Fractional CFO’s have become increasingly important to most small businesses. Almost all businesses have a tax CPA to help them file their tax returns. As companies grow, they typically outsource to a bookkeeping firm or hire an entry-level office manager or accountant. So then why should any business need a fractional CFO? I have found that once a business is over $1-2 million in revenue, it makes sense to hire a fractional CFO, especially if you have these questions.
How can I get my company in the best financial position to sell?
What are some ways to improve operational inefficiencies and stop wasting money?
How can we improve my cash flow?
Which products, clients, or jobs are less profitable than others?
How can we gain more foresight into current business trends so we can prevent potential financial issues and make better decisions?
Let’s break down the difference between a typical tax CPA, a bookkeeper, and a fractional CFO.
Most business owners think immediately of tax planning and preparation when we think of the CPA. There are many different types of CPA’s. A CPA can be a CFO, but not all CFO’s are CPA’s. Also, many CPA firms will do bookkeeping in preparation for tax returns. The risk is that the accounting is tax focused and delayed rather than operationally focused. I have found that it can be more affordable and useful to have a bookkeeping firm separate from the tax CPA firm. There are a variety of CPA firms. If you are a small business owner, my suggestion is to hire a CPA for the following services:
- Tax Planning and Preparation – Make sure they are doing tax planning.
- External Compilation, Review, or Audit – Many times, this is required for investors or financing.
- Project-oriented Consulting: Mergers & acquisitions, Due Diligence, and Valuations
A bookkeeper or entry-level accountant handles many of the following tasks:
- Monthly Bank and Credit Card Reconciliations
- Accounts Payable Bill Entry and Payment
- Payroll processing
- Invoicing and Collections
- Accounting Journals
- Fixed Assets and Depreciation
- This person handles all the transactional accounting and keeps it up-to-date.
There are different types and levels of bookkeepers. I have working with one firm for four years that I have found reliable and consistent in their bookkeeping. You can always contact me at email@example.com, and we can introduce you.
The Fractional CFO
The CFO is much more operationally minded and has a goal to help the organization in the following ways:
- Financial Forecasting and Modeling – This provides insight into your current and projected financials.
- Financial Reporting and Analysis – A good CFO takes the information the bookkeeper/accountant provides and gives you commentary and context. Also, many times this review can lead to key action items.
- Internal Controls Review If you are a small organization, you may have one person handling payments, receipts, reconciliation, and reporting. This risk means nobody is reviewing the accounting, which could lead to fraud.
- Cash Forecasting and Management – A good forecast model will forecast cash monthly and even weekly if needed. In the event of cash challenges, a CFO will look for financial opportunities with a bank or even investors if applicable.
- Process Improvement – In a small, fast-growing organization, key financial processes related to invoicing, receipts, payables, payroll, time & expense, and month-end need to be revisited regularly.
- Coordination – A CFO will help coordinate with other professionals in areas such as taxes, insurance, audits, and banking.
- Connections – We live in a world where relationships are very valuable. How do you find the right person for marketing, human resources, training, coaching, staff development, and business consulting? The best CFO’s are highly connected and can help with these connections.
- Training – It is essential to have a team that is functioning efficiently and communicating well. It is helpful to train and develop accounting personnel as your business grows.
The CFO Glue
As you can see, there are differences between these three financial roles. Bookkeeping is essential to any organization so that you have consistent and current information. A CPA firm is important for many areas, such as tax planning, audits, reviews, valuations, and compilations. Finally, A CFO will provide the financial insights to gain more clarity so you can make the most informed decisions and grow with more peace. The good news is that you can hire a fractional CFO that is quite affordable. Also, a good CFO can even connect you with a quality tax CPA and bookkeeper that can save time and money. Reach out to firstname.lastname@example.org for a free CFO Services Consultation.