How a Fractional CFO Can Help Your Business

by | Jul 11, 2024 | News

As your business grows, you might start to become overwhelmed—sales, vendors, marketing, keeping an eye on your staff, meetings with clients, and more. Add to that all the financial elements such as billing, bookkeeping, accounting, payroll, tax returns, and taxes… It becomes difficult for even the best business owner to wear all those hats and keep track of everything effectively.

On top of those stressors, the numbers in a bank account can tell you a lot about your cash reserves, but they do not convey a full picture of your company’s finances. They give a basic snapshot of the state of your affairs today, without the ability to say much about current problems your business is facing, future growth, or strategic business and tax planning.

How can you be confident that your business is thriving financially and headed in the right direction?

Fractional CFO services may be the solution you are looking for. Let’s break down the basics of what a fractional CFO does and how they can bring enormous benefits to your business.

What Is a Fractional CFO?

A fractional CFO is an experienced tax, accounting, and finance professional who takes on the role of Chief Financial Officer (CFO) for your business but is not a full-time employee. Other terms for a fractional CFO include “part-time CFO” or “outsourced CFO”. 

The main reason to consider hiring a fractional CFO is to obtain similar services and results that a full-time CFO offers, such as business growth and insight into your financials, but at a “fraction” of the cost (and a fraction of the time).

Because a fractional CFO is more of a contractor and not a salaried W-2 wage earner, business owners have more flexibility in the scope of fractional CFO services they receive. They can increase and decrease this scope as business needs change and avoid the complications and expenses of adding an employee to their payroll.

A fractional CFO can provide a very wide range of financial services, commonly including:

  • Overseeing all financial operations, in their full complexity
  • Making sure the company’s books are in order, including making necessary adjustments or leading the accounting and bookkeeping teams
  • Taking care of forward forecasting and projections
  • Suggesting methods to cut costs and expenses
  • Ensuring that a company’s financial goals are being met or determining why goals are not being met
  • Suggesting and helping implement tax reduction planning strategies
  • Helping boost a company’s growth
  • Offering insight regarding larger purchases and investments
  • Regularly meeting with business owners and key employees in order to answer questions, present reports and other findings, and facilitate business growth

In a nutshell—a fractional CFO is a tax, accounting, and financial professional who offers much-needed insight into your business’s financials, helps your business grow, helps you overcome financial obstacles, helps you reduce your tax liability, and ensures your accounting and taxes are all in tip-top shape.

When Should You Consider Fractional CFO Services for Your Business?

Most large and established businesses have a CFO on staff full-time. 

A fractional CFO is most useful to:

  • Profitable companies that are growing 
  • Start-ups
  • Companies that are not quite large enough to warrant the expense (in the six figures and up) of a full-time CFO but are large enough that retaining a bookkeeper or accountant is no longer enough

Apart from financial considerations, it’s also important to consider any gaps in expertise on your current team. If your financial team lacks certain expertise or experience, a fractional CFO can fill those gaps while also providing mentorship and guidance to your existing team. 

One service a fractional CFO can help with is tax reduction planning. Although your business might have an amazing accounting and tax team, the team might not be well-versed in reducing tax liability or strategically planning to implement tax strategies for both the business and its owners. A fractional CFO can take on that task and build long-term strategies for tax reduction planning.

In a nutshell—if we want to put a number on it, average annual gross revenue between $500,000 and $1,000,000 is appropriate to need a fractional CFO, given that your business is profitable and growing. Apart from financial factors, business owners should also take expertise gaps under consideration.

What Does a Fractional CFO Do?

The first thing a fractional CFO usually does is conduct a deep dive into your business. This would include an analysis of your accounting, your tax returns, employment structures, loans, and bank and credit card accounts, as well as your income streams and expenses. The fractional CFO’s analysis can go as far back as the inception of your company.

A fractional CFO should be able to pinpoint trends, identify problem areas (such as high expenses, overstaffing, or overpaying on taxes), offer financial forecasts for your business, and discuss findings with owners. This would include suggestions on improving problem areas. A fractional Chief Financial Officer should meet regularly with both business owners and key employees to make sure a business is running smoothly, cash flow is healthy, and targets are being met. 

Alternatively, a fractional CFO can also focus on only one area of concern, such as preparing a business for a future sale or merger, analyzing a large purchase or investment opportunity, or overseeing an accounting team.

An ideal fractional CFO is also available to help with ongoing issues as they arise, such as tax notices, an audit, or an analysis of a loan contract.

In a nutshell—every business is different, and a fractional CFO should provide services tailored to your particular industry and business needs. These financial services might mean preparing a business for a future sale, overseeing the accounting or bookkeeping team, helping your company meet and exceed its target metrics, or reducing your expenses and tax liability.

Can’t My Bookkeeper Serve as My CFO?

Your bookkeeper might be able to operate as a CFO, but only under certain conditions. While a bookkeeper and a CFO both work with a company’s finances, their roles, responsibilities, and skill sets are quite different. Whether your bookkeeper can serve as your CFO depends on several factors, including the complexity of your financial needs and the qualifications of your bookkeeper.

Because a fractional CFO is such a key element of your business and offers a wide range of advice across various fields, including taxes, accounting, and financial planning, a professional from bookkeeping or accounting might not have all the skills necessary to excel in this role.

One obvious advantage of hiring an external CFO is their knowledge and experience. Ideally, the professional you hire will have worked with many similar businesses and be able to provide immediate value to your company. Many fractional CFO services even focus on specific industries, garnering additional benefits for your business.

Another advantage is “seeing the forest for the trees,” to put it metaphorically. In other words, while an accountant or bookkeeper tends to focus on detailed day-to-day tasks, such as recording financial transactions or preparing and sending invoices to clients, a fractional CFO has high-level strategic responsibilities that allow them to see the big picture. 

For most businesses, it is advisable to have distinct roles for bookkeeping, accounting, and CFO services, to ensure that both operational and strategic financial needs are being met.

In a nutshell—most bookkeepers do not have the extensive strategic planning, financial analysis, and leadership experience that a CFO typically possesses. As your business grows and its financial needs become more complex, the expertise required to navigate these challenges increases, and a dedicated fractional CFO may become necessary.

Can a Fractional CFO Help a Company Reduce Costs and Taxes?

While all CFOs should be able to help a company reduce its costs, not all professionals will have knowledge of tax reduction planning and tax strategies. This is because tax reduction planning is an extremely specialized and complex field, requiring in-depth knowledge of tax law. As a result, tax planning is usually handled by Certified Public Accountants (CPAs) who specialize in the field.

If you are a business owner who feels that they are overpaying in taxes, both on business and individual levels, it’s best to make sure that your fractional CFO is proficient in tax planning, as this service packs a ton of value. Money once spent on income taxes can be freed up and used to fund a company’s operations, leading to accelerated growth.

In a nutshell—tax reduction planning is a field that not all CFOs, and even not all CPAs, specialize in. You should ask your fractional  CFO candidate whether they will help you meet all of your financial goals, including reducing your tax liability.

Discover Fractional CFO Services from Ratio CPA

A fractional Chief Financial Officer, or fractional CFO, is a tax, accounting, and finance professional hired by businesses to improve business growth, oversee bookkeeping and accounting, lower costs, reduce tax liability for both the business and its owners, and assist with a wide range of financial operations.

Fractional CFOs are not full-time employees. Rather, a fractional CFO will work for your business part-time, a bit like a contractor. Hiring a fractional CFO can make sense if your business is growing, profitable, and has an annual gross income of at least $500,000.

At Ratio CPA, our fractional CFO services are uniquely tailored to the needs of your business and paired with other appropriate financial services to maximize the growth and performance of your business. 

If you’re interested in seeing how your business can benefit from CFO services, schedule a complimentary consultation.