Efficiently managing the accounting function poses a great challenge to small and medium-sized businesses in today’s financially uncertain business landscape. The volatile economy further exacerbates the already crippling issue. With the cost of everything across the board hiking up by the day, controlling costs demands making strategic choices to keep the business running. The plain and simple fact of the matter is that accounting professionals today come at a premium. Their skills are highly desired, and salary expectations continue to climb.
If we talk about C-Suite level financial professionals, the cost may even be higher than the net worth of some start-ups and small businesses. Looking at the numbers, as of January 2023, the average annual salary of an in-house full-time CFO is a staggering $422,786 according to Salary.com. With salary numbers that eclipse the budget of many small and medium-sized businesses, it is just not in the cards for them to have a dedicated accounting and finance professional serve as the business’ CFO. Of course, this is precisely the problem that a fractional CFO can solve. But what is a fractional CFO exactly?
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What is a Fractional CFO?
Think about a fractional CFO as an accounting and finance professional who plays the role of CFO for multiple businesses part-time. Essentially, a fractional CFO allows a business to avail of the services of a CFO at a fraction of the cost of an in-house CFO. As a result, the financial services rendered are essentially the same. Only the cost scales with the amount of work related to the business’s finances. (Read here to know more about fractional CFO)
Most small businesses do not have enough work to completely occupy an in-house CFO’s time, so a fractional CFO or fractional CFO services become the logical choice to opt for. The expected average salary for a fractional CFO varies greatly depending on the number of responsibilities and working hours, but what can be guaranteed is that it will be far more reasonable.
The Responsibilities of a Fractional CFO
Preparing Financial Reports
The preparation of timely and accurate financial reports is one of the fundamental responsibilities of a fractional CFO. Financial reports are essentially compilations of the business’s financial information, such as the balance sheet and the income statement. Therefore, generating financial reports is crucial for gauging the business’ financial health.
There are many different kinds of financial reports and, in the Expertise Accelerated publication titled “The Guide to the Four Basic Financial Statements”, experts at EA provide an in-depth explanation of the four basic financial statements that every entrepreneur should be knowledgeable about.
Preparing the Budget
Budget preparation is a key reason why hiring a fractional CFO is strategically a good choice for small and medium-sized businesses. With costs going out of control in the prevailing inflationary spell, a strategically sound budget created by an experienced finance professional can save the business a lot of money and headache. A good fractional CFO can help entrepreneurs set rational business objectives to work towards and develop a budget that can help the business progress steadily toward that goal.
As the name suggests, financial forecasting is the process of making a prediction about a business’ future financial performance based on historic data and current market trends. The point of financial forecasting is that it can help with future planning. Think about it this way, when the weather forecast predicts rain the next day, we prepare an umbrella and raincoat just in case the forecast comes true, right? The same principle applies to financial forecasting, where a clear estimation of the business’s financial situation in the coming weeks or months can help entrepreneurs make informed choices and strategic investments. Financial forecasting is a formidable tool to have on your side and is one of the core responsibilities of a fractional CFO.
Cash Flow Management
Controlling cash flow is yet another extremely relevant responsibility of a fractional CFO. Cash flow is the cash flow through the business through credits and debits. Cash on hand is of the utmost importance in recessionary times, as it helps maintain stability in the business in times of economic uncertainty. A seasoned fractional CFO can quickly assess the business’ cash flow situation and provide advice accordingly.
The goal is to maintain a positive cash flow by using techniques such as cash flow projections, strategic budgeting, and process optimization. EA publication titled “How to Manage Cash Flow During a Recession” elucidates the subject further for any entrepreneurs wishing to learn more.
Tax and Audit Preparation
Perhaps the most important responsibility of a fractional CFO is preparing for tax season and audits. Most entrepreneurs know the woes of doing personal taxes, and business taxes are more troublesome to manage. A scaling small business needs to have its taxes in order and its finances audited to gain access to external funding.
Both of these responsibilities demand a great deal of time and energy from entrepreneurs, and they can cripple the business if performed poorly. A fractional CFO, however, can get the job done faster and more efficiently while maintaining quality.
What is the Importance of a Fractional CFO?
Even with the more reasonable cost of fractional CFOs, there is a good chance that entrepreneurs may choose not to invest in one because the services are not worth the cost. Considering that most small businesses do not even have a dedicated bookkeeper, a CFO may simply feel like a luxury that can be done without. Unfortunately, such entrepreneurs may be in for a rude awakening.
Predictions by economists at Bloomberg indicate that the most severe recessionary spell since the 80s is coming in 2023, and the future of many small businesses remains uncertain. In such times, having a CFO on your side drastically increases the chances of the business not going under. Businesses that cannot hire a US-based fractional CFO may find outsourced offshore fractional CFO services to be the perfect solution for them.
Expertise Accelerated as Your Fractional CFO Services Provider
EA CEO Mr. Haroon Jafree empathizes greatly with the plight of US small businesses and has made it his mission to help give them a fighting chance. In pursuance of this mission, EA offers US businesses a unique opportunity, even among outsourced fractional CFO services.
EA’s staff augmentation model of outsourcing sidesteps many of the problems with traditional outsourcing that entrepreneurs are wary of, such as poor transparency, by augmenting fractional CFOs into the business’ existing workforce and handing over leadership to entrepreneurs.
With no middleman in the way, entrepreneurs can always confer directly with their fractional CFO and notify EA if any issues arise. Entrepreneurs interested in the proposition can schedule a free consultation with Mr. Haroon and make an informed choice.