It wasn’t long ago that there was no formalized concept of a Fractional CFO. Sure, some folks operated in this capacity via relationship referrals or as an interim-CFO… but it wasn’t really a thing by and large. There was also a time in the not-too-distant past when I.T. staff was primarily 100% in-house. Now, most entrepreneurs are wise to the fact that outsourcing all or part of that function of their business makes a lot of sense. Why? Because the best talent has largely moved over to firms that consult with a wide variety of businesses with different needs to gain a more holistic set of skills in a more stimulating environment. And on the client side, many businesses don’t have the use-case or the capital for full-time I.T. staff nor the means of training and managing them if it’s not part of their core business.
This same trend is (and has been) happening with the accounting function. Some outsource specific accounting functions, the entire accounting department, the controllership position, and notably, the CFO. I’m focusing on the latter in this article, but be wise to the fact that there is plenty of room to mix and match your business's in-house and outsourced accounting and finance services.
The stumbling block for most small business owners is not knowing when or how to get started. They might have a working idea of what insights and financial strategies they need help discovering and deploying but are often unsure what they really need a Fractional CFO for and when their business is ready to engage such a professional.
So, when will you know your business is ready to engage with a Fractional CFO? And, what exactly do great Fractional CFO services look like?
When Your Business is Ready
There are some objective criteria that a small business owner can look to in aiding this decision. Note that I said small business because if you’re a medium or large enterprise, you absolutely need a CFO, and in most cases, that person probably needs to be in-house. For small businesses (those entities with less than 500 employees), however, the more times you answer yes to the below questions, the more likely it is you need a Fractional CFO.
Do you need…
- to procure capital (debt and/or equity) for your business?
- assistance in projecting and planning for future cash flow requirements?
- to create forecasts, projections, budgets, and/or proformas to grow your business, increase profitability or gain strategic insights?
- help building a strategic plan with the right KPIs to achieve your growth goals?
- help building a strategic compensation and equity plan for key employees in your business?
- help creating and implementing internal financial controls for your business?
- help preparing for and engaging with external financial statement auditors?
To this end, we’ve created a questionnaire that will step you through these and other questions that can help you determine whether your business needs a Fractional CFO.
Even if you answered yes to only one of those questions, you should start a conversation with a firm that provides Fractional CFOs. The right offering may address your most basic accounting needs to begin with but will be flexible to grow with your increasing needs as your business matures. Dark Horse Fractional CFOs offer engagements that start with the most basic bookkeeping and accounting services built to scale alongside you.
What Great Fractional CFO Services Look Like
A great Fractional CFO is an indispensable partner to your business. They are the bridge between vision and execution. A CEO knows the business, the industry, and the customers and has a vision for providing uniquely superior value to customers and employees. A CFO is there to ensure the strategic plan is economically viable, properly funded, and the progress toward achieving the plan is defined, closely monitored, and adjusted when needed.
A great Fractional CFO will begin their work by gaining a deep understanding of the business's current financial state, the current and near-term needs of the business, and the long-term vision of the CEO and/or co-founders. Additionally, they will get a clear understanding of the financial and operational metrics the entrepreneur wants to gain visibility into, along with recommending common metrics for the industry.
They will then prescribe a plan to address the business's current financial and accounting needs (along with related timelines). There might be a need to substantially clean up and restructure the entity's books as a starting point. If/when the books are clean, a deeper dive into the margins and profitability of products, services, locations, etc., will lead to insightful conversations which ultimately result in some combination re-tooling, pivoting, or doubling down on what’s working.
Next, the financial plan should begin to take form, which defines the financial and operational goals of the business, which KPIs (i.e., leading indicators) are most relevant to track progress toward achieving the goals in real-time, and whom in the organization will be accountable for achieving certain KPIs.
While forming the financial plan, a supporting strategy at the executive level will also begin to form, which will define items such as how and when we will obtain appropriate cash balances to fund the plan and who we need to be accountable for which functions of the business.
Once all strategic planning is complete, it’s all about executing, tracking progress, and iterating or pivoting where needed.
I realize I’m explaining a lot of this from 30,000 feet. There is, indeed, a reason for that. Every business is unique, and the particulars of what your business needs won’t follow a strict, one-size-fits-all template. Rather, your Fractional CFO should be working within a flexible framework that accounts for the major strategic and compliance-related issues facing your business. One that has a systematic approach to discovery and onboarding while creating flexibility toward developing a winning strategy to achieve the company's highest goals. That’s what a Dark Horse Fractional CFO does anyway.
About Dark Horse CPAs
Dark Horse CPAs provides integrated tax, accounting, and CFO services to small businesses and individuals across the U.S. The firm was founded to save small businesses (and their owners) from subpar accounting and tax services and subpar client experiences. These small businesses are Dark Horses among their larger and more well-known competition. Being a Dark Horse CPA means advocating for small businesses by bringing them the tax strategies and accounting insights previously reserved for big business. Get a quote today.