Growing a small business is hard work, but the right resources and advisors can help you strive toward long-term success. To do so, you need more than an in-demand product or service and a clear market; you also need to have a strong financial plan for both your daily operations and your long-term objectives. The importance of a financial strategy cannot be overstated. According to the Chamber of Commerce, the failure rate is perilously high in the first ten years of your business's operations:
The average small business failure rate for the first year of operation is 21.9%, and this is estimated to escalate as the years go by. The majority of small businesses or companies are likely to fail in the first three years of operation... Even businesses that have stayed afloat for ten years still have a failure rate of 65.7% by the 10th year.
But managing your cash flow, preparing for slow seasons, and methodically planning your company's growth over time can help you reach that ten-year finish line — and beyond. 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; hire a part-time CFO who can provide the guidance and processes you need to succeed at a fraction of the cost of a salaried CFO. In this article, we'll explore:
- What fractional CFO services are
- What small businesses will need to prepare for in 2023
- How fractional CFO services are uniquely suited to help small businesses meet those 2023 challenges
What are fractional CFO services?
Fractional CFO services encompass all of the services a company would receive from a conventional, salaried CFO. Chief Financial Officers oversee the day-to-day operations and direction of the business, including forecasting budgets and revenue, ensuring compliance with regulations, managing tax obligations, and establishing efficient accounting processes. They also create long-term financial strategies so their businesses can consistently and predictably grow, becoming stronger without overleveraging.
But most small businesses can't afford — and don't truly require — the full-time services of a traditional CFO. Instead, fractional CFO services give businesses access to a part-time, experienced financial leader who can fit within your business's budget while still providing the services and leadership you require. Fractional CFO services are especially vital for professional services companies. You and other leaders are experts in specialized fields, and the overhead of running many of these businesses is high; an experienced financial leader is exactly what your business needs in this high-stakes paradigm.
The Future of Small Businesses
Professional service firms and family offices around the country face additionally risky futures based on today's market trends. A lot of turbulent factors from 2022—ranging from conflicts around the globe to continued supply chain difficulties from the pandemic and domestic inflation—will continue throughout the year. Because of this, your financial business plans need to be particularly robust and detailed so you can proactively navigate financial obstacles. Some considerations to keep in mind throughout the following months are:
Inflation and Economic Insecurity
The US Inflation Calculator measures the domestic inflation rate at 7.1% from December 2021 through November 2022. This number has a lot of implications for your business. First, the cost of supplies and inventory is rising. Also, both consumers and businesses have less purchasing power due to the high inflation rate. This means people may be unable to purchase your services or will have to purchase less of your services, cutting into your cash flow. Additionally, because of the economic uncertainty, avenues of investments and business loans may be less available to your company than in more advantageous economic scenarios. You'll need a financial expert who can navigate your business through the high inflation period with as little risk and as much cash flow as possible.
Technology
Technology is a double-edged sword for many small and growing businesses. On the one hand, it 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. At the same time, automation, integrations, and faster production capabilities can set your business up for long-term success. Most financial leaders are optimistic about the tech investments they made during the pandemic. The key is to accrue equipment and assets at the right time to keep pace with the market.
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.
Employees in general will become more expensive to hire due to growing competition amongst employers for top talent. Beyond that, the growing rate of turnover also has its own share of costs and can jeopardize your business's path. That's where another value of fractional CFO services lies: they can help you with succession planning to mitigate the ramifications of employee turnover.
The Benefits of Fractional CFO Services Now and Beyond
The economic turbulence is severe, but it's far from unbeatable. Here's how the right fractional CFO services can prepare you for the coming year:
Cost-Effectiveness
Fractional CFO services are based on a clear, detailed contract: you hire a part-time CFO based on the unique needs of your budget. Not only is this a fraction of the costs of hiring, paying, and training a conventional salaried CFO, but you can consistently predict the costs by writing them into the contract. With a flexible arrangement, you can increase the services you receive during busy seasons or scale back services if activity decreases.
Reduces Risk of Turnover
When you have a contractual arrangement for CFO services, you don't have to worry about resignations, sudden turnover, and large gaps as you find and hire a replacement. Fractional CFOs can also help you create measures for succession planning so you’re maximizing the value of your company to potential buyers. You can gain deeper insight into employment and turnover trends to forecast hiring needs and budgets.
Greater Experience and Expertise
Getting a conventional CFO with years of experience is expensive. But fractional CFO services from Dillon Business Advisors start by pairing you with financial experts who understand your niche without that high price tag. Fractional CFOs can bring controllers, client service managers, and other financial experts in for more nuanced financial success plans as the need arises, so you aren't just relying on the experiences of a single CFO hire. With our financial expert teams, you can future-proof your business and gain insights from multiple financial experts.
Power Your Business With Fractional CFO Services
2023 is growing to be an unpredictable year. But starting the year with financial advice you can trust, strong financial processes and a greater focus on a financial plan can help your company navigate the economy and market with better results. Contact us today to learn more or to find the right team of consultants for your professional services firm.
