Your business may not need a full time CFO
When the Business Has Outgrown the Way Its Finances Are Managed
What fractional CFO support looks like in an owner-managed SME
Most business owners do not contact O’Doherty Advisory and say, “We need a fractional CFO.”
They usually describe a problem.
Turnover has increased, but cash is tighter than expected. The monthly accounts are accurate, but they arrive too late to influence decisions. The finance team is working hard, but most of its time is spent processing transactions and dealing with immediate demands.
A bank or investor has asked for forecasts, sensitivities or more detailed reporting. Or the owner is considering an acquisition, a significant investment or a future sale and does not feel that the existing financial information is strong enough.
These are often signs that the business needs more senior financial input. It may not need, or be ready for, a full-time CFO. But it does need someone who can look beyond the production of accounts and help management use financial information to run the business.
THE POINT AT WHICH FINANCE BEGINS TO LAG BEHIND THE BUSINESS
Many SMEs grow in stages. In the early years, the owner works closely with an external accountant or bookkeeper. As the business develops, an accounts administrator, finance manager or financial controller may be appointed. Systems improve and the volume of information increases.
The difficulty is that the financial needs of the business do not remain static. A finance structure that worked well when the company was smaller may struggle when the business has more employees, more customers, several revenue streams, increased borrowing or a more complicated working-capital cycle.
At that stage, the issue is rarely that no financial information exists. The issue is that the information is no longer keeping pace with the decisions being made.
WHAT WE SEE IN PRACTICE
Common signs that the finance function has not kept pace
• Management accounts are produced, but there is little meaningful comparison with budget or forecast.
• Revenue is closely monitored, but margin, working capital and cash conversion receive less attention.
• Different people maintain different spreadsheets, with no single agreed view of performance.
• The owner understands the business intuitively, but that understanding is not reflected in the reporting.
• The finance team is capable but lacks the time or senior support to improve systems and reporting.
• Forecasts are prepared for a bank or funder but are not used regularly by management.
• The business has grown, but financial roles and responsibilities have not been clearly redefined.
• Important decisions are being made without fully modelling the effect on cash, borrowing or profitability.
SMALLER SHOULD NOT MEAN SECOND-CLASS FINANCIAL OVERSIGHT
Rory’s view is straightforward: the fact that a business is smaller, privately owned or operating with a lean management team should not mean that it has to accept a lower standard of financial oversight.
In many SMEs, the decisions are every bit as significant as those being made in a much larger organisation. The owner’s capital may be tied up in the company. Family wealth may be exposed. Employees, suppliers and lenders may all depend on the business continuing to perform.
Yet smaller businesses often have fewer internal resources with which to assess those decisions. They may not be in a position to appoint a full-time CFO. That does not mean they should have to manage without first-class financial information, proper challenge and experienced financial judgement.
WHAT A FRACTIONAL CFO DOES IN PRACTICE
The term “fractional CFO” can make the role sound more complicated than it is. In practical terms, the business gains access to an experienced senior finance person for an agreed amount of time each month or for a defined project.
The fractional CFO works alongside the owner, management team, internal finance staff and existing professional advisers. The role is not simply an additional accounting resource. Its purpose is to connect financial information with the decisions facing the business.
FINANCIAL CONTROL
Turning information into something management can use
GETTING A RELIABLE VIEW OF CASH
One of the first areas we often examine is cash flow. A company can report a profit and still experience considerable cash pressure, particularly when it is growing.
Growth may require the business to recruit people, purchase stock, invest in equipment or fund work several weeks or months before receiving payment. A large new contract may be positive for the business but place a considerable short-term demand on cash.
Our work may involve introducing or rebuilding a short-term cash-flow forecast, reviewing debtor and creditor patterns, examining stock or work in progress and considering the timing of tax, payroll, capital expenditure and loan repayments.
The immediate objective is to give the owner a dependable view of the coming weeks and months. The wider objective is to establish a process that management can continue to use.
MAKING MANAGEMENT ACCOUNTS USEFUL
Another common issue is that the company produces accounts but does not receive enough insight from them. A standard profit-and-loss account may confirm that sales increased or that overheads were higher than expected. It may not explain which customers, services, contracts or locations are performing well and which are absorbing time and cash.
For an SME, the answer is rarely a larger and more elaborate reporting pack. The better solution is usually a shorter pack focused on the few measures that genuinely matter.
The report should allow an owner or management team to see quickly what has changed, why it has changed and whether action is required. Producing the report is only part of the job. The real value comes from reviewing it with management, challenging assumptions and agreeing who is responsible for the next step.
Depending on the business, a useful monthly pack may include:
• Revenue and gross margin by service, product or business unit
• Performance against budget and prior year
• Debtor days, overdue balances and working-capital movements
• Cash position and forecast
• Order book, pipeline or recurring revenue
• Capital expenditure, borrowing and a short commentary on significant variances
SENIOR SUPPORT
Strengthening the team and preparing the business for scrutiny
SUPPORTING A CAPABLE FINANCE TEAM
Fractional CFO support is not necessarily a response to weakness within the internal finance team. We regularly see SMEs with strong finance managers or financial controllers who are managing a considerable workload.
They may be responsible for payroll, creditors, debtors, banking, month-end reporting, tax compliance and answering day-to-day queries from across the business. They know the company well and are often highly valued by the owner.
What they may not have is the capacity, or sometimes the experience, to redesign the reporting pack, build a robust forecasting model, prepare for a funding process or challenge the management team on commercial performance.
A fractional CFO can provide that senior layer without displacing the existing team. Done properly, the support should leave better processes, greater capability and clearer ownership behind.
PREPARING FOR A BANK, FUNDER OR INVESTOR
The shortcomings in financial reporting often become most visible when an external party begins asking questions. A bank may require an integrated forecast and evidence that the proposed debt can be serviced. An investor may want to understand margins, customer concentration, recurring revenue, working-capital requirements and the assumptions behind the growth plan.
A potential purchaser may ask for several years of consistent financial information, analysis by business unit and a clear reconciliation between management and statutory accounts. These requests can expose gaps that have existed for some time.
Fractional CFO support allows the company to prepare earlier and more methodically. This can include building the forecast, testing assumptions, reviewing the funding requirement and helping management present the financial case clearly.
Because O’Doherty Advisory also advises clients on funding, refinancing, transactions and business valuation, the work is not limited to producing a spreadsheet. We understand the questions that banks, investors and purchasers are likely to ask and the weaknesses that may concern them.
COMMERCIAL DECISION-MAKING
Applying financial discipline without adding bureaucracy
BRINGING FINANCIAL DISCIPLINE TO GROWTH DECISIONS
Owner-managed businesses often make investment decisions quickly. An opportunity arises to recruit a strong person, open a second location, purchase equipment, enter a new market or acquire another business. The commercial logic may be sound, but the financial consequences are not always examined in enough detail.
The question is not simply whether the business can pay for the investment today. Management also needs to consider how long it will take before the investment contributes to profit, what additional working capital will be required and what happens if sales take longer than expected.
A fractional CFO can model these scenarios and help the owner understand the range of possible outcomes. This does not remove the need for judgement. It does reduce the likelihood of an important decision being based on an incomplete view of the financial position.
REDUCING DEPENDENCE ON THE OWNER
In many SMEs, the owner remains central to almost every significant financial decision. This may be manageable while the business is relatively small. It becomes more difficult as the company grows, particularly if the owner is also responsible for sales, key customer relationships, operations and staff.
Heavy reliance on the owner also becomes an issue when succession, investment or sale is being considered. A business is more resilient and more transferable when financial information is produced consistently, responsibilities are clearly allocated and key decisions do not depend entirely on one person.
For some clients, fractional CFO support forms part of a broader value-creation or succession plan. The aim is not only to improve the current operation of the business but also to make it less dependent on the owner and better prepared for its next stage.
The purpose is not to make a smaller business operate like a large corporate.
It is to ensure that important decisions are supported by the same standards of financial discipline, clarity and accountability.
PRACTICAL OUTCOMES
What a good fractional CFO engagement should deliver
WHAT THE FIRST FEW MONTHS SHOULD PRODUCE
A fractional CFO engagement should have clear priorities and visible outputs. In the early months, we would generally expect the work to produce some combination of the following:
• A clearer understanding of the company’s financial position
• A dependable short-term cash-flow forecast
• An agreed budget or rolling forecast
• A focused monthly management pack
• Better analysis of margin and working capital
• A regular financial review with the owner or management team
• Clearer roles within the finance function
• A list of financial risks, actions and owners
• Improved information for the board, bank or shareholders
WHEN FRACTIONAL CFO SUPPORT IS MOST USEFUL
• The business has become more complex, but a full-time CFO is not yet justified.
• The owner needs more senior financial support than the current structure provides.
• The finance team is strong operationally but needs strategic direction.
• Growth is placing pressure on cash and working capital.
• Management reporting does not support decision-making.
• The business is approaching a bank, funder or investor.
• An acquisition, disposal or major investment is being considered.
• The owner is beginning to plan for succession or exit.
THE O’DOHERTY ADVISORY APPROACH
First-class oversight, delivered in a practical and proportionate way
At O’Doherty Advisory, we do not believe that good financial oversight should be reserved for larger companies with the resources to employ a full-time CFO.
Smaller and medium-sized businesses make significant decisions every day around recruitment, investment, borrowing, pricing, growth and succession. Those decisions deserve reliable information, proper financial challenge and experienced judgement.
Our fractional CFO service is intended to make that level of support accessible to SMEs in a practical and proportionate way.
HOW WE WORK
We do not begin with a standard list of reports or a predetermined number of meetings. We begin by understanding the business: how it makes money, how cash moves through it, how the owner makes decisions, what the finance team currently produces and what is likely to change over the next few years.
We then agree a scope that reflects the real needs and resources of the company. Katrina and the ODA team may work directly with the internal finance team to improve reporting, forecasting and financial processes. Rory may become involved where the work connects with funding, capital structure, transactions, valuation, succession or wider strategic decisions.
This combination matters. A good fractional CFO service needs to address the immediate financial work while keeping sight of the owner’s longer-term objectives. It should improve the numbers, but it should also improve the conversations and decisions that follow from them.
A USEFUL FIRST QUESTION
The first question is not necessarily, “Can we afford a CFO?”
A more useful question is:
Does the quality of financial information and oversight within the business match the importance of the decisions we are making?
A smaller company may not require a full-time CFO. It should not, however, be compromised by the absence of senior financial management. Fractional CFO support provides a practical alternative: first-class financial oversight, delivered at a level that is appropriate and affordable for the business.
For many owner-managed SMEs, that can mean better information, earlier identification of risk and greater confidence in the decisions that will shape the company’s future.