Biz Owner Guide Blog

Part time CFO: Why it might be time to hire one

by | Nov 29, 2023 | Accounting, Blog

In the dynamic landscape of modern business, maintaining financial stability and growth is crucial for sustained success in your business. As companies evolve and expand, the need for strategic financial management becomes increasingly vital.

This is where cfo services are so value to companies

However, for many small to medium-sized enterprises (SMEs), employing a full-time Chief Financial Officer (CFO) might seem financially burdensome or unnecessary, especially in the early stages of growth.

Most small companies do not have a finance department and if you do it probably consists of one full time company employee. Furthermore, full time CFO can cost a business anywhere from $150K to $225K including benefits!

This is where the role of a part-time CFO emerges as a strategic solution. We’ll cover when you may need a full time CFO later on. Hint: you need to be pretty big to move from outsourced CFO services to dedicated employee running your financial department.

Understanding the Role of a Part-Time CFO

Defining the Part-Time CFO

A part-time CFO is an experienced financial professional who offers their expertise and guidance on a flexible, as-needed basis. Typically, you want them to be a CPA or have an MBA but ultimately a CFO’s expertise comes their understanding of a company’s financial activity and actions to be taken.

They provide strategic financial insights, manage financial risks, and assist in decision-making, all without the commitment of a full-time hire. Their responsibilities often include financial planning, cash flow management, budgeting, financial analysis, and ensuring compliance with regulations.

They should be helping you set short term and long term goals to sustain your rapid growth or keep the company’s financial position sound.

Fractional CFO be able to find pain points of the business and make suggestions on how to address them. If you have a specific industry, you typically want someone that are not just finance experts, but industry experts with the right skills to be your partner.

A CFO is not a Bookkeeper

men accounting

A interim CFO is not a bookkeeper and CFO services typically do not include bookkeeping. Though a CFO may offer bookkeeping services in addition to CFO services.

Realize not all financial data is created equal when financial statements are being produced.

Garbage in, garbage out as they say.

The same can be said for the expertise of an interim CFO. One CFO may be better at helping you raise capital than say someone with more expertise in other areas.

As a CPA, I’ve spoken with a lot of business owners and other family owned businesses. Many of them forget that the CFO they had or are looking at is not a commodity; they’re a service provider and the financial planning and advice of each interim CFO you use will have different ideas.

A company’s financial data should have integrity and validity in order to make informed decisions on their business strategy. The interim CFO should know that and working closely with the bookkeeper or have a bookkeeper of their own to assist.

When Should You Consider Hiring a Part-Time CFO?

1. Business Growth Phase:

During periods of expansion or when a company reaches a critical growth point, financial complexities increase. This is an opportune moment to engage a part-time CFO to streamline financial operations, establish strategic plans, and manage the influx of financial data.

More importantly, you need someone else than yourself assisting in business decisions. You need a fresh perspective. A fractional CFO could save your business or at least help make better financial decisions.

2. Financial Troubles or Challenges:

If a business encounters financial challenges, such as cash flow issues, declining profitability, or difficulty securing funding, a part-time CFO can provide the expertise needed to navigate these challenges and implement effective solutions.

Sometimes as business owners, we are wearing too many hats. At very least see if you can get a free consultation. Many part time CFOs are willing to provide that in order to demonstrate their value.

Growing companies need someone that can focus on things like the quality of the balance sheet or capital structure as well as the trends to show you the big picture.

So remember, CFO = Bigger picture.

3. Strategic Decision-Making:

man with arrows decision

When making critical strategic decisions like entering new markets, launching new products, or pursuing mergers and acquisitions, a part-time CFO can offer invaluable insights into the financial implications of these decisions.

How a Part-Time CFO Can Help Your Business Succeed

1. Financial Strategy and Planning:

reviewing finances

A part-time or interim CFO brings experience in crafting long-term financial strategies aligned with your business objectives. They develop financial models, forecasts, and budgets, enabling informed decision-making and resource allocation.

1.2 Improve Cash Flow of the Business

bag money graph increasing

In addition to business strategy, outsourced cfo services focus on cash flow. Cash flow is the blood stream of a business and a part time cfo should be lowering your risk to financial crisis monitoring key performance indicators such as cash flow.

Financial forecasting should also include cash flow management and seeing if it is necessary to raise capital if the company’s financial results indicate the need.

Part time cfo services should go beyond just the care taking of the financial statements, they address business needs and assist owners make proper business decisions for their continued growth.

2. Improved Financial Controls:

Implementing robust financial controls and systems is essential for preventing fraud, managing risk, and ensuring compliance. A part-time CFO can strengthen internal controls, providing a solid foundation for sustainable growth.

We had a client that we found was running out of cash but had a huge net profit. How could this be? We found that the company owner was using company’s funds to pay off personal-related debt.

This is not a business deduction, pal.

It was hard for them to change that but it was killing their cash flow and more importantly, their business (livelihood).

We implemented controls to help them avoid doing that in the future, which helped them retain better cash for growing and reinvesting in their organization.

This is common for many companies growing fast but if you don’t have good controls in place, you risk being unattractive to potential investors that may want to buy your organization later.

3. Enhanced Cash Flow Management:

cfo money glasses

Maintaining healthy cash flow is vital for business operations. A part-time CFO analyzes cash flow patterns, optimizes working capital, and devises strategies to ensure adequate liquidity, preventing potential cash crunches.

One of the things I’ve seen very common with business owners that go from operating like a sole proprietor to a legit separate business, is they still act like they are a sole proprietor.

What do I mean here?

Sole proprietors take money out as they need it from their business. You have do things differently if you are ready for a part time CFO. New systems have to be in place and a company could no have the capital necessary to cover tax liabilities if you are taking too much of its capital for your own personal use.

4. Financial Reporting and Analysis:

calculator for expenses

Accurate and timely financial reporting is crucial for assessing business performance. A part-time CFO generates comprehensive reports, conducts in-depth analysis, and offers insights that aid in identifying trends and opportunities.

I had a ecommerce client that sold clothing apparel. They were having a great start and did nearly $1 million in sales. The following year, they were on pace to surpass that. As we headed into August I started noticing some things that made the numbers make a little more sense.

First sales started to go on a declining trend. At first the owner said oh people aren’t buying as much but I knew that wasn’t necessarily true for a company this small and it wasn’t a less busy month for them because the last year same month they had done more sales.

So what was the issue?

It took all the way for the owner to admit it but I knew because of all the signs I list out.

First, around May he had asked how much I think he could sell the company for? This seemed kind of a funny question but not unusual for start ups however, a start up should be focused on a 3 to 5 year valuation before jumping to sell.

You had one good year and you already want to sell?

Clue #1: The owner may want to get out of this own company sooner than he should.

Clue #2: He mentioned he was starting another company. I started noticing that because his clothing store was making money, he was using it to fund another business instead of reinvesting in the company’s growth.

Clue #3: He wasn’t attentive. He was taking longer to respond to my messages and he wasn’t scheduling our monthly meetings.

Conclusion: Ultimately, the owner was going through some issues in his personal life and was tired of working at a company where he would have to revisit those issues. He wanted an exit plan. He wanted to create a new company, sell the old one and move on.

The problem with that is he was acting on emotions. He wasn’t able to grow his new company and in the meantime he was unintentionally killing his thriving business but losing focus, not managing and sales declined every month for 6 months.

As I showed him the numbers, he was able to see his actions over time had real consequences and ultimately he didn’t want to give up on what he had built.

That’s the power of having a fractional cfo. Sometimes part time cfos can help you see things you aren’t willing to see as a business manager and owner of your company and what it is doing to your company’s financial prosperity.

5. Cost Efficiency:

person reviewing finances

Engaging a part-time CFO offers cost advantages compared to hiring a full-time executive. Businesses can access high-level financial wisdom without the overhead costs of a permanent position, optimizing resource allocation.

6. Strategic Decision Support:

The insights provided by a part-time CFO empower business owners and executives to make well-informed strategic decisions. Their financial focus helps in evaluating risks and opportunities, ensuring the chosen path aligns with long-term financial goals.

If you are a service company, a CFO should assist you in finding ways to increase the number of clients served. For example, by using accounting, they can create marketing return on investments (ROI) analysis to see how effective your marketing really is to obtain new clients.

CFOs will assess your business model as well. A lot of times I have found that a company is doing things pretty well but the business decisions are only as good as the model. Review pricing, your business process and risk.

Chances are, they’ll find great opportunities to improve your organization.

Conclusion – INCREASE YOUR BUSINESS VALUE

In a competitive business environment, having sound financial management is pivotal to success. While hiring a full-time CFO might not always be feasible, leveraging the knowledge of a part-time CFO enables businesses to benefit from top-tier financial guidance without the commitment of a full-time hire.

By tapping into their strategic insights and financial acumen, companies can navigate challenges, capitalize on opportunities, and drive sustainable growth towards their business goals.

Ultimately, part time CFOs should be an accountability partner that focus on the future not the past. They should be able to foresee needs like capital raises, implement a real strategy to leverage both accounting and finance that get companies to reach goals.

Those goals should be correlated with increase business value. Value that could mean one day selling a company for a large amount or just creating more income!

shaking hands work

Daniel Sleep, CPA

About the Author

Daniel is a Certified Public Accountant (AZ), Charted Retirement Planning Counselor (CRPC), Certified Tax Coach (CTC) and a Registered Investment Adviser (Series 65). He’s worked for large accounting firms like Deloitte & Touche to the small family businesses.

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