What is a Fractional CFO?

In today's fast-paced world of business, companies of all sizes are looking for ways to improve their financial stability, strategy, and decision making. One resource that has gained popularity in recent years is the Fractional Chief Financial Officer (CFO). Let's dive in to what a Fractional CFO is and why they're valuable assets for businesses.

What Is a Fractional CFO?

Fractional CFOs are a traditional CFO without the need for a full-time commitment. Fractional CFOs are typically hired on a contract basis, and their primary responsibility is to oversee a company's financial strategy, planning, reporting, and analysis.

Key Responsibilities of a Fractional CFO:

Financial Strategy: Fractional CFOs partner with business owners and executives to develop and execute a financial strategy that aligns with the company's goals and objectives. They provide valuable insights into financial planning and decision-making.

Budgeting and Forecasting: These professionals are responsible for creating and managing annual budgets, as well as providing regular forecasts to help the company better understand and adapt to its financial future.

Financial Reporting: Fractional CFOs ensure that accurate and timely financial reports are made available to the leadership of an organization. They also analyze and interpret these reports to help business leaders make informed decisions.

Cash Flow Management: Keeping a pulse on cash flow is crucial for a company's sustainability and growth. Fractional CFOs monitor cash flow, identify potential cash bottlenecks, and implement strategies to mitigate them.

Cost Management: They analyze and optimize costs across various aspects of the business, ensuring that resources are allocated efficiently.

Risk Management: Fractional CFOs help identify and mitigate financial risks that could threaten the company's stability. This includes managing debt, investments, and insurance.

Why Fractional CFOs Are Valuable:

Cost effective: Hiring a full-time CFO is expensive, especially for smaller businesses. Fractional CFOs offer their expertise at a fraction of the cost, making financial leadership available to companies that otherwise couldn't afford it. Here are some numbers to wrap your head around. This chart from Cowen Partners, an executive search group specifically geared towards placing CFOs, highlights the cost of a full time CFO by company size on average. Let's just say that you can get a full time CFO in the door for $150K, the lowest end of the range for the smallest companies. Oh, and there's likely a bonus component, benefits, and potential equity. So all in, you're probably paying $200-250K at best.

Another question here is, are you going to have 40+ hours of work every week for a full-time CFO? If you're less than a $20M company, it's possible that you won't.

On Demand Expertise: Fractional CFOs bring a wealth of experience and knowledge to the table. They can provide guidance on complex financial matters without the long-term commitment of a full-time hire.

Flexibility: Companies can engage a Fractional CFO for a specific project, during a critical phase of growth, or as needed. This adaptability allows businesses to scale their financial expertise up or down as required. Need to create an annual budget? Pay for 20 hours a week in September-November. But then ratchet back to 5 hours a week the rest of the year when CFO-type demands aren't as heavy.

Unbiased Perspective: An outsourced CFO often offers an objective, outsider's perspective on financial matters, which can be extremely important in making informed decisions.

Focus on Core Operations: By outsourcing financial leadership, business owners and executives can concentrate on their core operations, knowing that the financial aspects are in capable hands.

Fractional CFOs have emerged as a crucial resource for businesses looking to improve their financial management without the commitment of a full-time hire. Their expertise, cost-effectiveness, and adaptability make them a valuable asset in today's competitive business landscape. Whether you're a small startup or an established corporation, a Fractional CFO can provide the financial guidance necessary to take your business to the next level.

Consumer Price Index - 2021 vs 2023

As I write this, it's October of 2023. There has been a lot of recent conversation on the increasing price of every day goods. But talk is cheap, right? Are prices of every day goods really increasing at a rate that's troublesome for the average family in the United States?

Let's dive in.

I've decided to pick a point in time exactly two years in the past. Right, wrong, indifferent, I don't know. But that's what we're going with. Now, first, we need to define Consumer Price Index. What is it, and why is it relevant for this analysis? According to the Bureau of Labor Statistics, Consumer Price Index (CPI) is: "The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services".

What's in the basket? Again, straight from the Bureau of Labor Statistics site:

* Food and beverages (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)

* Housing (rent of primary residence, owners' equivalent rent, utilities, bedroom furniture)

* Apparel (men's shirts and sweaters, women's dresses, baby clothes, shoes, jewelry)

* Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance)

* Medical care (prescription drugs, medical equipment and supplies, physicians' services, eyeglasses and eye care, hospital services)

* Recreation (televisions, toys, pets and pet products, sports equipment, park and museum admissions)

* Education and communication (college tuition, postage, telephone services, computer software and accessories)

* Other goods and services (tobacco and smoking products, haircuts and other personal services, funeral expenses)

A pretty extensive list, and maybe it would be fun for people like myself to dive into metrics around each of these items in a future post... However, let's keep it high-level here, shall we?

OK, now we know what the CPI is, and what's in the basket. One more thing to take into account. There is CPI by geography as well. Since I live in the Midwest, I'm going to use that as an example. But to get a truly accurate representation for you, you'll need to look up what CPI is for your geographical location. I just did a google search rather than search the BLS site, and it wasn't overly difficult to find.

In September of 2021, the CPI was $255.71. What does this mean? CPI is compared to a base period, with $100 being the baseline. In the case of the Midwest, 1982-1984 is the base period. This means that the basket of goods in 2021 costs 2.5571 times more than in 1982-84. In September of 2023, the CPI was $285.28. From September of 2021 to September of 2023, this is an increase of 11.56%.

Great, it increased 11.56% in 2 years. Who cares? I'd argue that you should care if your wages didn't increase at least that same amount over the past two years. If your wages didn't increase 12% (or more) over the past two years, that means it's become more expensive for you to live the same life you were living two years ago. Might be a good time to dust off your budget and make sure it's still relevant.

What if there's more month than money in your revised budget? There are always two solutions (make more money, cut expenses), but the first place that I would recommend looking is that non-essential spend. The Starbucks latte 3 times a week, the Netflix, Hulu, and Amazon Prime subscriptions, etc. etc.