As fundamental as financial planning and operations are to any company, it takes more than money to ensure success. Startups and smaller companies typically do not need a full-time chief financial officer, so many are turning to part-time CFOs as a cost-effective solution to get vital financial advice. However, not all part-time CFOs offer broader business expertise to help grow your company.
A business-minded CFO thinks differently because they are a business advisor as well as a financial accounting and reporting expert. They take a holistic view, understanding that business operations and finance are inseparable. You not only get correct and useful financial statements, but you also get invaluable insights based on their experience for daily decision-making and future planning.
A trusted advisor has your back. They share facts, even when they may be uncomfortable, and give you straightforward advice. They can help with strategic planning, risk mitigation, creating relationships, and sharing insights to compare yourself against others in your industry. They serve as a sounding board for the CEO and a supportive ally when challenges arise.
Here are some examples of how the right part-time or fractional CFO with a business mindset and experience can help strengthen your company.
A trusted advisor should be a neutral arbiter–someone who works for you and no one else. You need impartial guidance and recommendations based on your goals and priorities, not someone who tries to steer you in a specific direction or to other advisors you may not want or need. For example, an investor may want you to switch to their lawyer, but that lawyer is going to have the investor’s best interest at heart, not necessarily yours.
A part-time CFO who does not bring those inherent conflicts to the table can come in and have hard conversations with you upfront. They will advise you about what to watch for so you do not inadvertently give up control. For example, get things in writing. But do not sign contracts that limit your ability to act in the future–an issue especially common in the startup world. What are the ramifications of things you do now? As soon as you sign, you are committed.
A business-minded CFO sees the bigger picture, marrying business goals and financial practices in a future-looking approach that goes beyond the realm of accounting. You tell them what your strategic plan is, then they will model that to determine if your finances match your appetite for your strategy. Are you ever going to get to those target margins? This type of modeling may show that you will need a working capital loan or more equity. They can also determine how much leverage (level of debt) you can withstand.
Often, CEOs embark on a particular course of action only to discover later that they’ll have to carry a lot of receivables or a lot of inventory and they don’t have the wherewithal to achieve that goal. Enlisting the help of a business-minded CFO, fractional or part-time, can help you think through the details so you can make stronger, more practicable decisions to grow your company as you envision.
They will walk you through future-looking financial modeling to see if you really can get to your target margins. What will be needed to accomplish that? Will the level of related debt be bearable? Conversely, the model may show your cash flow can sustain operations. You do not need money so there is no need to raise equity.
Many startup CEOs, especially, are running their business but are not necessarily finance experts. Every business faces challenges, but even if something goes seriously wrong, there is no need to hit the panic button. Bringing in a business-minded CFO can help you calmly develop a rational approach to tackle an issue.
For example, what if your co-founder or a key investor leaves and your funding leaves with them? Are you back to bootstrapping? How will you keep the business going? A CFO can use modeling to determine the absolute minimum you can get by in the near term. Then, looking at your wish list for acceleration, they can help you make the right decision and get the help you need to follow through.
How is your business doing, and how do you compare to other companies in your industry? How can you afford to achieve the growth benchmarks you have set for your company? A CFO backed by a team with broad business experience can help improve your benchmarking to make better-informed, more timely decisions.
Looking at important milestones–a certain customer level, for example–tells you when you will be able to afford something you need. Maybe another employee, or another delivery vehicle. Those are very small-scale examples, but the concept is the same for every business. The CFO you bring in should look at your plan, understand your cash flow, and model it so you can see when you hit certain milestones you can take the desired next steps. That includes milestones necessary to get bank financing or apply for some type of government program.
The CFO can analyze financial statements and rework them if needed so they reflect industry norms–where you put depreciation, certain overheads, etc. That way, you will have the data to accurately evaluate gross margins, etc. to compare your company with others in your industry. For example, professional services firms typically should have a 40% gross margin, 20% SG&A costs, and 20% EBITDA or operating profit.
A part-time CFO with a business-oriented mindset concentrates on business strategy and financial management, emphasizing expertise in these domains rather than the intricacies of product or service offerings within your business. Collaborating with an accomplished part-time or fractional CFO is recommended, as it enhances the quality of counsel and aligns with your professional experience. Opting for an individual possessing robust business finance acumen coupled with industry-specific experience ensures the provision of high-caliber, pertinent answers, and guidance.