By definition, even the newest startup is in growth mode. But as your company starts to mature you may find yourself growing faster than expected. Or maybe your business has been around for a while but suddenly you’re seeing rapid growth thanks to a hotter marketplace or the departure of a key competitor. Or you have a new CEO who wants to prioritize growth. In all these scenarios, companies face similar issues.
If you’re not already working with a fractional CFO, this is an ideal time to team up with a business-minded advisor whose financial and accounting knowledge can strengthen your growth plan.
When should you bring in a fractional CFO?
Many CEOs may benefit from gaining additional financial knowledge and experience to effectively steer accelerated growth. An experienced fractional CFO already knows what you are going to need. They have seen firsthand what works and where the pitfalls lie at other companies. A CFO experienced in your industry brings additional “insider” guidance to help your company be more competitive right from the start.
If your business is in crisis mode due to growing pains, a fractional CFO can help restore calm by shoring up accounting processes so you don’t lose control.
You want to scale up as smoothly as possible. However, in the real business world, there are always challenges that need to be addressed or problems that need to be fixed so you can grow. These issues may be obvious, or they may be more nuanced–things you may not recognize as red flags but an experienced fractional CFO will quickly spot.
Growth mode companies may still require outside funding. A fractional CFO can explain what financing should be like for you at this point, and how to achieve that. You might need to obtain a line of credit, find additional investor money, take out a working capital loan, or borrow to add a new warehouse or another production line to your manufacturing facility.
A CFO can review your financials and your strategic plan together to ensure you have a sound foundation for growth and determine whether you’re ready for the next stage. Are there still things you need to do to get there?
They will work with your existing team and assess their growth capabilities. For example, let’s say your goal is to go from $10 million in annual revenue to $25 million over the next three years. The office manager or controller who has been handling your accounting up till now may not have the training to set up and implement more complex accounting or handle higher volumes of transactions. A fractional CFO can help professionalize the finance side of your business, including department staffing needs.
No business succeeds on its own. You have an advisory team of lawyers, bankers, an insurance agent, and others. But are they the right choices to carry your business to the next level? As your company grows, you will require broader, more sophisticated, or specialized expertise. That’s easy to understand, but deciding to end a relationship can be tough because often your working relationship is also personal.
An impartial fractional CFO can evaluate your advisor lineup. It may be time to:
Owners may be able to do everything as your business grows to $5-10 million. But if you want to grow to $20 million or beyond, you will have to delegate some of your duties.
For example, you want to grow your services area because it’s generating the highest margins, but you don’t have a general manager to oversee that area. You won’t be able to implement your strategy until you first make a tactical decision to fill that leadership role. If you are reluctant to do that because you don’t want to increase payroll or delegate that particular role, or you hired someone and it didn’t work out, you risk stifling growth.
Typically, there is a need to create separate leadership roles from the CEO such as sales or engineering (R&D). It can be hard to let go, but a fractional CFO can help you see gaps and make strategically smart decisions.
This is critical because if you don’t proactively expand, your momentum can stall out.
Among the most important advice a fractional CFO can deliver is how and where to look for hidden risks. Thinking ahead to avoid potential problems can keep your growth from faltering. That includes reviewing purchasing and other contracts that could pose hidden risks that cost you money or hinder your ability to grow.
Here are some examples:
Someone has to have their eye on all of the possible scenarios that could hinder growth. Your controller or office manager is probably not thinking in this way, and you may not get that advice from your auditor or your lawyer. You need an advisor who has seen for themselves the damage that problems such as rapidly rising interest rates, inflation, and labor costs can do. Someone who understands how to mitigate the potential problems.
An experienced fractional CFO has the forward-looking skills to understand what are the key risks you may face and make sure you don’t get sideways with things that could slow your growth or even put you out of business.
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