Fraction CFOs solve the “other part” of the business equation. Entrepreneurs start businesses because they are passionate about something. But running a business takes more than just passion. It takes a lot of knowledge about a lot of different aspects of business such as operations, sales, marketing, accounting, finance, and law. When small business owners don’t have the knowledge they need in these areas of business, they can’t make proper decisions.
If your budget doesn’t have room for a full-time CFO, a Fractional CFO solution might solve your problem. I’ve seen clients who make financial decisions that turn out bad because they did not have the information a CFO could provide.
Fractional CFO Services
The business structure states who own the company, how profits are distributed and which managers perform what jobs. It is also important for tax and liability purposes, as companies are often taxed differently from each other and managers may have differing levels of responsibility in the event of wrongdoing or a lawsuit. In the United States, the three business structures recognized by the IRS (Internal Revenue Service) are sole proprietorship, partnership and corporation.
Cash flow refers to the movement of money. It may relate to all aspects of business, from the whole entity to a project or product. It is usually measured within a set time frame. Comparing the cash flow between different time frames or across companies can be useful for gauging financial health. The free flow of cash can imply an ability an ability to invest and generate more profit.
A budget is a plan for your future income and expenditures that you can use as a guideline for spending and saving. The process of calculating how much money you will earn during a particular period of time, and planning how much you will spend, save, and borrow. Budgeting shows you how to assemble a complete system of budgets, including budgets for revenue, production, overhead, administration, and compensation.
The most effective financial budget includes both a short-range, month-to-month plan for at least one calendar year and a long-range, quarter-to-quarter plan you use for financial statement reporting.
Forecasting is used by companies to determine how to allocate their budgets for an upcoming period of time. This is typically based on demand for the goods and services it offers, compared to the cost of producing them. Investors utilize forecasting to determine if events affecting a company, such as sales expectations, will increase or decrease the price of shares in that company.
A planning tool that helps management in its attempts to cope with the uncertainty of the future, relying mainly on data from the past and present and analysis of trends.
A business plan is the outline and the roadmap which describes how a new business intends to achieve its goals. Key components of a business plan include strategies for marketing, managing finances and managing operations. A business plan can also be used by established businesses when they are rebranding, refocusing, or changing operation. The plan also includes an overview of the company ethos, the product(s)/service(s) to be offered, and its goals.
Mergers And Acquisitions:
A general term used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.
In an acquisition one party buys another by acquiring all of its assets. The acquired entity ceases to exist as a corporate body, but the buyer sometimes retains the name of the acquired company, indeed may use it as its own name. In a merger a new entity is created from the assets of two companies; new stock is issued. Mergers are more common when the parties have similar size and power.
Financial statement analysis:
The process of reviewing or analyzing documents such as the Income Statement, Balance Sheet, or Statement of Cash Flows is known as financial analysis, or financial statement analysis. These documents give insight into the health of a company and can lead to better decision making.
Revenue growth and expansion analysis:
If COGS (Cost of Goods Sold) stay the same and the company increases the price of services or products, this causes a percentage change in revenues that would show up as a nominal revenue increase. Likewise, if we decreased the pricing, the nominal revenue would decrease in turn. What really need to be concerned with is how much of the change – plus or minus – in revenues is due to real growth in additional units of products or services. This is what is called real revenue growth.
An expansion is one of two basic business cycle phases. The transition from expansion to contraction is termed a “peak” and the changeover from contraction to expansion is a trough. Expansions last on average about three to four years but have been known to last anywhere from 12 months to more than 10 years. Much of the 60s was a time of expansion which lasted almost nine years.
Overhead costs refer to expenditures made which don’t relate directly to the production of goods or services. Overhead costs are typically calculated on a monthly basis. It is common to express overhead costs as a percentage of sales or labor costs. Businesses strive to keep overhead costs low, as doing such can correlate to an increased profit margin, or more competitive price points.
Cost and expense analysis:
The goal of cost and expense analysis is to keep expenditures as minimal as possible, so as to increase profit or investment return.
In a general business context, margin calculation is to find out the difference between a products (or service) selling price and the cost of production.
The gross profit P is the difference between the cost to make a product C and the selling price or revenue R.
Reasons for Fractional CFO
Businesses need a full-time or fractional CFO for a variety of reasons. These reasons include, loan covenants, investment restrictions, or business operational efficiency. Adding a member to your senior management team will give you more strategic resources to grow your business.