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The 3 Primary Ways Your Company Can Benefit from a Fractional CFO

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Business owners often look at the basic numbers to know how they’re doing. How are sales? What are our operating expenses? How much money did we make last month? But they don’t use these numbers as a tool to grow sales, improve profitability, strategically plan for the future, and grow the bottom line. That is the key role of the CFO. But what happens when company management recognizes the need for a CFO, but cannot afford to hire someone in that role on a full-time basis? This is where a fractional CFO can be a lifesaver. Smaller companies that have a limited budget can get the same utility from a part-time CFO but at a significantly lower cost than hiring one as a full-time employee.

There are three primary ways that a CFO helps guide companies in their day-to-day operations:

  • Cash Flow Management: How much money will the business have tomorrow?
  • Profitability Improvement: Understanding and reducing costs
  • Financial Statement Visibility: Information that allows the organization to make changes

As a CFO with over 25 years of experience, I’ve seen the gamut of problems that organizations can face. Here are a few real-life stories of how using a fractional CFO for company operation problems resulted in success. None of these clients could afford to hire a full-time CFO, so they elected to hire one that worked for them on a part-time basis.

Cash Flow Management

The problem: An owner called Tuesday afternoon and said that he needed some help and asked if I could start work the next day. I arrived at his plant Wednesday morning and he ushered me into his office and closed the door. He breathed a visible sigh of relief and said, “I’m so happy that you’re here. I really need a CFO. Your first job is to figure out how we’re going to cover payroll on Friday.”

The solution: With the help of a fractional CFO, the company was able to put a halt to any further expenditures and found cash available through AR collections and deposits from customers for new orders placed with the company. Payroll was covered and a cash-flow forecast was put in place to manage the cash used in the company going forward. This ended the cash crunch, panicked deadlines, and managing the use of money going forward.

Profitability Improvement

The problem: A printing company was in its second generation and the son of the founder was now in charge. He struggled to maintain the profitability his father had achieved. The company had just lost $125,000 in his third year of leadership when he called for help.

The solution: A weekly profitability analysis was created for each completed production run. This uncovered a 35 percent variance from the production estimate to the actual production costs. The staff didn’t understand their costing structure and how standard costs were calculated. Looking at each job, the direct causes of the problems were identified, from slow press run times to set-up issues, to “third shift” inefficiency. Identifying those issues to plant operations prompted changes in quoting and production, increasing accuracy and eliminating production problems and waste. This reduced variances to less than five percent, improving profitability in the next 12 months to $410,000.

Financial Statement Visibility

The problem: An Internet retailer was having significant growth of 50 percent annually, but their financial statements showed huge swings from great profitability in one month to huge losses in the next. The owners knew that they had money in the bank but didn’t know if they were profitable.

The solution: The company was producing financial statements on a cash basis, not an accrual basis. This means that they were looking at how money flowed through the bank, not the profitability of what they sold. So, if they didn’t spend any money (pay their bills), they showed a large profit. If they paid all their bills, they lost money. Revenues and matching costs should be reported in the same period. Changing their reporting approach identified that the company wasn’t profitable. After some research, it was discovered that their pricing algorithm was wrong. Fixing the pricing model changed the profitability of the company and allowed them to continue their significant growth–profitably.

Fractional CFOs and the Bottom Line

Companies need someone who is strategic instead of tactical. They need someone who focuses on how to affect the bottom line, not to just report it. It doesn’t matter if the company is doing $2 million in sales or $2 billion. But not every company, no matter how much they need that advice, can afford to pay $250,000-$350,000 a year for a C-suite executive totally dedicated to finance. Many middle-market companies have steered clear of hiring full-time general counsels, chief marketing officers, or VPs of sales or HR in favor of hiring skilled executive staff on a fractional basis.

If companies don’t need a graphic artist full time, they hire an outsourced designer. For the same reason, they don’t have a full C-Suite of executives in every discipline. They can hire them on a fractional, part-time basis to provide the knowledge and business experience they need when they need it. Business leaders make decisions in many disciplines, and finance is one that gets left out more often than not.

It’s important for every business leader to know what the numbers are telling them. That way, they have the information that they need to change operations to drive profitability. That’s the key to success and growth for any company, which is why many organizations should consider hiring a fractional CFO.

Turning Mistakes into a Business Model [Podcast]

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Most of us want to have a perfect business model out of the gate, but that’s a pie-in-the-sky attitude. As much as we all want to avoid mistakes in business, they’re pretty much inevitable. Everybody makes them, and many try to hide those mistakes because they’re worried they’ll be judged for them.

But what a lot of people don’t realize is that in business, there are often happy accidents that lead to a successful business model. In fact, one could argue that mistakes are the lifeblood of a strong business. And those who are willing to admit to their mistakes and pivot are the ones who can turn a blunder into a boon.

Our Guest: Executive Talent Acquisition Expert George McGehrin

On the #WorkTrends podcast, I got to chat with George McGehrin, a man who managed to turn a mistake into a national executive search/recruiting firm–one that has been successful for two decades. For years, people asked George for job search and recruiting assistance, and he said he couldn’t help. Then one day, he decided to try. Suddenly, there was a seven-figure business involving recruiting, coaching, and more. Since then, he has been widely featured on podcasts including Money Matters, Moving Up, and The Entrepreneur’s MBA.

I had to know: How can a mistake like that turn into a great business model? The secret to success, George says, is listening.

“You have to be open to listening to what people are asking you over and over, what their needs are,” George says. “The fifth time someone asks you for something, go ahead and say, ‘Yeah. This is what we charge.’ And you’ll be surprised at what comes of it.”

George says that in order to have a good business model, you have to be financially prepared for anything–even COVID-19. He says that business is a cyclical experience, so any business owner should expect to go through ups and downs.

“A lot of times it comes down to money. Do you have enough to withstand challenges?” George says. “If you’re a business owner, you can’t spend every dollar you make. Or if you work for somebody and you only have one source of income, you need to make sure that you allocate your money properly for a rainy day.”

To Succeed: Test, Fail, and Try Again

Once you’ve turned a mistake into a great business, there are ways to make sure your business model is successful. So what are the key actions to take?

First off: Test everything.

“If you’re going to send one email out to somebody or to a group of people, maybe send out two emails with different language,” George says. You should always be willing to adapt and try new things to get better results. 

Secondly, don’t be afraid to fail–and keep going.

“At the end of the day, the more times that you fail, you’re a little closer to winning, right?” George says. “First timers, when they’re starting a business, they say, ‘Oh, it didn’t work. I reached out to 30 people and no one got back to me.’ They need to expect to hear a lot of nos and keep going.”

And finally, while you should be willing to hear nos from potential customers or clients, you also should be ready to say no to opportunities. You shouldn’t expect to do everything by yourself as a business owner, but rather, give tasks to your employees and trust them to come through.

“You have to know what your strong points are. People who do well focus on one or two things that they’re really good at. And they delegate everything else,” George says.

I hope you enjoy this episode of #WorkTrends. You can learn more about how to push through challenges to create a successful business model by connecting with George McGehrin on LinkedIn.