CFOs and Fractional CFOs – Who Needs Them?

Jul 27, 2022

In the previous installment, A CPA By Any Other Name we looked at the difference between an Accountant, a CPA and a Controller. 

In summary, I offer that an accountant is focused on day-to-day financial operations and historic data, whereas a controller’s focus is on current trends, cash flow and tax compliance. What then, is the role od a CFO, and how do I know when my business needs one? 

First, what is a CFO?

Let’s answer that this way. A CFO’s focus should be on a forward-looking strategy for the financial stability of the business, utilizing the accountant’s and controller’s information. While there is some general overlap, a CFO’s role can include:

  • Collect, clarify, and report financial data for predictive and strategic business decisions
  • Monitor location-wide, department-wide, or project-wide financial performance and profitability
  • Interpret the cash flow analysis for future spend
  • Maintain third-party relationships with banks for compliance with loan covenants, benefits administrators, and insurance companies for risk management
  • Oversee accounting controls and reporting within subsidiaries and related companies
  • Maintain compliance with federal, state, and local tax requirements
  • Review budgets, variance, cash flow, future spend, KPIs, generating a financial analysis for management decisions.

What is a Fractional CFO or Virtual CFO?

Based on current financial trends, increasing inflation, rising interest rates, escalating costs, many of the financial activities such as budgeting, forecasting, cash-flow analysis etc., regardless of whom it is performed are becoming increasingly important to most if not all business owners.

Not every small to mid-sized business owner wants or needs a full-time CFO–or even a controller for that matter. 

A fractional CFO brings the same level of experience and equivalent expertise as a full-time CFO. However, the business owner is not required to commit to a full-time salary, paid-time off, health and other benefits. Also known as a Virtual CFO (vCFO) or an interim CFO, a fractional CFO is perfect for companies who need the financial analysis, budgeting, forecasting etc. for making strategic decisions.  

A Fractional CFO provides everything a full-time CFO has to offer, but the work can be customized to the specific size, needs, and objectives of a company. This could be as simple as advising on a short-term basis or taking on 2-3 duties of a full-time CFO for the long-term to maximize the value of the business and weather the changing economic environment.

So how do you decide?

  • Evaluate your available resources. Internal staffing may work for day-to-day operations, however, more experience may be needed for an expansion, managing on-going audits, applying for a bank loan, or dealing with cash flow issues.
  • Consider the stage of growth your company is in. Most companies may start with a basic bookkeeper, graduate to an accountant or external CPA, and eventually hire some internal staff. Controllers and Fractional CFOs are most useful during the growing and expanding phases of a company. As your internal team is burdened with increasing complexities, a fractional CFO is the most cost effective method to identify the areas of pain, develop and implement solutions, and provide forward-thinking guidance.

To summarize, a fractional CFO or a Virtual CFO, provides a myriad of advantages of a full-time hire, but at a fraction of the cost. The scope of work is limited to the agreed upon time, length of projects, or ongoing financial needs. The benefits are numerous, including customized reporting, improved decision-making, greater insight, strategic planning and cash-flow forecasting. Perhaps the biggest benefit we hear every owner state over and over again, is how they can focus on what they do best by transferring the compliance, administrative, and financial burden to the fractional CFO, and enjoy the freedom and flexibility. 

Isn’t that the real reason you started this business to begin with?

Oh, one last thing before you go!

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Happy reading!