There comes a time when the demands associated with growth may require a level of support and experience that exceeds what internal resource capabilities can offer. There is often a need to implement formal budgeting and cash flow reporting, obtain assistance with financing, or design financial controls and processes. In other cases, help may be needed by hiring new accounting professionals, managing audits, or establishing benchmarks. While these tasks are important, it does not require a full-time professional to make progress. In these situations, companies should consider hiring a fractional Controller/CFO as a solution. These seasoned finance executives can accomplish important tasks while providing insights from years of experience. However, many are unfamiliar with fractional CFOs and how they can specifically assist. To help clients, prospects, and others, Smith Schafer has provided a summary of the key details below.
What does a fractional CFO do?
Fractional or outsourced CFOs can bring important insights to many areas of the business. This might look like consulting on the vision and alignment of your operational and financial strategies, creating controls and processes to better manage financials, and working to mitigate risk. They can also focus on business performance and advise on what steps the organization can take to grow effectively.
Here are some signs that you may need fractional help:
- You are in need of financial leadership.
- It is taking too much time to close the books each month.
- You are finding mistakes or inaccuracies in your numbers.
- You have a lack of confidence in your books.
- You need to reconcile a lot of accounts.
When should you bring in a fractional CFO or Controller?
Fractional support roles in this area come in handy for organizations that don’t need anFTE but could benefit from someone fulfilling these duties a couple of days per week. Oftentimes, the need arises when a company starts to grow. It might have made sense to do the books in-house at first, with the CEO or Founder taking on the responsibility, or even a less-skilled bookkeeper. However,as the business scales up, it becomes crucial to focus on growing the business instead of getting caught up in mundane endeavors.
Hiring a leader such as a CFO or Controller on a part-time, contract basis allows your organization to benefit from their experience without requiring a full-time commitment.This makes it an ideal situation for businesses going through a growth spurt or startups looking for guidance.
Without support from a financial expert, you may be relying on inaccurate data, which can then turn into ill-informed insights, leading your company in the wrong direction. A fractional CFO or Controller can be a North Star, helping to figure out what changes and adjustments will make the biggest difference for the company.
If it is still unclear whether it’s the right time to bring in this kind of help, ask if it is possible to predict the sales for the next quarter, how to close budget and actuals align, how much money is in the bank, and what cash flow looks like. If you don’t have this basic information at your fingertips, it’s time to bring in reinforcements.
What’s the difference between a fractional CFO and a Controller?
The main differentiator between a CFO and a Controller lies in the level of work performed. A Controller can help with more tactical tasks, whereas a CFO can handle big-picture, strategic pieces.
A Controller can assist with compliance and reporting for your business, reconciling accounts, ensuring accuracy in financial statements, managing existing accounting staff, and handling payroll taxes.
A CFO goes beyond these basics by aiding in financial planning, conducting risk assessments, finding ways to improve cash flow, engaging in strategic exchanges, building beneficial business relationships, and communicating financial information to internal and external stakeholders.
What considerations should you make before hiring fractional help?
The nature of the relationship with an outsourced Controller or CFO is based on what the organization needs. Would it be easier to build a relationship by having someone work in-house? If you’re treating them like an ad-hoc employee, be sure to invite them to relevant meetings and foster an environment where they can build a relationship with the team they are guiding.
A remote Controller or CFO can be a suitable choice for you if the assistance you require from a fractional executive is not heavily dependent on in-office relationships or aligning with the work culture.
How long should you work with outsourced help?
The level of engagement is largely dependent on the problems you’re hoping a fractional CFO or Controller will solve. Being more prepared for the incoming help can expedite the engagement process. Start with the expectation that the work will take 6-12 months and keep communicating expectations and eventual goals. Do you want the fractional support to train your team so they can run things on their own? Are you auditioning the role to see if you can justify a full-time hire down the road? Keep your objectives in mind.
To ensure things are progressing as planned, schedule regular meetings where you discuss goals, progress toward goals, and upcoming plans.
How to evaluate success?
Success can also look different depending on the organization, but in regular meetings, evaluate how well the fractional CFO or Controller is helping move the needle on important objectives:
- How has the fractional support helped lay the foundational groundwork? – This could include creating operating plans, dashboards that identify key performance indicators (KPIs), process documentation, and risk assessments.
- Do you feel prepared for varying economic situations? – It’s easy to plan for growth. It’s more challenging to prepare for lean periods. A fractional CFO should be able to provide guidance for what to do to weather economic downturns or recessions, not just give advice in times of prosperity.
- What kind of improvements and optimizations have been made? – For example, has it become easier to stick to your budget? Has the fractional CFO uncovered cost optimization opportunities?
- Has the financial culture of your organization shifted? – Does your accounting team feel more well-equipped to handle day-to-day financial operations? Do members of leadership refer to budgets and financial planning documents more than they did before?
- What business opportunities and relationships have been presented to or improved for your organization? – An outsourced CFO can help you build and strengthen relationships with outside service providers, including bankers, lawyers, and insurance agents. Building rapport and trust can be helpful later when additional services are needed, or your business starts to move in a new direction.
There are many considerations to make when evaluating whether to hire a fractional resource. The good news is these professionals can help to solve a wide variety of business and finance issues. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Smith Schafer can help. For additional information click here to contact us. We look forward to speaking with you soon.