Welcome back to The Profit Plot, a podcast where we help small business owners unlock the story behind their profitable business by unpacking one complex financial topic at a time. I am your host, Jeremy Millar.

Businesses that multiply in a short period of time often find themselves building the rocketship while it's already flying through the air. The growth of any business is challenging to manage; there are often larger financial obligations to meet with very little free cash flow and many other financial pitfalls that are easy to stumble into if you're not careful.

That's why, in today's episode, I'd like to explore the role of a fractional CFO. What are they, how can they help your business, and are they necessary for your growth?

Together we'll discuss what a Fractional CFO is, the benefits they can bring to your business, their key responsibilities, and how to decide if and when it's right for you to hire one.

It's no secret that, as your business grows, so do its financial complexities. Your accounting needs, for example, naturally become more complicated over time, meaning your financial operations must keep up in order for your business to keep running as you grow.rr

But what exactly is a Fractional CFO? As always, I think it's necessary first to define our terms.

Let's start with the title Chief Financial Officer, or CFO, is. A CFO is typically a senior executive responsible for managing a company's financial actions and strategy. They oversee financial planning, budgeting, cash flow management, and risk assessment, among other crucial financial tasks.

CFOs are often the leading force guiding a company's financial decision-making process. They help ensure that the business is stable and growing from a financial perspective.

A Fractional CFO provides these services on a part-time or project basis, rather than being a full-time employee. They typically work with multiple businesses simultaneously, offering their expertise and strategic guidance to help each company achieve its financial goals.

Clearly, the main difference between a full-time CFO and a Fractional CFO is the level of commitment and cost. A Fractional CFO can be an excellent outsourced solution for small businesses that need financial expertise but aren't ready for or can't afford a full-time CFO. They can act as an outsourced financial arm of the business, helping to implement financial planning, budgeting, cash flow management, and general accounting infrastructure for a growing business.

It's helpful to know what a Fractional CFO is, but what are the benefits of hiring one for your small business? What can a fractional CFO actually do for you?

Just as with many other financial service providers, Fractional CFOs are meant to provide valuable support to your business as it grows. Let's discuss the three biggest benefits that come from working with a fractional CFO.

First, you'll get financial expertise. A good Fractional CFO will bring extensive financial knowledge and experience to your business. When working with an outsourced financial department of this caliber, you'll get high-level financial strategy and guidance that helps you understand the story behind your numbers.

Many Fractional CFOs have diverse backgrounds and experience across various industries. This means they can bring a broader perspective and unique insights to your business, helping you navigate industry-specific financial challenges and capitalize on growth opportunities.

With the help of an outsourced CFO, you can build necessary financial tools like a budget and forecasts, understand your business on a deeper financial level, and ensure that you're on a path to achieving the goals you've set.

Second, outsourcing your business's financial support can be far more cost-effective than hiring an in-house team. A full-time CFO is a significant expense that would be unwise for most small businesses to take on. By opting for a Fractional CFO, you can access the same level of financial expertise at a fraction of the cost, allowing you to allocate resources more effectively and prioritize other business needs.

Finally, you'll find a significant amount of flexibility and scalability when working with a Fractional CFO. If your business is growing quickly, its needs are often changing. For that reason, you'll need to adapt just as quickly.

The Fractional CFO industry is diverse. Some vendors can be engaged for specific projects, while others limit their work to an ongoing basis. That means that you can find the flexibility that your business needs, allowing you to scale up or down the depth of financial support you receive as your business evolves.

Hiring a Fractional CFO for your small business can provide valuable financial expertise, cost savings, diverse industry experience, and flexibility to support your growth journey. However, not every Fractional CFO practice is the same; different providers offer different service levels or a different scope of work. Knowing what tasks or duties you're looking for help with before engaging with a CFO is important.

Now, that being said, there are several common areas of focus for Fractional CFOs.

First and foremost is financial strategy. This topic is massively impactful for small business owners with aggressive growth goals. Are you trying to open up several offices around the United States? Maybe your brand is starting to pivot, and you need to understand the financial ramifications of such a significant change.

This is where the Fractional CFO role can really shine. They can help you create a comprehensive financial strategy to guide your business toward its long-term goals. This includes identifying growth opportunities, setting financial targets, and developing plans to optimize profitability and cash flow.

The approach to developing a financial strategy can depend on the vendor you're working with. Typically, this component of planning requires a deep understanding of your business's financial health and well-being, illustrated through your accounting.

Your Fractional CFO will need to understand the financial story behind your business first before creating an effective strategy, which is why excellent accounting is such a foundational aspect of working with someone in this capacity.

Often, a core part of developing this financial strategy is excellent budgeting and financial planning.

In my own firm, budgeting and planning for the future are key components of helping clients find success. A Fractional CFO can assist you in developing and managing budgets and creating financial plans for specific projects or initiatives.

When working on a plan or forecast, you're leveraging historical data to help develop a picture of what's possible in the future. This is where that need for an excellent accounting foundation comes in again; without proper insights into the history of your business, forecasting isn't particularly useful! You need enough data to make assumptions and predictions about what's to come.

Similar to budgeting and forecasting is cash flow management.

Efficient cash flow management is essential for any growing business, as I've discussed in a previous episode. Without good financial management, your business risks outpacing itself - spending money faster than you can make it - and ultimately defaulting on its financial obligations.

A Fractional CFO can help you monitor, analyze, and forecast your cash flow, ensuring that your business has the liquidity it needs to meet its financial obligations and seize new opportunities as they come up.

Financial analysis is an important component of understanding the story behind your business's finances. A Fractional CFO can analyze your financial data to identify trends, opportunities, and areas for improvement. They can also help you prepare and interpret financial reports, giving you a clearer understanding of your business's financial health and performance.

Analyzing and reviewing your financial data periodically can have some incredible benefits. Having a third party to review your financial statements with, like your P&L and Balance Sheet, can bring in clarity to your business like never before. When digging through your finances, you'll be able to pair your intuition as a business owner with the insights of your CFO to guide your business through impactful and informed decision-making.

By taking on these responsibilities, a Fractional CFO can provide invaluable financial expertise and support to help your business navigate growth and achieve its goals. I believe that working with someone in this capacity can save you time, bring more confidence to running your business, and significantly impact your ability to make clear decisions.

Now, we know that working with an outsourced or Fractional CFO is useful. The question remains: for whom? Along with that, at what point should you consider hiring one for your business?

I'm going to give you the most accountant-like answer ever: it depends. Unfortunately, there's no one-size-fits-all answer, as every business's needs and circumstances can drastically vary by industry, revenue, employee count, and a hundred other factors.

That being said, there are some universal indicators that your business may be ready for a Fractional CFO. Here are the things you can watch out for in your business when considering whether or not to hire help.

First, rapid growth. If your business is experiencing rapid growth, you'll quickly find that your financial needs are more complex than, say, a regular bookkeeper may be able to handle. A Fractional CFO can help you navigate these challenges and ensure that your financial strategy supports your growth objectives.

Another good indicator is if your limited internal financial expertise becomes an issue. If you find yourself unclear about the trajectory of your business, not sure how to implement sound financial operations, and just lacking a general financial understanding within your existing team, a Fractional CFO can fill this gap by providing high-level financial guidance and support.

As your business grows, for example, you may face increasingly complex financial decisions, such as pursuing new revenue streams, acquiring other businesses, or restructuring your organization. A Fractional CFO can help you evaluate these decisions and develop a sound financial strategy for moving forward.

Increased regulatory compliance: As your business expands, you may be subject to more stringent financial reporting and regulatory requirements. If you have employees in multiple states, for example, you'll need someone who can ensure that your processes and policies are compliant. Some fractional CFOs can help you navigate these requirements and ensure your business remains compliant.

In all honesty, to determine if it's the right time to hire a Fractional CFO, you need to evaluate your current financial management capabilities objectively and consider whether a Fractional CFO could provide the expertise and support your business needs to scale effectively.

If you've done the work of evaluating where your business is currently at, it's important to think about what a successful partnership with a Fractional CFO looks like. How can you get the most from your relationship with a potential service provider, and what do they need to support your business?

First, it's helpful to identify the skills and experience needed for your industry. Before you start your search, identify the specific skills, industry knowledge, and experience that your business will need. If you're part of a compliance-heavy industry governed by regulatory agencies with stringent requirements, finding an expert in your field will most likely be best.

Ultimately, it's best to find a Fractional CFO who aligns with your needs and can provide the expertise necessary to address your business's unique challenges.

When reviewing potential Fractional CFOs, consider their experience, qualifications, and track record of success. Look for someone who has worked with businesses similar to yours in terms of size, industry, and growth stage.

Second, it's important to understand and communicate your expectations clearly, as well as understand the work required on your part. Once you've selected a Fractional CFO, they should work to establish clear expectations for the work to come, outline their responsibilities and processes for addressing tasks, and clearly define the desired outcome from working with one another. They should also communicate the level of participation needed from you to begin with, so that you, as the business owner, know what's required of you.

Just as in any other working relationship, open lines of communication and regular check-ins to discuss progress are vital!

Finally, to make the most of your partnership, you have to remain open to their guidance. Actively involve them in strategic decision-making, make your questions and concerns about your business known, and actually utilize the new resource you have in them!

This may seem obvious enough: you've hired a new third-party vendor to help your business grow and expand, after all! But many business owners seek out help from a place of discomfort, never actually intending to listen and collaborate.

And that takes us to the end of our discussion on the role of a Fractional CFO. I hope that, by hearing these tips, you can successfully choose and work with a Fractional CFO who can help drive your business forward and support its growth ambitions. Your success is important.

Make sure that you're subscribed to the Profit Plot podcast on Spotify, Apple Podcasts, or wherever else you get your podcasts from. If you found today's episode particularly insightful, make sure to share it with a small business owner in your life! I believe the more knowledge we can share with one another, the better off we'll all be.

Join us again soon as we venture to unlock the financial story behind your profitable business. Looking forward to having you here with us next time, on the profit plot.