In today's competitive business environment, staying ahead of the game regarding financial strategy and operational efficiency is essential. However, not every business has the budget for a full-time Chief Financial Officer (CFO) or Finance Director (FD).
Here are our thoughts on when and why you might need a fractional CFO (the latest language for an outsourced finance partner) when you can't afford a CFO in-house. And yes, the Longboard senior team can help with this.
Engaging a fractional CFO is an excellent choice when your hiring budget is constrained. A fractional CFO consultant works part-time, offering top-tier financial advice and expertise without the expense of a full-time employee.
But when exactly does it make sense to bring a fractional CFO on board?
Below, we explore key situations that indicate it’s time to hire a fractional CFO.
- Your business is growing rapidly.
- The business requires funding or investment support.
- Financial complexity within the business is increasing.
- The business is facing operational cash flow issues.
- You’re planning a merger, acquisition, or exit strategy.
- Financial systems and controls are required.
- Compliance with increasing regulations.
- The incumbent financial team lacks strategic expertise.
- An objective, third-party financial perspective.
- The company can’t afford a full-time CFO.
Let’s explore these ten milestones a bit more.
1. When your business is growing rapidly, hire a fractional CFO
Managing financials can become overwhelming when a company is experiencing rapid growth, and your current financial set-up may no longer be fit for purpose.
A fractional CFO helps structure your financial operations to sustain growth effectively. Here are some financial operations that would be useful for a growing company.
Cash flow management
Cash flow management helps ensure a company has enough cash to pay its bills while making a profit and growing.
Forecasting
Forecasting predicts future trends, events, or outcomes based on historical data, current market conditions, and statistical analysis. It helps businesses and individuals make informed decisions by estimating what will happen in the future.
Budgeting
A key component of business budgeting involves predicting income and expenses for a set period. This process helps businesses spend money wisely, control costs, and stay financially stable.
Implementing financial controls
Financial controls are rules and systems that help manage a company's money accurately and securely. They prevent fraud, lower mistakes, and strengthen financial stability when done right.
Fractional CFO consulting ensures sustainable growth, preventing cash flow issues and inefficiencies.
Key indicators your growing business needs a fractional CFO
● Revenue is increasing, but profitability is uncertain.
● Operational expenses are rising without clear tracking or targets.
● Planned expansion into new markets or product lines.
● Current financial processes feel disorganised or reactive.
● The leadership team lacks targets with which to measure actual performance.
● Forecasting cash flows are not proactively managed.
Ensure you support any business expansion. Use a fractional CFO to clarify and oversee the company's growth.
2. The business requires funding or investment support
You know it is time to hire a fractional CFO when raising capital from investors, banks, or venture capitalists, which requires detailed financial insights and strong reporting.
To secure funding, a fractional CFO specialises in:
Preparing financial statements
Finance officers create financial statements to analyse and summarise your company's financial data, clearly showing its financial health. Statements help businesses track performance, make strategic decisions, and comply with accounting standards.
Pitch decks
In finance, a pitch deck is a visual presentation that presents a business idea, financial forecasts, and investment opportunities to potential investors, lenders, or stakeholders. Its purpose is to persuade investors to fund a company or project.
Robust business models
A strong business model helps your company stay profitable and adaptable over time. Signs of a solid business model are multiple revenue sources, managing costs well, and understanding what customers need and how the market works.
With fractional CFO consulting, a business can present robust financial projections to potential investors or banks, adeptly manage due diligence and economic negotiations, and enhance its chances of securing funding.
Key indicators a business requires a fractional CFO
● The business is struggling to manage its cashflows.
● Funding has been identified as essential for the business to take the next step.
● Leadership lacks a clear understanding of valuation and financial strategy.
● Funding is required to develop or enhance existing products and services.
With fractional CFO consulting, a business can also deal ably with due diligence and financial negotiations, increasing its chances of securing funds.
3. Financial complexity within the business is increasing
As businesses grow, financial and commercial operations become more intricate and advanced financial expertise is paramount in the following areas:
Managing different revenue streams
When your business has several ways to earn money, it needs to balance these different sources of income. Therefore, it must plan strategically, remain flexible, and maintain strong financial controls. This approach helps maximise revenue while reducing risks.
International transactions
Managing international transactions in business means handling cross-border payments, currency exchange, regulations, and tax compliance. Companies involved in global trade need to process payments efficiently, reduce risks from currency fluctuations, and follow the different laws in each country where they operate. Businesses must keep precise financial records to track foreign income and expenses while meeting tax obligations in various countries.
Key indicators finances are complex enough to need a fractional CFO
● There are multiple revenue streams with no structured financial tracking.
● International business, currency exchange, and tax compliance issues are frequently discussed.
● Leadership lacks visibility into profitability by product, service, or location.
● Financial reporting is inconsistent or lacks strategic insights.
● Legal structure is becoming more complex.
● Geographical set-up is changing.
4. Hire a fraction CFO when there are operational cash flow issues
Cash flow problems are a significant reason SME businesses fail. Cash flow issues need immediate attention, whether due to slow-paying customers, having to pay suppliers in advance, excessive expenses, or inefficient pricing.
Here are some solutions to operational cash flow issues.
Slow paying customers
Prevent slow payments from customers by having clear payment policies and maintaining strong relationships with clients.
● Start by clearly stating payment terms in contracts, including due dates and any late fees.
● Encourage prompt payments by offering discounts for early payments.
● Utilise automated invoicing and reminders to ensure timely billing.
● Accept various payment methods to simplify the process.
● Conduct credit checks on new clients before offering payment terms.
Good communication and follow-ups on overdue invoices remind customers to pay on time, reducing financial stress for you.
Having to pay suppliers in advance
Managing business finances when paying suppliers in advance requires careful planning. To ease financial pressure, you can:
● Negotiate better payment terms, such as partial upfront payments.
● Maintain a cash reserve or consider short-term financing like credit lines to manage cash flow gaps.
● Secure discounts for bulk orders or incentives for early payments to offset upfront costs.
● Align payments to suppliers with revenue cycles to avoid cash flow problems.
Strong budgeting, forecasting, and tracking can ensure that advance payments do not harm overall financial stability.
Excessive expenses
When a business has high expenses, its financial health may be at risk. It is vital to use cost-control strategies.
● Conduct a detailed audit of expenses to find unnecessary or too high costs.
● Negotiate better prices with suppliers or switch to cheaper options.
● Use technology to automate tasks, improve efficiency and lower costs.
● Focus on spending that helps generate revenue.
● Consider outsourcing tasks that are not central to operations to save money.
Create a strict budget, track expenses in real time, and set spending limits to maintain financial control.
Inefficient pricing
If a business sets prices inefficiently, it can lose money, reduce profits, or scare away customers. To improve finances, businesses should
● Analyse the market to compare their prices with competitors.
● Understand how much customers are willing to pay.
● Set prices that match the value of their products or services.
● Use value-based pricing to reflect the benefits and uniqueness of your offer.
Regularly review and adjust prices based on costs, demand, and industry trends to keep your business competitive and profitable.
Key indicators of operational cash flow issues
● The organisation struggles to pay vendors, employees, or rent on time.
● Customers delay payments, leading to cash shortages.
● Your profit margin is shrinking despite increasing sales.
● Financial forecasting is inaccurate or non-existent.
Fractional CFO consulting helps with operational cash flow issues by providing cash flow forecasts, optimising working capital, and implementing cost-saving measures.
5. You’re planning a merger, acquisition, or exit strategy
Mergers, acquisitions, and exits require careful financial planning. A fractional CFO provides valuation, negotiation, and financial due diligence expertise.
Mergers
Effective financial planning is crucial during mergers to ensure smooth integration and stability. A comprehensive due diligence process should assess both companies' financial health and liabilities. Evaluating synergies can reveal potential cost savings and revenue growth.
Acquisitions
Financial planning is key in mergers for smooth integration and stability. Conduct thorough due diligence to assess financial health and liabilities. Evaluate potential cost savings and revenue growth from synergies.
Exits
Exit strategies should focus on maximising financial value and ensuring a smooth transition. Assess the company's value to attract potential buyers or investors.
Key indicators you need a fraction CFO for a merger, acquisition or exit
● Acquiring another company or merging with one is a consideration.
● Selling your business and maximising its valuation is paramount.
● Potential buyers or investors require comprehensive financial data.
● Support with legal and tax implications of the transaction is needed.
● Financials of the enterprise to be acquired need critical analysis.
With a fractional CFO, you can ensure your business is financially structured for a successful deal.
6. Requirement to implement financial systems and controls
As businesses grow, manual accounting and operational processes become inefficient. Implement robust financial and operational systems to maintain accuracy and efficiency.
Financial systems
A strong financial system ensures efficient budgeting, accounting, cash flow management, and regulatory compliance. It includes tools like accounting software and financial reporting frameworks to accurately track income, expenses, and profitability. Such systems enhance decision-making, reduce risks, and support long-term growth through transparency and control over resources.
Financial controls
Financial controls are essential procedures that help businesses manage money, prevent fraud, and follow accounting rules. Key components include budgeting, tracking expenses, conducting audits, and accurately reporting finances.
Key indicators your business needs help with financial systems and controls
● Your financial records are disorganised, leading to errors and poor management information.
● You lack proper accounting software or integrated software solutions
● The business needs stronger internal controls to prevent fraud and financial mismanagement.
● Financial reporting is inconsistent or takes too long to generate.
A part-time fractional CFO will effectively set up automated financial systems, ensuring reporting accuracy and efficiency and enhanced control and oversight.
7. Compliance with increasing regulations
Ensuring compliance with industry regulations may require expert financial oversight. A fractional CFO consultant ensures your company meets financial and compliance reporting requirements.
Financial and compliance reporting involves preparing financial information to meet regulatory standards, legal requirements, and best practices in your industry.
Financial reporting
Financial reporting entails the preparation of essential financial statements—such as the income statement, balance sheet, and cash flow statement—to offer a clear overview of a business’s financial performance. It assists stakeholders, including investors, lenders, and management, in making informed decisions.
Compliance reporting
Compliance reporting, on the other hand, ensures that a business follows legal, tax, and industry regulations, such as GAAP (Generally Accepted Accounting Principles), IFRS (International Financial Reporting Standards), and tax laws.
Key indicators you need help with financial and compliance reporting
● Regulatory compliance is becoming complex and challenging.
● You need to implement GAAP, IFRS, or other accounting standards.
● Auditors or regulators require detailed financial documentation.
A fractional CFO can guide you through compliance processes, ensuring regulatory adherence and financial transparency. Proper financial and compliance reporting helps your business avoid legal penalties, build investor confidence, and maintain financial integrity.
8. The incumbent financial team lacks strategic expertise
Many small businesses depend on bookkeepers, but they need strategic financial expertise for long-term decision-making as financial complexity grows. This involves using financial data to drive growth, enhance profits, and manage risks. A fractional CFO can create financial models, forecast trends, assess investments, and optimise capital. They help your business to tackle financial challenges and achieve sustainable growth, focusing on:
● mergers and acquisitions,
● managing capital structure,
● controlling costs,
● and financial planning.
Key indicators your financial team needs help with strategic expertise
● The finance team lacks strategic financial planning experience.
● Your financial team struggles with forecasting, budgeting, or cost management.
● The finance team is not focused on value-added activities
● You need someone who can translate financial data into business strategy.
● Your CEO or founder spends too much time managing finances instead of focusing on growth.
A fractional CFO bridges the gap between basic accounting and high-level financial strategy.
9. The business needs an objective, third party financial perspective
Business owners and leadership teams can benefit from an external financial expert who can provide unbiased advice. Essentially, it's a fresh pair of eyes.
Financial experts provide specialised knowledge and objective insights to help businesses address financial challenges.
They are skilled in financial planning, cash flow management, tax strategies, and fundraising, which helps businesses make smart decisions for long-term growth.
A part-time CFO offers an unbiased view of financial performance, spots cost-saving opportunities, and helps manage investments. They also ensure compliance with regulations.
Allow your in-house team to concentrate on business operations while finances are healthy.
Key Indicators your business needs a third-party CFO
● Biases or conflicts of interest influence internal financial and/or business decisions.
● A fresh perspective on financial strategies would be beneficial.
● Investors or board members request independent financial oversight.
● External validation for key financial decisions is needed.
A fractional CFO offers an impartial, expert viewpoint to improve financial decision-making.
10. The company can’t afford a full-time CFO
Hiring a full-time chief financial officer (CFO) can be expensive, particularly for startups and small businesses. A fractional CFO can provide the same expertise at a lower cost.
Small businesses or startups may not have the revenue or financial complexity to justify employing a full-time CFO, especially in their early stages. However, the need for financial leadership is still crucial.
Your business can benefit from outsourcing to a part-time or fractional CFO to meet needs.
Key indicators you’re ready for a fractional CFO
● CFO-level insights would be valuable, but you lack the budget for a full-time individual.
● Forty hours of CFO work each week is not required.
● Flexibility in financial consulting is needed - without long-term commitments.
● Financial leadership could be scaled cost-effectively.
A fractional CFO is a practical solution for companies that need financial leadership without the full-time salary burden.
Our summary of when to hire a fractional CFO
When to hire a fractional CFO depends on your business needs, financial complexity, and growth stage.
Whether your business is dealing with rapid growth, fundraising, cash flow issues, financial system upgrades, or strategic transactions, a fractional CFO provides expert guidance without the high cost of a full-time CFO.
If you recognise these signs in your business, it may be time to explore fractional CFO consulting to optimise your financial health and long-term success.
If you've read this far, please get in touch with the senior team at Longboard — Michael, Sean, Lisa, or Yoni, who are experienced in this work, to chat further. We'd love to hear your thoughts and plans and learn how we can help.
