The value of a CFO for a small business is often sidestepped in the heady rush of starting up and becoming established. Occupied with managing new responsibilities and daily accounting, many small business owners opt to do without CFO services in favor of an accountant or professional who takes on multiple hats. But the lack of a strategic advisor soon becomes an obstacle, as small businesses struggle to move beyond absolute survival towards sustainable growth and profitability.
With a lack of cash behind 44% of early startup closures, and a closure rate of 20% each year for small businesses, owners have even more to gain from small business CFO support—especially in the form of a fractional hire.
Should a Small Company Have a CFO?
Although not every small business needs a full-time CFO at inception, every company benefits from some level of financial advisory services to determine the why and how of revenue and profit.
In the very beginning, small companies often work with a bookkeeper or accountant to navigate the need for supervision and compliance. When their business offering and practice has solidified, however, even a small company develops a need for more extensive financial analysis and strategy. At this stage, small businesses benefit from hiring a CFO to establish analysis metrics and processes.
The role of a CFO in small business is to manage overall company finances in a manner that goes beyond handling day-to-day financials. In addition to practical functions like budget creation, forecasting and risk assessment, CFOs also provide wider strategic financial planning and sophisticated analysis to find gaps and solutions.
A small business CFO drives success by identifying goals, then establishing a plan to achieve them. First, a CFO installs systems to capture reports of value. Then, they analyze the data collected and identify the most successful avenues for revenue generation and cost optimization. Finally, the CFO constructs a tactical plan to improve those avenues.
Where Does a Small Business CFO Shine?
The benefits of CFO services for small businesses are wide-ranging, encompassing both financial oversight and strategic planning. In addition to budget creation, financial forecasting and risk assessment, a CFO brings specific value to a small company by:
- Assessing capital markets and regional growth patterns
- Establishing growth expectations
- Identifying and promoting the most successful avenues of revenue
- Improving cash flow
- Leading the go-to-market trajectory
- Managing transformation initiatives and strategies
- Navigating capital fundraising and seed rounds
- Finding operational efficiencies to reduce costs
At What Size Should You Hire a CFO?
The timing depends on your company’s growth milestones, revenue and financial complexity. Each of those categories may be affected by industry-specific needs or constraints. When a small company’s financial needs become more complex than a skilled bookkeeper can comfortably handle, the next step is often to hire a controller.
A controller provides a small business with more overarching financial supervision than a bookkeeper and manages day-to-day accounting functions. Controllers also establish systems and develop cost optimization strategies, but their focus is immediate daily financial operations, not long-term strategy.
When a small company is ready to drive growth strategy, it requires the long-term, forward-thinking services of a CFO. The end goal of hiring a CFO for small business is to move beyond managing day-to-day financials and provide a financial roadmap for future growth and profitability. That’s when small businesses can actually move the needle. Take for example, this small data startup that leveraged a part-time small business CFO to develop a financial roadmap and process upgrade that resulted in $45K in savings and a successful series A fundraise.
But Hiring a CFO Isn’t Easy for Small, Lean Businesses
Cost is a substantial obstacle for small companies looking to hire a CFO, with full-time CFOs costing in the low to mid six-figure range. CFOs come with substantial education, highly developed skills and years of experience, if not decades. Many small businesses hesitate to commit the necessary resources, even given the potential returns.
Recruitment is another challenge. CFOs are very much in demand and not always easy for small businesses to find. Fit is also an issue, as it is with all key personnel hires.
A fractional model can resolve these challenges. Part-time and interim CFOs don’t require the same commitment of resources, nor a lengthy recruitment search. At a part-time level, traditional factors become a lesser concern.
Outsourced CFOs Bring Focus for Leaders Stretched Thin
Small business owners are used to wearing many hats, spreading their skills and strengths across the team as needed. The same is true of small business CFOs. In a small company, financial strategy is critical, but the role is often over-utilized, with CFOs taking on accounting tasks or dipping into operations, which leads to a lack of focus on strategic initiatives.
The true role of a CFO is to provide comprehensive financial leadership. According to CFO.com, however, 48% of small business CFOs reported dealing with exceptional pressures. Today’s small business CFOs face high inflation and interest rates alongside the ongoing disruption to the global supply chain. They are also expected to manage human resource issues, IT decisions, operations and even CX. The onslaught of extra responsibilities hinders their ability to create tailored financial strategies.
Here, too, a fractional model can benefit small businesses and augment internal talent. By definition, a fractional CFO has a more targeted focus: to provide the strategic financial guidance a small business needs to grow and succeed.
Invest in Your Small Business Strategy
Small companies shouldn’t have to worry about finding the resources for a full-time CFO. A fractional approach gives you access to a CFO’s comprehensive skills and financial advisory services. The fractional model is a cost-effective way for small businesses to access the financial expertise they need to make informed decisions, optimize their resources and mitigate risks.
With Paro, you can match with a small business CFO in a matter of days without the long recruiting process or the full-time costs. Our fractional finance experts have decades of experience across more than 55 industries. Schedule a consultation to learn about how our experts can bring value to your business.
