The advent of cloud technology and automation has improved the landscape of accounting and bookkeeping. Where financial roadblocks and time constraints once stood, the industry can now collectively spread its wings and offer new service offerings to all its clientele. One such offering is the fractional CFO service. While previously reserved for larger clients with notably higher budgets, it's increasingly common for these services to be available at a much more affordable rate, thanks to the efficiency that cloud technology has lent to accountants.
With the scaling of cloud technology within small businesses, accountants can provide more real-time and accurate data and insights. Cloud technology solutions, such as the ones provided by Xero, offer more integrated service lines, where bookkeeping, tax preparation, and advisory services are more interconnected. This connectivity reduces costs and friction, allowing fractional CFO practices to be marketed to small businesses at a more competitive price point. Now, these previously higher-expense, year-round advisory services are available for small businesses that may have solely tapped a CPA for some crunch-time help during tax season.
The fractional CFO model is a symbiotic relationship for accounting firms and small businesses alike, optimizing their cash flow and helping them operate smooth financials year-round. It also helps to make them stickier clients for said firms and generate more consistent revenue (especially in such a large and previously untapped market as small business owners). When these fractional CFOs can review data in real-time, interpret it, and turn it into quick, actionable insights, it can make businesses nimbler and more resilient to outside stressors.
Not only this, but it can benefit bandwidth on both ends, spreading out the tax workload throughout the year rather than crashing everything into a yearly scramble during filing season. Outside of tax-related work, utilizing fractional CFO services allows accountants to transform their roles from solely transactional to strategic partners, which can strengthen the client-accountant relationship. By leveraging real-time data and continuous engagement year-round, accountants can provide better counsel to small businesses to help them improve their operations in real time rather than at the end of the fiscal year. Additionally, fractional CFOs enable accountants to navigate complex financial decision-making better and optimize cash flow, further strengthening accountant's role as trusted advisors to their small business clients.
With this in mind, some may ask – why don't small business owners bring this sort of counsel in-house?
Fast-growing startups may be keen to do this (especially in the wake of certain events like the SVB collapse). Still, the average mom-and-pop business can't afford its own dedicated CFO as it's a significant financial commitment. With the wealth of experience and specialized knowledge fractional CFOs bring, they offer a broader perspective and more innovative solutions at a lower price point. Small businesses often don't need the full-time services of a CFO – making the fractional CFO route even more appealing as they can scale their involvement up or down depending on the business's needs.
While entrepreneurs tend to be on the ground, getting their hands dirty daily, their expertise with their product and business model doesn't always translate to financial prowess. There are often elements of their business that could be holding back their profitability or tax savings, that without a mindful and informed eye, can go unnoticed for years, making it imperative for them to find a partner that can dig into the data to find balanced solutions to their most significant financial challenges. By doing so, small business owners can dedicate more time to focus on their core business objectives and strategic growth areas, leaving the complex financial tasks to a more esteemed expert. Additionally, a fractional CFO can provide more of an objective perspective on the business's overall financial health, one that a small business owner who is too close to the business may not be able to see. By relying on the numbers and data, fractional CFOs can see the bigger picture better and provide unbiased counsel.
This leads to a critical consideration for accounting firms as fractional CFOs emerge in the small business ecosystem: know the industry you're entering as if you were a small business owner. An accountant who has cut their teeth with manufacturing conglomerates should not suddenly pivot into advising an agricultural small business, and firms that cast a wide net will only sour the "fractional CFO" name for their clients and themselves. Rolling out this offering should be done steadily, step-by-step, to ensure they are appropriately positioned to serve specific small business verticals.
The ideal approach is quite simple – rather than rushing the field with a disjointed launch, following the below steps are much likelier to result in a fruitful fractional CFO platform:
- Step 1: Digitize your practice. It might seem obvious, but accounting firms that have not made the switch to the cloud are unlikely to be able to afford to lend fractional CFO services to small business owners.
- Step 2: Start with simple advisory work. Outsource and automate the client's bookkeeping work so that there is ample time to build cash flow forecasts, short-term and long-term budget breakdowns, and other materials that will clarify business owners' finances.
- Step 3: Choose the verticals your firm already has (or can hire) expertise in and deeply dive to immerse your team into the complexities surrounding small business owners in these spaces. Learning to think like them will enable you to provide the most proactive and actionable guidance for their situations. The CFO brings strategic and deep commercial skill sets, including knowledge of the industries in which their businesses are classified. So you'll need to consider if you have the talent or need to develop or acquire new talent to deliver on the fractional CFO.
Toeing the line between lived experience and data-based decision-making can challenge small business owners. While customer conversations may provide solid anecdotal evidence in one direction, these entrepreneurs must have a peer in their corner (with experience in their industry as a financial expert) who can draw the appropriate connections between both sides. As the backbone of the global economy, small business owners may be on the cusp of unlocking new possibilities with fractional CFOs. It's up to the accountants and bookkeepers entering this growing field to bring them to their full potential.