What Clients Are Really Buying From a Fractional CFO

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I am writing a guest post for my friend Tailor Hartman's The Net Effect newsletter about how accounting firms can start offering CFO-level advisory services. While putting it together, I kept coming back to something I have probably made more complicated over the years than it needs to be.

What is a client actually paying for when they hire a fractional CFO?

Yes, a forecast can be valuable. Cash flow planning can be necessary. KPIs, dashboards, scenario models, and all the other tools we use have their place.

But I do not think any of those are the actual service.

I think the client is paying to put another strategic mind in the room who understands financials and can help them think.

That is the service. Everything else is a tool we use when the conversation calls for it.

Think board member, not spreadsheet builder

I have written before about why accounting firms should offer advisory services. It creates more interesting work for our teams, meets the demand for proactive advice, and gives firms an opportunity to get paid for higher-value thinking instead of only reporting history.

But I think we lose people when we describe the actual service. We make CFO work sound like a giant FP&A project.

To me, a fractional CFO is closer to a board member or strategy consultant who happens to be highly focused on the numbers.

The business owner has an idea. You help them think through it.

• Should we hire?

• Should we raise prices?

• Can we open another location?

• Can I afford to take more money out of the business?

• Do I need debt?

• Should I bring in an investor?

Sometimes answering those questions requires a forecast. Sometimes it requires a scenario model. All the time it requires a conversation.

Accountants have an advantage we probably undervalue

One of the biggest advantages accountants bring to these conversations is not technical accounting knowledge. It is pattern recognition.

We get to see behind the scenes of multiple businesses. We have seen the good, the bad, and the ugly.

We have watched companies grow too quickly and run out of cash. We have seen owners overhire. We have seen compensation plans destroy margins. We have watched businesses underprice for years and wonder why revenue growth never seems to turn into profit.

Most business owners have primarily experienced one business. We may have seen dozens to hundreds.

That perspective can be more valuable in the right conversation than spending hours building a beautiful 52-week forecast.

The spreadsheet supports the thinking. It is not a substitute for it.

The easiest CFO service still starts with one question

This is why I continue to believe accounting firms overcomplicate getting started with advisory.

In my original article on how to start offering advisory services, I laid out a very simple meeting structure: ask what is top of mind, briefly cover the historical financials, and spend most of the meeting talking about the future. You can start the entire CFO conversation with:

Where do you see the business at the end of the quarter or year?

Then listen.

Suppose the owner says they want to grow from $3 million to $4 million.

Great. Now we have something to talk about.

• How are we getting the additional $1 million?

• Can the current team handle it?

• How much cash will growth consume?

• Do we need financing?

• What could stop us from getting there?

You have moved from explaining last month's P&L to helping the owner make decisions about the next twelve months. That is CFO work.

And I would bet most accounting firms are already doing some version of fractional CFO services. They just are not getting paid for it.

In the end, there are only so many financial levers

When a business owner tells me they want to grow, improve profitability, or generate more cash, the number of financial levers available is actually pretty small.

I tend to come back to seven:

1. Increase price.

2. Increase volume

3. Reduce cost of service

4. Reduce overhead

5. Reduce accounts receivable days

6. Reduce inventory days

7. Increase the number of days it takes to pay accounts payable. I would avoid this one if you can, because other businesses should not be punished for another’s poor planning.

Then there is the other option: bring more capital into the business through debt or investment. Obviously, there are hundreds of strategies underneath those levers.

"Increase volume" could involve a new salesperson, a new location, better marketing, an acquisition, or expanding an existing client relationship. But financially, we are still pulling the same handful of levers.

The CFO conversation is helping the owner determine which ones make sense, what tradeoffs come with them, and whether the business can support the decision.

That is where our knowledge of the numbers becomes useful.

The takeaway

I think most accounting firms are closer to offering fractional CFO services than they realize.

You already understand the financials.

You already see patterns across businesses.

And there is a good chance your clients are already bouncing strategic ideas off you.

The mistake is thinking you need to add a pile of sophisticated deliverables before that becomes a service worth paying for. You don't.

CFO services are simply giving a business owner access to another strategic mind that understands the numbers.

Sometimes that mind needs a forecast. Sometimes it needs a cash flow model.

But sometimes the most valuable thing you can bring to the meeting is experience, a few good questions, and the willingness to tell the owner what you actually think.

Thanks for reading, Luke Templin!