Hiring a CFO is a major decision for any business. Not only is it a significant operational expense, but for many small businesses, it may be overkill. CFOs are among the highest level of corporate professionals. They are only brought in when a business clears certain growth thresholds and is ready to transition from a small business.
Fractional CFOs are CFOs acting in a remote, contractual arrangement. They fulfill the purpose of a CFO at a much more affordable price.
But how can you tell when the right time to hire fractional CFO services is?
Is there a set amount of revenue the business must consistently generate?
Is it when the employee count surpasses a certain level?
Alternatively, it might be when the financial responsibilities become overwhelming for the current resources.
At a glance, there are many justifiable reasons to hire fractional CFOs.
This blog will guide small business owners closer to that answer. By examining situations where hiring fractional CFOs would benefit the business, you can be better prepared to make the right decision.
When Should You Hire a Fractional CFO for Small Businesses?
Every business is different, so there is no one-size-fits-all answer. Instead, business owners need to define their own parameters for when to hire fractional CFOs. Let’s discuss the major scenarios that may spur or deter the decision:
- Growing Financial Complexity
The number one reason to hire fractional CFO services is when the accounting workload slips out of control. Managing accounting for a growing business is complex. There are many regulations and compliances to meet while managing an ever-growing workload. Small companies typically do not even hire an accountant, and the portion that does can only afford one professional.
As your business grows, its financial landscape becomes increasingly complex. A rapid growth phase often brings challenges such as managing higher revenues, optimizing cash flow, and scaling operations. If your business expands through increased sales, entering new markets, or adding new product lines, these complexities can quickly outpace basic bookkeeping capabilities.
A Fractional CFO can help by providing expert oversight, ensuring accurate and detailed financial reporting, and offering insights that inform strategic decisions. This expertise is crucial for navigating the intricate financial terrain of a growing business.
- Budget Constraints
Unfortunately, hiring a full-time CFO for many small businesses is a dream. Fractional CFOs make that dream a reality. When you hire a fractional CFO, you are paying a fraction of the cost of a full-time CFO while reaping all the benefits a CFO brings to an organization. You can commission their services as needed and have them come in to suggest cost-control measures and help with budgeting, financial planning, and whatever else you need.
If your budget is too tight for a traditional CFO, fractional CFOs offer the same quality of service with a much lighter dent in your wallet.
- Strategic Financial Planning
Small Businesses need to control their costs. Poor cash flow management is the leading cause of small business failure. In the wake of the pandemic, the economy has been extremely turbulent. As of June 2024, predictions are looking out for the future as interest rates skyrocket. Building up and preserving business funds is necessary, as is enforcing strict control over the business’ debts to prevent disaster.
The best way to control costs is to invest time and effort into monitoring and evaluating your current expenses and income and find areas of improvement. Naturally, this entails copious amounts of research and time spent staring at financial statements. This is simply untenable for the vast majority of small business owners.
As a small business owner, you are already burdened with the weight of the business and its operations. Tossing such high-level financial work into your workload is a recipe for disaster. Small business CEOs often work well over 40 hours a week, which is just to hold everything together. The point is that no small business owner, no matter how great, can do it all alone. Investing money in a CFO is a short-term expense that can lead to millions in savings in the long term.
They can help you plan for growth, future projects, and financial processes like audits and taxation. A fractional CFO is a consultant always in your corner, ready to jump in when you need them, and you only pay them as long as they’re in the field with you.
- Regulatory Compliance
Regulatory compliance is becoming increasingly difficult to navigate. With technology like AI now publicly accessible and forgeries and financial fraud rampant, the government is becoming more strict. Businesses need to enforce stricter and more stringent regulatory controls to ensure transparency and cleanliness.
This can get especially tricky for e-commerce small businesses. Having a business delivering products across the US or even internationally is a tax nightmare. You have to make sure you are paying all the necessary taxes and complying with international standards. Amidst all this, a deep understanding of regulations is needed to leverage the system in your business’s favor. Knowing about tax exemptions and incentives and taking advantage of write-offs is an art in and of itself.
If you find yourself tangled in the net of regulations and unable to tell up from down, it’s high time you hired a fractional CFO. They can straighten out your regulatory issues and they can also ensure that the business systems are built to streamline everything going forward. Regulations also change on a dime, so having a fractional CFO on the payroll who is always aware of the dynamic regulatory landscape can save you a lot of trouble.
- Filling Skill Gaps
Even with an in-house accounting function, there are limits to how robust a small business’ accounting can get. With more complex workloads like financial planning and forecasting utilizing cutting-edge algorithmic and data processing tools, there is a high skill ceiling to the job. If you think your current team is unable to keep up with the pace your business’ accounting is evolving, you should hire a fractional CFO.
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