When to Hire a Fractional or Full-Time CFO

At What Stage Should Small Businesses Hire a Full-Time or Fractional CFO?

Deciding when to hire a full-time or fractional CFO can be difficult. While some companies choose to outsource financial services or prioritize in-house record keeping, others have the fiscal means to onboard full-time finance professionals early on. Identifying their own financial needs and understanding the difference between full-time and fractional CFOs can help companies determine whether to invest in a full or part-time CFO.

Financial Hierarchy of Needs

Like Maslow’s Hierarchy of Needs, a psychological theory suggesting that five categories of needs influence human behavior, a “Financial Hierarchy of Needs” explains the progression of small businesses’ financial advisory needs from the absolute basic to the most complex. Small businesses can use the hierarchy to identify where they are in the progression and understand the current benefits of hiring an experienced financial professional.

Level One: Transacting

At the most basic level, all businesses must retain the ability to conduct transactions through the simple buying and selling of goods and services. Such transactions at this level require minimal financial knowledge and only basic record keeping known as “checkbook accounting,” which could theoretically be completed by anyone in the business, regardless of background or title. Because of its low fiscal and time demands, new businesses often utilize level one transacting and may be able to operate as such for a limited amount of time.

Level Two: Record Keeping

Unlike “checkbook accounting,” the real accounting that takes place in the second level of the Financial Hierarchy of Needs hinges on accuracy and is likely conducted either in-house or by an outsourced professional, typically a bookkeeper or accountant. The principal requirement of the professional’s duties is to record transactions in a way that is correct and GAAP compliant for tax purposes.

Level Three: Trusted Reporting

Once transactions are properly recorded in level two, a company needs a more thorough system for analyzing fiscal activity. Online software like Quickbooks provides an accessible and affordable avenue for tracking activity in many categories for internal purposes. However, the accuracy of these fintech platforms is left in the hands of those submitting the data; thus, there is substantial room for error and little room for deep financial analysis and guidance. In this stage, small businesses can benefit from part-time CFOs, who can interpret the data and use their financial acumen to help the business thrive.

Level Four: Financial Planning

After keeping an accurate record of business activity and identifying the factors that impact success, a small business should consider using the information gathered to set goals and develop financial forecasts.  They should typically include three different financial statements: profit and loss, capital expenditures, and a statement of cash flows. Developing forecasts will assist in setting goals, allocating funds and managing cash. Companies at this level of the hierarchy should develop a close working relationship with either a full-time or fractional CFO.

Level Five: Strategic Partnering

The end goal of the Financial Hierarchy of Needs is strategic partnering, in which a finance leader is an integral part of the planning process. The CFO partners with other areas of the business to implement their strategic vision and long-term financial goals like pricing, expansion, and acquisition decisions. Small businesses desiring a strong financial strategy component should consider hiring a dedicated, full-time CFO.

Why MRB Consulting is Right for Your Business

MRB Consulting provides fractional/part-time CFO services to small businesses who need a trusted finance partner to scale and to increase the value of their companies. When partnering with us, clients will benefit from a variety of services, including:

●       Financial Strategy

●       Financial Analysis

●       Budgeting & Forecasting

●       Cash Flow Management

●       Investor Relations

●       Capital Allocation

●       Capital Raising

We like to roll up our sleeves and make sense of the numbers, while also providing thought leadership, guiding investment decisions, and helping you deliver on your financial goals.  We customize an approach that aligns with your values, culture and budget.  If your company would like the expertise of an experienced finance professional please reach out to us at 615-924-3349.