex with many financial obligations, multiple product lines, and many regulations to comply with. An in-house CFO who stays with the company for an extended period can be extremely beneficial in this scenario.

2. High Revenue: CFOs are costly, with the average salary ranging between $319,600 and $537,100. If your organization cannot afford to invest these funds in one hire without risking your cash flow, a full-time CFO may not be the best fit.

3. On-Demand Availability: In-house CFOs offer more in-office availability for immediate financial issues. While an outsourced CFO can be just as responsive and available, the full range of responsiveness and services depends on the contract.

An outsourced, part-time Chief Financial Officer (CFO) can provide the flexibility your business needs while still ensuring financial stability. Indications that an outsourced CFO is a good fit for your company include:

1. Reaching a financial plateau: An outsourced CFO can be hired to align your business processes with current market trends without a long-term commitment.

2. Plans for expansion: A fractional CFO can help establish a solid financial foundation for future growth and profitability.

3. Lack of a succession plan: An outsourced CFO can assist in developing an exit strategy that aligns with your generational goals and protects your legacy, family, and finances.

Find out what indicators can help you determine when to hire an outsourced CFO vs. an in-house CFO in this blog post.

Controller vs. CFO: Why Both Are Critical in Accounting

Strong financial teams are made up of multiple different roles. The two key roles for monitoring, planning, and financial growth strategies are controllers and CFOs. But they're not interchangeable. With the CFO as the forward-thinking strategist and the controller as the one keeping your financial operations running smoothly, both roles are different but essential for your business.

Here's why it's important to have both in a professional services company:

1. Informed decision-making: Controllers keep financial books up to date, ensuring historical data and data up to the minute are as accurate as possible. The better the data, the more the CFO can drill down into potential inefficiencies and create stronger growth policies.

2. Compliance and risk management: A precise, reliable controller ensures organizations stay GAAP-compliant and prevent potential errors or security breaches. By taking this off a CFO's shoulders, the controller ensures that CFOs can spend more time on partnerships and investment initiatives outside internal operations. 

3. Cost savings: Controllers uncover granular cost-saving opportunities by reducing expenses and eliminating potential fines or penalties. At the same time, a CFO focuses on the long-term picture of driving the company in certain directions to reduce expenses and increase profitability.  

Understand more about the differences between controller and CFO and why both are critical in your business's financial health and success in this post. 

Why Fractional CFO Services Will Dominate 2023

Given the ongoing challenges, including global conflicts and ongoing supply chain disruptions caused by the pandemic and rising domestic inflation, it's important to have a well-prepared and comprehensive financial plan in place to address potential obstacles in 2023. When developing such a plan, some important considerations to keep in mind include:

Inflation and Economic Insecurity

Rising costs of supplies and inventory, along with the decreasing purchasing power of consumers and businesses due to high inflation rates, can make it challenging for companies to maintain financial stability. Additionally, avenues of investments and business loans may be less available to your company than in more advantageous economic scenarios because of economic uncertainty.

An outsourced, part-time Chief Financial Officer (CFO) can help navigate these challenges while minimizing risk and maximizing cash flow. Hiring a fractional CFO is also more cost-effective than hiring a full-time CFO.

Technology

Technology has a high initial cost, can easily become outdated, and potentially puts your professional services at risk if evolving technologies threaten to disrupt your services. But at the same time, automation, integration, and improved production capabilities can position the business for long-term success.

The key is to accrue equipment and assets at the right time to keep pace with the market. Fractional CFOs can help you implement technology and financial tools to streamline your processes where it makes sense.

Talent Shortages

The last few years have seen a lot of tumultuous shifts in the job market. The great resignation encapsulated a serious shortage of workers in nearly any market. Workers are prioritizing work-life balance and remote work arrangements. Many C-suite executives are also reaching retirement age, with 40% of executives planning to quit in 2023. This can make hiring a qualified, conventional CFO even more expensive, no matter how much your business needs one.

In this context, fractional CFO firms provide a cost-effective alternative that can be brought in as needed. They can also help with succession planning and provide insight into industry trends to aid in forecasting hiring needs and budgets.

The economic turbulence is severe, but it's far from unbeatable. Learn more on how fractional CFOs help supercharge your business in 2023 in this post.

Breaking Down the Cost Savings of Fractional CFO Solutions

Before you consider long-term growth and profitability, especially in the first few years of your professional services firm (or after a turbulent past few years during the pandemic), you might be prioritizing cost savings above all else. Here are three key avenues in which fractional CFO solutions can provide those savings:

1. Fractional CFOs strategically look at expenses for areas to reduce or eliminate. Hidden costs can creep into your balance sheet in a myriad different forms. Your fractional CFO team can sit down with fresh eyes and identify where you can trim costs with minimal disruption to your business.

2. Fractional CFOs strategically look at processes and technologies. Some of your business's processes might not be wasteful or have unnecessary costs; they might just be inefficient compared to other alternatives. Once your CFO identifies the low-hanging fruit of truly wasteful spending, they can start to comb through your operations to find savvier solutions.

3. Fractional CFOs strategically help you evaluate business decisions. Poor choices, both in the form of risky gambles and risk-averse hesitations, can increase your business's operational costs. But fractional CFOs can partner with you as a trusted advisor to discuss the pros and cons of renting/leasing office space, investing in additional resources, hiring employees, or expanding your services.

CFO, Controller, and CSM: What Is a Fractional Accounting Team?

Accounting teams are made up of professionals who manage day-to-day and strategic financial services within a business. But instead of trying to hire a CFO on a five-figure salary and not having enough steady work to keep a whole team of financial experts busy, your company can contractually hire these professionals on a part-time basis.

Enter Fractional Accounting Teams. Let's take a look at what makes up a fractional accounting team and what they do:

1. Financial CFO: Your fractional CFO will proactively advise you on financial goals and decisions. Along with providing models and insights, the fractional CFO can advise you and the business owner on changes to the tech stack, automation options, and more. 

2. Fractional Controller: Fractional controllers manage data. They'll help your in-house staff stay compliant with financial regulations and find potential tax savings for your organization. Turn to a controller for help with financial statements and data-based analytics.

3. Fractional Client Service Manager: Financial teams and client services need to have clear lines of communication. Your fractional CSM will support your teams as the main point of contact for payroll, accounting, and more. They can educate your team, manage payroll, and create processes for customer transactions.

The services a fractional accounting team can provide include:

• Financial Strategy
• Statement Preparation
• Accounting System and Procedure Oversight
• General Accounting and Back-Office Support
• Financial Modeling

For small businesses, having a fractional financial team in place, not just a CFO, is a smart strategic move. This approach provides not only the long-term strategic capabilities of a financial executive, but also experts who can establish processes for accounting, billing and managing taxes which are vital for running a business.

Learn some of the key ways a fractional financial team can help set your business up for consistent growth in this blog post.

Small businesses and professional firms no longer have to try and make do without financial expertise just because of their size. At Dillon Business Advisors, we provide fractional services for small and growing businesses that serve as the cornerstone for your financial operations. 

Our fractional teams will help your business grow by providing proactive expertise, financial knowledge, and the support your business needs to grow.

Contact us today for a financial business analysis.