Can You Afford a Fractional CFO?

So you’re considering hiring a Fractional CFO – or at least you’re interested in the idea of bringing on strategic finance expertise to help grow your business.

And you are definitely someone who should hire a Fractional CFO.

The next question that pops into your mind: Can I afford a Fractional CFO?

You might be thinking this is a cut-and-dry decision…a simple yes or no based on how much a Fractional CFO costs. Well, the fees paid to the Fractional CFO are only one side of the equation.

You see, hiring a good Fractional CFO is not an expense, it’s an investment. Investments have returns – in other words, there should be value that accrues to the organization based on filling this role.

The value a Fractional CFO generates can be both qualitative and quantitative, but it should be very real in either case. It can also be incremental – returning a set amount of dollars on a project – or savings associated with not making certain mistakes or saving on costs that otherwise would have been incurred.

Some examples of the value created by a Fractional CFO:

• Funding secured – dollars in the bank for growth.

• Valuation enhanced – equity holders give up less ownership.

• CLV analysis – finding more of your best customers = scale faster and more profitably

• Gross Margin improvement – earn more on every sale.

• Reduce borrowing cost – save on interest expense.

• Increased CEO and Board confidence – sanity and improved execution.

• Back office automation – reduce labor costs.

• Clarity of strategic focus and budget – fewer dollars wasted on low-value projects.

• Optimize cash flow – reduce the need for outside capital, preserving equity or saving on borrowing costs.

• Clarity on personnel needs – save by avoiding hiring the wrong people.

This list is far from exhaustive but should serve to give you an idea of the kind of highly tangible value a good Fractional CFO can generate for you and your company.

In many cases, any one of these items on this list could more than pay for the services of a Fractional CFO for the year…and, of course, many of these items are related and one improvement could lead to another, and so on.

Let’s quickly look at two examples.

Fractional CFO Value Example #1

ACME Corp’s average CLV is $500 and they are currently spending $400 to acquire each customer (CAC). A detailed cohort analysis determines that a particular segment of its customers has a CLV of $1,000 with a similar CAC.

A plan is put in place to focus on this segment and in 12 months the average CLV is now $900 (and the cohort retention has improved significantly).

Not only have the customer economics improved by 5x which reduces the need for outside capital, but there are more equity funding offers at higher valuations and they would close more quickly, saving the CEO time in the fundraising seat, and getting her back into execution mode.

This scenario has likely created millions of dollars in value to the equity holders, and has changed the trajectory of the business in a meaningful way, achieving bigger goals, faster, and having more fun along the way. Win-Win-Win.

Fractional CFO Value Example #2

This time, ACME Corp is focused on profitable growth without raising equity capital. Gross margins are sitting at 54%, and a detailed gross margin analysis uncovers the opportunity to increase pricing for certain customer segments while also reducing marginal COGS through shrewd negotiation with vendors.

Gross margins improve to 60% with these changes and the company now keeps more of every dollar sold, reducing the need for outside capital.

The Fractional CFO also uncovers a couple of opportunities to get paid more quickly, and delay payment to suppliers enhancing cash flow and further reducing the need for outside funding.

Part of this project lead to the discovery of a back-office automation opportunity that reduced the need for another employee in six months while at the same time reducing errors and improving the customer experience.

This scenario has created a compounding value stream to the company that will continue to pay dividends for years to come, while preserving the equity holders position and creating happier customers. Win-Win-Win.

Conclusion

So, can you afford to hire a Fractional CFO? If you are looking to grow quickly, how can you afford not to?

Contact me today for a free evaluation of the value you could realize by hiring a Fractional CFO.