Your Business Has a Bookkeeper and a CPA. When Do You Actually Need a Fractional CFO?
By ProfitWise - a Visa Business Plans company
A commercial cleaning company lands the biggest contract in its history.
The new account could significantly increase annual revenue, and the owner is understandably excited. The company has good books, the CPA says the business is healthy, and the new contract looks profitable.
But accepting the work creates a completely different set of questions.
How many people will need to be hired? How much will payroll increase before the first invoices are collected? Will the company need additional equipment and supplies? How much cash should be available before the contract starts? And after all of those costs are considered, how profitable is the new account actually going to be?
Nothing is wrong with the bookkeeping, and the CPA isn’t missing anything.
The owner is simply asking a different type of question.
The Bookkeeper, CPA and CFO Aren’t Doing the Same Job
Good bookkeeping gives the owner reliable financial information about what has already happened in the business. The CPA uses that information for important accounting and tax matters and may provide additional financial guidance depending on the relationship.
CFO-level analysis becomes useful when the owner needs to take those numbers and use them to evaluate what could happen next.
Consider the cleaning company’s new contract.
The owner knows what the client will pay each month, but before deciding how attractive the opportunity really is, there is much more to understand. The company may need to add ten employees, increase supervisors’ hours, purchase equipment and carry additional insurance. Cleaning supplies and other operating costs will also increase from the moment the work begins.
Meanwhile, the customer may not pay the first invoice for 30 or 60 days.
The contract can be profitable and still create considerable financial pressure during those first few months.
Growth Creates Questions the P&L Can’t Answer by Itself
Suppose the company is currently generating $2 million in annual revenue and the new contract could add another $600,000.
That’s meaningful growth.
But the owner shouldn’t evaluate the opportunity based only on the additional $600,000 in sales.
We would want to estimate the additional labor and operating costs associated with servicing the account, understand the expected margin and determine how much working capital will be needed while the company ramps up.
Then we can start testing different possibilities.
What happens if hiring takes longer than expected and overtime increases? What if the customer pays in 60 days instead of 30? What if labor costs are higher than originally estimated?
Those aren’t bookkeeping questions. They are business decisions that depend on good bookkeeping as their starting point.
So When Does a Business Actually Need CFO-Level Support?
There isn’t a specific revenue number at which every company suddenly needs a CFO.
A relatively straightforward $5 million business may have fewer financial decisions to work through than a rapidly growing $1.5 million company that is hiring, borrowing money, adding locations or taking on larger contracts.
The better indicator is often complexity.
As decisions become larger and the financial consequences become harder to anticipate, owners may benefit from having someone analyze different scenarios before they commit.
For one business, that may happen when it considers its first major hire. For another, it could be a second location, a large equipment purchase, new financing or a contract that suddenly changes the size of the company.
You Don’t Necessarily Need a Full-Time CFO
Most small businesses don’t need someone sitting in a CFO position 40 hours a week.
They may, however, need CFO-level analysis at certain stages of growth or when important financial decisions arise.
That’s where Fractional CFO support can make sense.
For our hypothetical cleaning company, the objective wouldn’t be to replace the bookkeeper or CPA. Their work provides the financial foundation the analysis depends on.
The additional role is to take that information, combine it with what the owner is considering, and model what those decisions could mean for the business over the coming months.
The company already knows what happened last month.
Now the owner needs to decide whether taking on the biggest contract in the company’s history is financially as attractive as it looks.
That’s a different question.
