7 signs you need a (fractional) CFO

Managing a business is a complex task, and as companies grow, financial demands become increasingly intricate. A fractional CFO can provide the strategic financial leadership a business needs without the cost of a full-time executive.

But how can you determine when it’s time to bring one on board? Here are seven signs that indicate you might need a (fractional) CFO.

1. Persistent cash flow issues

Cash flow management is critical to the sustainability of any business. If you find yourself struggling with balancing growth with accounts receivable and inventory, insufficient funds for capital expenditures, or difficulties in meeting payroll obligations, you may need a CFO to help you with cash flow.

A fractional CFO can implement effective cash flow management strategies with QuickBooks apps, such as Jirav, ensuring your business maintains the necessary liquidity. Some tactics include increasing pricing, renegotiating payment terms with suppliers, optimizing inventory levels, and improving the collection processes.

2. Lack of a long-term financial plan

Every business requires a strategic roadmap. If your business does not have a comprehensive five-year plan, broken down into annual budgets and monthly targets, you are operating without direction.

A fractional CFO can develop these critical planning tools, providing the strategic oversight necessary for long-term success by assisting in setting realistic financial goals and creating detailed plans to achieve them. The plans include revenue projections, expense management strategies, cash flow projections, and capital investment plans. It may also include dividends to owners.

3. Preparing for investment or financing

Securing investment or financing requires planning, and most businesses aren’t ready to seek financing the moment they need it. In fact, there is an unwritten law in financing: Banks and investors will give you money when you don’t need it, and won’t give you any when you need it. Counterintuitive, right? The trick is to foresee the need, plan for it, and get the money when you’re strong.

You need a CFO to be able to see into the future.

CFOs manage ongoing business updates and communications, ensuring your message remains consistent and aligns with stakeholder expectations. The involvement of a CFO can significantly enhance your credibility with potential investors and lenders. They present your financials professionally, highlight your business' strengths, and proactively address any potential concerns, making it easier to secure necessary funding.

4. Frequent internal conflicts

Does marketing fight with sales? Do you constantly get headcount requests? Internal conflicts are often the result of miscommunication or misalignment within a business. A fractional CFO can bridge these gaps by translating the CEO’s vision into clear, actionable plans the entire team can understand.

By establishing cash flow plans, departmental budgets, and clear key performance indicators (KPIs), a CFO ensures alignment of goals, reducing conflicts and fostering a more cohesive working environment. Moreover, a CFO can provide objective, data-driven insights to resolve disagreements, ensuring that decisions are made in the company’s best interest, rather than based on individual preferences or departmental politics.

CFOs often use QuickBooks apps such as LivePlan to create departmental dashboards, so that everyone can track the company’s progress at the same time.

5. Inadequate financial metrics and KPIs

Timely and accurate financial reporting is essential for any business. Are you receiving your financial reports by the second week of the following month? Do you have a clear understanding of what drives value in your business and are you measuring those KPIs?

A fractional CFO ensures that you have the appropriate metrics in place—not too many and not too few—and helps you track progress toward your goals. They establish a reporting system that provides real-time visibility into your financial performance, allowing for quick reactions to changes. Understanding and tracking your KPIs is crucial for measuring success and identifying areas for improvement.

6. Too-fast growth

While rapid growth can be exciting, it also brings numerous financial challenges. Growth consumes cash and requires careful management to prevent financial instability. A fractional CFO helps manage this growth sustainably by assisting the CEO in turning ambitious ideas into actionable, budget-backed plans.

This is especially important for maintaining the confidence of investors and lenders, and ensuring the team understands and aligns with the company’s priorities. Growth often necessitates significant investments in inventory, equipment, and personnel, all of which must be carefully managed to avoid cash flow issues and ensure profitability.

7. Business and family wealth plans are not aligned

A proficient CFO not only focuses on growing your business, but also on aligning it with your personal wealth goals. However, a great CFO collaborates with your wealth advisors to manage your business equity efficiently, balancing risk and reward. They explore tax-efficient strategies, including dividend recapitalization, hiring key managers to enhance business operations, and minimizing taxes through family trusts. This comprehensive approach ensures your business decisions support your personal financial objectives.

For example, a CFO can help plan for succession, ensuring a smooth transition of ownership while maximizing the business' value. They also assist with estate planning, ensuring your wealth is preserved and passed on to future generations in the most tax-efficient manner.

Look for these signs

Identifying these signs early can help you avoid potential pitfalls and steer your business towards sustainable growth and success. A fractional CFO provides the strategic expertise needed to navigate complex financial landscapes without the full-time cost. If any of these signs resonate with you, it may be time to consider the benefits of fractional financial leadership.