When Should You Bring In a Fractional CFO

A/P, A/R, P&L… If it sounds like alphabet soup and you’re in charge of the finances, you’re in trouble. You need to have someone you can rely on that isn’t intimidated by finance terms. Entrepreneurs start a business because they have a great idea for a new product or a new service. But when it comes to finances and terms their eyes glaze over.

You Do A Lot But Leave This to the Experts

In addition, many small businesses don’t have the budget for a CFO and the founder takes on those tasks. But they’re not financial experts, and they may miss opportunities to strengthen or grow the company. That’s where an FCFO can come in handy, says Jennifer Yousem, an FCFO and founder of IHeartEBITDA.  

Meet Jennifer Yousem, Founder at I Heart EBITDA

Fun fact: EBITDA = earnings before interest, taxes, depreciation, and amortization, a measurement that reflects a firm’s short-term operational efficiency.

Yousem’s mission is to provide business owners with peace of mind by translating finance into a digestible language anyone can understand. “For many companies that need strategic financial advice and services, the fractional model is great, you can access financial expertise at a fraction of price – pun intended.”  

What does a Fractional CFO do?

Everything a regular CFO does, but on a part-time basis, or sometimes, a project basis. That includes strategic planning, budgeting, and forecasting, as well as tracking cash flow, analyzing strengths and weaknesses, and suggesting corrective action.

Though they’re acting as a consultant, for all intents and purposes they look/act/feel like an internal CFO. Anyone outside the organization wouldn’t know they’re not an employee.

How can a Fractional CFO help your business?

The first is by serving as a financial sounding board and offering expert financial insight.

“Small business owners don’t have the benefit of a full C-suite of peers. A fractional CFO can be someone to share your experiences with and ask advice about where to best spend your budget, whether your products are priced right…any of those questions you may have about your business and how to scale and grow.”

Yousem has found that a lot of entrepreneurs are accidental – they are successful but don’t know why. A Fractional CFO can offer an understanding of solid financial processes, teach you how to read financials, and share an unbiased outside perspective.

That outside perspective is especially helpful when it comes to evaluating organization charts, Yousem says. “You may start a business with friends, or bring in people you like, but they may not be the best for the job. Having an independent evaluation of your company is always beneficial.”

The second way an FCFO can help is in setting up healthy financial processes and getting the structure right. “Most founders are focused on their business, making widgets. The back office, HR, operations, finance, are an afterthought. It is invaluable for scale and growth to have that backbone in place. It may seem costly, but it costs a lot more to fix it later than to get the setup right in the beginning. If you don’t have good processes, good ways to measure your business and keep track of things, your business will implode.”

When should a business bring in a Fractional CFO? 

Yousem has advised all types of companies, from pre-revenue solopreneurs all the way through multi-million dollar enterprises. Though any company can benefit, she finds there are several inflection points in a company’s lifecycle when an FCFO can be beneficial.

  1. When you’re just starting out, a project-based FCFO can get you set up correctly. 
  2. When you need to raise capital, they can help frame your company the way investors want to see things.
  3. When your business is successful and you have revenue but no cash, an FCFO can help you understand why.
  4. When you’re allergic to math. “Half of my clients say this,” Yousem says. “Many think it’s a weakness, but it’s not. Outsourcing things you don’t know how to do shows strength.”
  5. When you’re replacing or choosing an accounting platform, an FCFO can audit different systems and help you choose the right one to help you scale.

What should you consider when hiring an FCFO?

Treat it like you would hiring any other service provider or employee. Check references, look at their work history, do your research. But most important: be honest about what you’re looking for, Yousem says.

“If you’re looking for someone who is always available, a fractional CFO might not be right for you. Think about what you want them to achieve, how you want to interact, how often you want them to come in for team meetings. If you want someone with subject matter expertise in your industry so there is no learning curve, be clear about that. For example, I have expertise in media and advertising, so it’s quicker for me to parachute into that kind of company and give quick assessments.”

Ready for some financial insight?

If you’re frustrated with your organization’s finances, need advice on which metrics to track, and assistance interpreting the data, it’s time to look into a savvy fractional CFO.

Want Bigger Profits Without the Painful Math? Book Time with Jennifer.

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