BUSINESS OWNER GUIDE · PRESENTED BY NEWSOME CPA LLC

How a Fractional CFO Can Help Small Businesses Make Better Financial Decisions

For many small business owners, there comes a point when checking the bank balance stops being enough.

Sales may be growing. Customers are coming in. Bills are getting paid. But the questions start getting harder.

• Can we afford to hire someone?
• Is this service actually profitable?
• Should we raise our prices?
• Can we afford that new equipment?
• Why did we have a great sales month but still feel short on cash?

Are we actually making as much money as it feels like we are?

That’s where a fractional CFO can come in.

First: What Is a Fractional CFO?

A Chief Financial Officer, or CFO, traditionally oversees the financial strategy of a company. Large businesses may employ one full time. Most small businesses don’t need — and probably couldn’t justify — another full-time executive salary.

A fractional CFO provides that type of higher-level financial guidance on a part-time or contracted basis.

Instead of managing the day-to-day bookkeeping, their job is generally to help the business owner understand what the numbers are saying and use them to make better decisions.

Think less: “Did we categorize this expense correctly?”

And more: “Based on our numbers, can we actually afford to expand?”

A Fractional CFO Is Not the Same as a Bookkeeper

These roles can overlap, but they usually solve different problems.

A bookkeeper helps keep financial records organized. They may record transactions, reconcile accounts, track invoices and maintain accurate books.

An accountant or CPA may prepare taxes, create financial statements, provide tax guidance and handle other accounting responsibilities.

A fractional CFO generally looks forward.

They may use all of that existing financial information to help with:

• Cash-flow planning
• Budgets and forecasts
• Profitability analysis
• Pricing and hiring decisions
• Growth planning and financial goals
• Identifying unnecessary expenses
• Preparing for major purchases or investments
• Understanding which products or services are actually making money

You still need accurate books. The CFO helps you decide what to do with the information inside them.

Revenue Doesn’t Tell the Whole Story

One of the easiest numbers to get excited about is revenue.

“We did $50,000 this month!” Great. But how much did it cost to generate that $50,000? How much went toward payroll, materials, advertising, software, rent, taxes and debt? And how much was actually left?

A business can have increasing sales while its financial position gets worse. That doesn’t necessarily mean something is wrong. Growth itself can require cash. But you need to know why the numbers are moving.

A fractional CFO can help turn financial reports from something you receive every month into information you can actually use.

Cash Flow Can Get Weird Fast

Profit and cash in the bank are not always the same thing.

You might complete thousands of dollars worth of work this month but not collect the money until next month. Meanwhile, payroll is Friday. Your suppliers want to be paid. The insurance bill just arrived.

And that piece of equipment you need doesn’t particularly care that several customers currently owe you money.

That’s why cash-flow forecasting can be so valuable. Instead of simply asking, “How much money do we have today?” you begin asking:

“What should our cash position look like 30, 60 or 90 days from now?”

That gives you time to make decisions before a cash-flow problem becomes an emergency.

Are You Actually Charging Enough?

Pricing is another area where business owners sometimes rely more on instinct than numbers. Maybe you looked at competitors. Maybe you started with a price that seemed reasonable. Maybe that price hasn’t changed in three years even though nearly every expense around it has.

But knowing your revenue isn’t enough. You need to understand the cost of delivering what you sell.

A service generating $10,000 per month might look great until you discover it requires $9,500 in labor, materials and overhead.

Another service generating only $6,000 might leave substantially more money behind. Knowing that can change where you spend your time, what you promote and even what services you continue offering.

When Does a Small Business Need This?

Not every small business needs a fractional CFO. If you’re just starting out, have relatively simple finances and can clearly understand where the money is going, good bookkeeping and accounting support may be plenty.

But the conversation may be worth having when:

• Your business is growing, but your cash never seems to grow with it.
• You’re considering hiring employees or expanding.
• You have revenue but aren’t sure which products or services are most profitable.
• You’re making financial decisions primarily by checking the bank balance.
• You struggle to create or follow a budget.
• You need better financial projections.
• You’re preparing for a major investment, loan or business transition.
• You have plenty of financial reports — but aren’t entirely sure what you should be doing with them.

A CFO Should Help You Make Decisions, Not Just Hand You Reports

Adding another spreadsheet to your inbox isn’t particularly useful if nobody helps you understand it. The value of higher-level financial guidance should be in connecting the numbers to actual business decisions.

Can we hire another employee?

Look beyond the first paycheck to whether projected revenue and cash flow can sustain the position.

Can we afford a second location?

Consider not only financing, but what the additional fixed expenses will do to the business.

Should we increase prices?

Base the answer on your own costs, margins and goals — not solely on competitors.

Should we buy that equipment?

Estimate what it will cost, save and produce, and how long it should take to pay for itself.

Those are business questions. But good answers usually require financial information.

Start With Five Numbers

Even if hiring a fractional CFO isn’t on your radar right now, every business owner should have a basic understanding of these five numbers.

You don’t necessarily have to calculate every number yourself. But if you’re making the decisions, you should understand what they mean.

The Goal Isn’t to Become an Accountant

Most business owners didn’t start their company because they dreamed of spending Saturday night studying a cash-flow statement. You don’t need to become a financial expert. You do need enough financial visibility to make informed decisions.

Eventually, “I think we can afford it” becomes a pretty expensive business strategy.

The right financial support — whether that’s a bookkeeper, CPA, fractional CFO or a combination of them — should help turn your numbers into something useful. Not just a record of what already happened. A tool for deciding what happens next.