CFOs for Small Businesses: Hire the Right Financial Expert

As a small business owner, finding the right formula for the growth of your business can be difficult. When do you bring on more employees? Is your pricing where it needs to be? How do you improve profitability? Do you have enough cash on hand to take risks to grow but also to weather any bumps in the road? How much of the total available market for your business are you actually reaching?

These are questions that require financial answers and strategy well beyond what basic bookkeeping can provide. When small businesses don’t understand what’s happening with cash, says Dave Hartley — Partner-in-Charge, Advisory at Anders CPA — they can get in trouble: over-expanding, growing revenue but not profits, or investing in less-than-profitable service-lines.

Cash flow forecasting is absolutely essential: if you're going to add a new location, add a new service or product or make an investment, you need to know how it’s going to be paid for. But many small businesses only have the capacity to look at cash a week or two out, or until the budget is up. They want to accomplish big growth goals but don’t understand metrics needed to get there. It’s like starting a roadtrip across the country with no real plan or strategy on how to get there. How many drivers do you need to optimize your trip? Where and when will you fuel up? What will you do if a detour or roadblock shows up along your planned route?

“If finance doesn't come naturally to you,” says Dave, “then find somebody who can help you with that. Many small businesses don’t have that visibility. They cross their fingers and hope that if they work hard, everything will work out. But what we find when we focus on cash flow forecasting, is that it’s not enough to generate revenue.”

Much in the same way that a road-trip needs a plan, your business needs a financial roadmap to make it to your destination. This is where an outsourced CFO service can really take your growing business to the next level. A fractional CFO will take all of the information from your bookkeeping reports, forecast multiple scenarios and build out a dynamic financial strategy for your business. They will help you better understand your cash flow so that you can stop guessing about how to move forward and take confident steps in the right direction. And the best part is that a part-time CFO is also a fraction of the cost of an in-house CFO.

What Will Fractional CFO Services Do for My Small Business?

A virtual or fractional CFO will, most importantly, move you out of static budgeting and into dynamic forecasting so that your decision making process ebbs and flows with the economy, the industry, and your performance as a company.

They develop your custom, dynamic forecast by establishing a set of KPIs to track the health and potential of your small business and by building financial strategies to empower your business to accomplish your goals, regardless of what the market throws at you. At Summit Virtual CFO by Anders, we do this by looking at four main metrics that we consider the backbone of profit-focused accounting: Cash, Production, Financial, and Pipeline.

A virtual CFO will help you build up your cash reserve to healthy levels (cash), understand how much revenue your production team is bringing in for the hours worked (production), what your net income is and how to get it to a healthy level (financial), and how to build or maintain the pipeline of new business (pipeline). These high-level insights into the factors that might affect the financial health of your company allow owners to better focus on their day-to-day work of running the business and have greater peace of mind.

A fractional CFO will help you as a small business owner think through the "end-game" decision for your company, as well. Are you doing this because you want to have a "lifestyle business" and want to make sure you are well paid, doing what you love, without getting burned out? Or did you build your business because you want to prepare for an exit, even 5-10 years down the road, and want to learn how to make yourself unnecessary, get your finances in order? This is a crucial decision to make and it affects your long- and short-term business strategy so having an expert guide you through this process is immensely helpful. In a recent podcast, Karl Sakas outlined how you can determine what your ultimate goal is for your business, and how to build a process that helps you realize this goal. Listen now.

When Do I Hire a Fractional CFO?

As a small business or start-up, finding the right time to make the jump into professional financial services can feel daunting. Some start-ups can take off faster than they’re anticipating and small businesses can see surges in growth that require financial expertise beyond what the founders and owners are capable of. But maybe your business can’t afford the full cost or time needed to hire an in-house CFO. Other businesses might have had an initial healthy growth period but are stagnant and finding it difficult to get out of the rut.

Both of these points in the life of your business, extreme growth or stagnation, are great times to bring in that external expertise. Another common marker that we use is the $2 million mark. Once your business reaches $2 million you have outgrown basic accounting services and need more robust financial reporting and strategies to stay healthy while you scale. It is also the perfect time to make that end-game decision mentioned above, because it really will impact the financial planning, staffing, and operations decisions you make in the present.

“The world is becoming increasingly complex,” says Dave. “That’s why you need somebody looking over your shoulder and asking, ‘Why are you making this investment versus this one?’ You need somebody who can help you make tough business decisions based on financial data as opposed to hope.”

If your small business is at the point where you would benefit from more financial expertise and strategic planning but can’t quite afford a full time CFO, now is the time to hire a virtual chief financial officer. If you have questions or are ready to take the leap, we are here to help you with a free virtual CFO consultation.