In these days of economic challenges and changes, many companies struggle with uncertainty about the future, seeking tools and resources to best position their businesses for financial success. Often it can be beneficial to bring in a financial advisor who has significant experience in helping other companies get through difficult experiences. However, for small to medium-sized companies, hiring a full-time chief financial officer may be too much of a strain on the budget, not to mention there may not be enough work to maximize the return on employment costs for this high-level position. The best option is often to bring in a part-time fractional CFO, also called a virtual CFO.
Ways a Fractional CFO Can Save You Money
The cost of an outsourced, part-time CFO is usually less than that of a similarly experienced full-time employee. There are other considerations that make this an even more valuable option to consider. A good fractional CFO can find many ways for a company to grow its expertise, save money and increase earnings. This article details some of those concepts.
Industry Knowledge
A fractional CFO will typically have experience with multiple companies and projects. The fractional CFO also has access to the knowledge and resources of others in the outsourcing agency. This knowledge and experience can be applied to the challenges your company faces or may face in the future.
A fractional CFO who specializes in your industry will have seen what has worked to help other companies reduce costs and increase profits and can recommend ways to apply similar practices for the benefit of your business.
Strategic Planning
A fractional CFO works in close collaboration with company executives to analyze the current financial state of the enterprise and plan courses of action to reduce costs and enhance profitability. Some ways to accomplish this include:
- Overseeing financial and accounting operations to improve efficiencies, clarity, and forward-facing projections.
- Implementing best practices and training financial staff.
- Evaluating industry trends and recommending ways to take advantage of upcoming opportunities without breaking the bank.
- Assessing the competition and determining ways to gain a competitive advantage.
- Evaluating business performance and how to strategically utilize resources to improve profitability.
- Negotiating and managing vendor contracts to improve pricing, COGS, and cash flow.
- Evaluating risk and navigating how to best achieve your goals in a timely, successful way.
Technology
An experienced fractional CFO will likely have worked with multiple accounting software, operational management programs, and ERPs, and will have knowledge of the latest developments in financial technology. It is often possible to reduce costs by automating manual tasks, reducing unnecessary redundancies, and eliminating superfluous processes. This may also help to increase the accuracy of reports and identify areas for improvement. Additionally, the fractional CFO may be able to help determine when and whether it is worthwhile to upgrade existing programs or migrate to new software.
In many cases, the fractional CFO will usually have access to the technological resources of the outsourcing firm, which can supplement your company’s resources.
Expense Management
One of the specialties of a CFO is to optimize company expenses to maximize profitability. There are many ways to accomplish this. Most companies have hidden costs that they fail to recognize. Some examples might include unnecessary travel expenses, use of overpriced services, unproductive marketing efforts, unfavorable vendor contracts, or avoidable waste. Overuse of electricity and other utilities can be a significant expense. Sometimes a company can save money by switching vendors or renegotiating contracts with suppliers. They may also benefit from product/service line analysis to identify whether any products or services are overutilizing resources while being ineffective at generating a profit.
Other unrecognized costs could stem from inefficiencies due to poor training, outdated equipment, or suboptimal procedures. Improving the prevention of theft and fraud is another way the fractional CFO may be able to reduce expenses.
Having experienced the results of cost reduction efforts in other companies, the fractional CFO can help identify the most promising ways for your company to minimize its expenses while maintaining or increasing profits.
Financial Modeling
A financial model is the use of a company’s past and present financial condition and industry trends to project future financial performance probabilities and to model or test strategies. Unfortunately, many businesses make mistakes in preparing their financial models, which can lead to unwise decisions and unexpected cost increases. A good fractional CFO can recognize these issues and help prepare accurate models that will guide the company into a successful future.
Payroll & Benefits Analysis
Another area where a CFO has special expertise is helping a company optimize its expenses for labor and employee benefits. An experienced fractional CFO can look at the current and planned workforce and point out areas where improvements can be made.
For instance, it may be advantageous to promote certain individuals or increase their responsibilities rather than hiring new employees. Perhaps certain functions could be performed more cost-effectively through outsourcing rather than being done in-house. Some tasks might be assigned to part-time or temporary employees rather than expensive full-time ones.
Sometimes significant savings can be achieved by outsourcing certain functions such as payroll and workers’ compensation. A fractional CFO will be able to help determine whether this is a good option for your business.
Employee benefits, especially those related to healthcare, are constantly increasing in cost. Fortunately, new and less-expensive options are coming online all the time. A fractional CFO should be aware of these new developments and be able to recommend ways to decrease costs while preserving or enhancing the benefit to employees.
Procedural Efficiency
Most companies have room for improvement in their procedures. There are opportunities for cost savings that go unnoticed simply because “things have always been done that way.” One example is holding too many meetings that last too long and have too many people in attendance. Other examples might be inefficient location of products in a warehouse or distribution of paper memos instead of email.
The possible causes of inefficiency are numerous and vary by industry, but nearly every company has them. As a company outsider, a fractional CFO can recognize these problems and make valuable recommendations that can save time and money.
Outside Contacts
Having experience with multiple companies and projects, a fractional CFO will have made many contacts with bankers, vendors, industry experts, and influencers. When you find yourself in need of financing, supplies, partners, or advice, the fractional CFO can be a hugely important resource for finding the best and least expensive options and putting you in contact with the right people.
In Summary
Fractional CFOs provide a unique opportunity for financial expertise and strategy for businesses that may not otherwise have the resources to bring a high-level financial expert into their company.
If you would like to learn more or investigate the possibility of hiring a fractional CFO, we invite you to contact Preferred CFO today.
About the Author
Al VanLeeuwen
CFO
Al VanLeeuwen is an experienced CFO with significant operations experience. He has helped multiple organizations optimize profitability & helped to lead several successful strategic exits.
You may also be interested in...
6 Reasons SaaS Companies are Choosing Outsourced CFO Services
It’s becoming increasingly common to see companies turning to an outsourced CFO instead of a traditional in-house CFO. This is especially true for the dynamic, high-growth SaaS industry. SaaS companies are finding that outsourced CFOs specializing in SaaS are often...
7 Common Financial Modeling Mistakes
In order to make confident and effective business decisions, company executives need good data. They need to know how the business has performed in the past, where it stands financially right now, and what its prospects are for the future. They also need to be able to...
Basics of Mergers and Acquisitions
There are many reasons why two companies may choose to combine into a single entity. Expanding into new territories, adding technologies, reducing costs, eliminating competition, boosting revenue, and increasing market share are just a few examples. The legal joining...
Questions to Ask Your CPA about Business Tax Strategy
The purpose of a business tax strategy is to maximize income by legally reducing the amount of taxes owed. Because tax laws and government regulations are constantly changing, your tax strategies need to evolve as well. A Certified Public Accountant (CPA) is a tax...
What is the Difference Between a Controller and CFO?
One of the questions we get asked most frequently about financial roles and responsibilities is "What is the difference between a Controller and a CFO? These titles are used frequently--and often interchangeably--in the business world. However, despite the roles...
What to Expect During Due Diligence
Due diligence is the evaluation process used to inform decisions about business opportunities, such as a merger, acquisition, privatization, investment, or other financial transaction. During due diligence, the interested party will request documents, explanations,...
9 Business Finance Lessons We Learned from 2020
If there’s one thing we learned in 2020, it’s that change can happen—and it can come quickly, fiercely, and unexpectedly. In 2020, businesses were met with challenges they could never have predicted, and many had to shut their doors for good. Still others were...
What is an Outsourced Financial Controller?
An outsourced financial controller is a financial expert who helps keep your books up-to-date. They also provide financial reporting and information in a timely manner, and provide outsourced CFO expertise where companies are in need. Controllers can be in-house or...
Comptroller vs Controller Explained
The terms “controller” and “comptroller,” as well as the positions they define, may seem strikingly similar. Indeed, the word “comptroller” is believed to stem from a 15th Century misspelling of “controller.” However, despite the similarity in titles and functions,...
6 Signs You May Need a Financial System Upgrade
How often do you reevaluate your financial management system? For most organizations, the answer is not very often. After all, the ultimate point of a financial system is to put it in place, then rely on it and the people who contribute to it to help things run...
How to Choose an ERP System for Your Business
As companies grow and their operations become more complex, they tend to outgrow their existing software. Expanding business units or segments tend to become more independent over time. This makes interdepartmental communications and resource allocation more difficult...
Variable Costs, Fixed Costs, Total Costs: How Do They Differ?
Nearly every business has both fixed and variable costs. To ensure that your business remains fiscally solvent and profitable, it is important to understand the different types of costs and how to manage them. In general, variable costs relate to the number of items...
