Why Your Growth-Stage Business Needs a Fractional CFO

I don’t know about you, but we have yet to meet a business owner who is 100% objective about their business data. Or who started their business to be a better accountant.

Founders are visionary, driven, and focused. This is likely to be the business's driving force and why it isn’t still a pipedream. 

However, these (very human) characteristics are also a problem when making detailed strategic business decisions. We all have biases and cognitive distortions that guide our daily interactions. In most cases, they have a very limited impact on our lives, but a lack of clarity and strategic focus regarding your financial strategy can be catastrophic. 

The Objective CFO

This is actually where a Virtual CFO has a significant advantage over an in-house CFO. When it comes to financial analysis and strategy, objectivity is crucial. 

A Fractional CFO is far better able to look at a business without bringing any biases or distortions. This means the advice they can give you will be untainted, potent, and painful. They also see situations similar to yours with other clients and can bring that knowledge to you.  It will more effectively move you to where you want to be. 

Here are some examples of where a Fractional CFO would be able to offer an objective view, what their role would be in each situation, and why they are uniquely placed to help in that specific scenario.

1. Cost Control

Imagine you own a professional services company. Over the past six months, labor costs have steadily risen, gradually reducing your profit margins.

In this all too common scenario, it's typical for company owners and managers to stand by long-standing suppliers and established processes and look for cost savings elsewhere. These are your employees, and you trust them.  Things had worked well before, so this must have been a temporary problem.  The data doesn’t lie, however, and if it is not a temporary problem, it could become a big problem for your cash later on. The suppliers might be companies run by individuals with whom they have strong personal relationships. The procedures might also have been implemented by the owners, who recall the hard work and frustration in setting them up. This means that the owners would associate personal pain with removing either of these elements, which is why they tend to look elsewhere.

An objective Fractional CFO would tackle this issue methodically and logically. They would likely conduct a comprehensive labor cost analysis to identify exactly what costs were increasing and why. It could be that your senior people are doing too much work at their higher labor rate or that clients were making changes to scope without any increase in fees.  ways to streamline the manufacturing process without sacrificing product quality. This might include replacing a long-term supplier if the costs were too high or updating an outdated process that contributes to inefficiencies. 

2. Profitability Analysis

Imagine you run a software development firm that has been in operation for five years. You have developed multiple products over the years, but you aren’t sure which are your most profitable and where you should focus your sales efforts. 

During those five years, it is likely that you will have some products that you have had more hands-on involvement with or products that you are more personally invested in. This creates bias. 

A virtual CFO will be able to do a clear project-based profitability analysis showing you which project and product is the most profitable based on the revenue it has generated and its production costs. It will make what may have been a very difficult decision, which was likely to be tainted with bias, into a simple business decision that will help unlock growth in your business. 

3. Budgeting and Forecasting

Let’s say you run an e-commerce business. You are just coming out of the best Q4 you’ve had since the business began, and you feel confident and ambitious. Coming into January, you know you need to create a budget and forecast for the next 12 months. 

This is another example of a business owner's proximity to the business actually being a possible hindrance. Despite the strong sales in Q4, they might not make up for the high costs and relatively low sales volumes in the first half of the year. However, buoyed by the recent sales figures, the business owner could overestimate performance in the coming year. At this point, even just a 5% overestimation could cause all sorts of problems the following year in the form of cash flow issues, stock storage costs, and a long list of other challenges. 

An independent Fractional CFO could examine the financial figures from the last few years without being guided by recent sales figures. They could produce detailed budgets and forecasts based on objective analysis of historical data, current industry trends, and the business's strategic goals. They can also bring in knowledge of the current market they glean from their work with companies such as yours.

4. Debt Management

A professional services firm has built up a good client base, but they have taken on multiple high-interest loans to fuel their growth along their journey. 

The business owners are pragmatic about the need for external finance. However, they are still focused on servicing the debt in the short term, which is hindering the business’s growth. 

Those involved in the business are more likely to feel personally responsible for any debt within the business because they have personally guaranteed it.  This can lead to the focus moving to the wrong activities—those that are more focused on the short term. 

A Fractional CFO will be able to detach from this short-term thinking. In most scenarios, a Fractional CFO would look to restructure the company's debt to negotiate better terms, reduce interest, and agree on a more affordable repayment plan. This would free cash in the business to continue fueling its growth and expansion. 

5. Strategic Planning

Imagine you run a service-based company that, for various reasons, needs to pivot its business model to adapt to industry trends, such as migrating to a fixed-fee business model. You may have been running this business for 10+ years. 

In this scenario, it would be common for the business owners not to be wholly committed to changing its direction, given that the current direction has worked well for them and they feel personally attached to the business they have created. 

An objective fractional CFO can look at this situation objectively. They would analyze the available data, develop a strategic plan, and identify new revenue streams that align well with current market conditions based on the data alone. This unbiased perspective will allow the business owners to support the changes confidently and is far more likely to unlock new growth in the business than if the process was handled internally. 

Do You Want the Responsibility?

These are just a selection of examples based on our own experience working with businesses. When it comes to strategy, sometimes the qualities and attributes that have got you to where you are aren’t those that will best drive you forward. 

A Fractional CFO is uniquely placed to give your business the objectivity you need to make the correct strategic decisions for your business. Handing such important decisions to a partner might seem uncomfortable for some. I know we’ve worked with many business owners who felt it was their responsibility to make the right decisions and struggled with handing the responsibility over to someone else, let alone someone who wasn’t in the business full-time. 

However, we always encourage the business owners we work with to look at it differently. If you can hand decisions like this over to someone who can make data-informed, strategic, and unbiased decisions about your business's financial strategy, this frees you. 

Not only does it free your mind from making the decision itself, but it also helps to stop you from questioning the decision when you face challenges. If you know that the decision was made in the best way possible, it frees your mind to commit 100% to implementing it as effectively as possible. It will also make it easier to watch your team, which might struggle to implement the changes you know are right or to give bad news to a long-serving supplier, who is now too costly for your business. Not only does it free you from the responsibility of making the decision, but it also frees you from the self-doubt that often comes from being a business owner. 

We encourage business owners to consult others who have made the decision to hire a Fractional CFO. Many times, they hear, “I wish I had done this sooner.”

Do you feel that your business needs an objective financial partner? We’d love to speak with you further about our Fractional CFO services and how they could help your business. Why not schedule a call with us so we can find out more about your business?