By Doug Zeisel, TCV Growth Partner
Most small companies regard bookkeeping and accounting as necessary evils - stuff you need to do to keep the IRS and stakeholders happy. As a result, the CEO typically spends as little time and money on corporate finance as possible. After all, aren’t sales and marketing and keeping the tech ahead of the competition the priorities? And in truth, most companies don’t hire a full time Chief Financial Officer until they reach revenues in the area of $25-50M. So, what can a Fractional (part time) CFO do for you?
Avoid costly mistakes:
A good part time CFO helps the CEO avoid costly mistakes…like running out of money. Do you really think your accountant is keeping an eye on your cash flow? Accountants are focused on history, not cash requirements for next week, next month, or the next three months. I recall a client who had raised over $4M in non-dilutive funding, and then hired employees like there was no tomorrow. By the time I came on the scene, the company was two weeks away from not being able to pay rent. I negotiated with the landlord, insisted that the CEO layoff nonessential employees, instituted a budget,and saved the company.
Improve the image of your company:
A good part time CFO lends credibility to your team, so you look good in front of investors. Another client had been turned down for funding and the reason was a weak management team. I came on board, recast projections, helped with the pitch, and funding was received on the next try!
A good part time CFO helps in the development of strong KPI’s and methodologies to monitor results. What metrics matter the most? A fractional CFO can help you decide what to measure, and how often and how to use these metrics to improve operations.
As you grow your business, do you have standards for measuring how well key managers are performing? I have seen business development persons (AKA salespeople) at companies bid on contracts at such ridiculously low prices that they actually drove the company out of business. How do you hold key managers accountable unless (back to metrics) you have a way to measure performance? This is not something your bookkeeper or your accounting firm will undertake. But a fractional CFO can dig into your operations and find the numbers that you need to hold key managers accountable.
Do you have a budget that you monitor on a regular basis to ensure corporate costs are under control? You need to know if your gross margins are sufficient to cover all of your fixed costs. And, you need to know if your fixed costs are under control. The only way to know this is by establishing and monitoring a monthly operating budget. Who on your team has the time and experience to do this? A fractional CFO can create, monitor, and review a budget for you at low cost.
A Trusted Advisor:
A great fractional CFO has experience in a variety of industries and with companies of all sizes. He or she has experience that leads to insights that they can share with the CEO,collaborating on issues that affect the overall health of the company. CEO’s often hire business coaches to help them with establishing goals and monitoring success. Why not have a Fractional CFO who is intimately knowledgeable about your business be your trusted advisor?
Last, but certainly not least, is the need to finance growth. As mentioned previously, cash flow is critical to the survival of any organization. Because there is virtually always a lag between revenues generated and the collection of those revenues, a fast growing company can actually put itself out of business if it doesn’t have the means to finance cash flow shortfalls. Where to find this funding? An experienced Fractional CFO will know all the sources of outside funding that apply to various stages of growth.