How Fractional CFOs Shape the Financial Future of a Business

Podcast: Do More By Doing Less

Episode Title:  Taking the Mystery Out of Your Financial Future

Host: Charles Alexander

Episode Guest: Kathy Svetina

Episode Date: Aug 29, 2023

Listen Here:
Apple Podcasts: https://podcasts.apple.com/ph/podcast/s1-ep6-kathy-svetina-taking-the-mystery-out-of/id1701642683?i=1000626062745

Spotify: https://open.spotify.com/show/5krVds6q239gxepywHT56D

Do More by Doing Less podcast with Charles Alexander is a show for Small Business Owners, Start-Ups, and Busy Folks! It’s not another productivity, hustle, and grind podcast.

Charles literally wants you to do less by focusing on the vital few and prioritizing things that make our lives and the lives of people around us better.


About this episode

At the heart of every business, big or small, are its finances. And it’s easy to get lost in the complexities. That’s where Fractional CFO services can come in to help you chart a clear path forward. With their expertise, they can provide valuable and strategic financial insights and help you plan for success.

But how do they do this exactly? 

In a recent episode of the Do More By Doing Less podcast hosted by Charles Alexander, Kathy Svetina shared her insights on the pivotal role played by fractional CFOs in the financial management and planning of small businesses.

She breaks down what sets fractional CFOs apart from bookkeepers and accountants, the nuances of cash vs. profit, and why a balance sheet is vital to small business finances.

She highlighted the importance of proactive financial planning and the value of educational content in empowering small business owners. Additionally, she discussed the strategies and insights that can steer your business toward financial prosperity and sustainable growth.

Discover the role that Fractional CFOs have in managing small business finances.



Key Insights from Do More By Doing Less podcast

1:30 What’s the role of Fractional CFOs?

2:44 How to make future projections and budget forecasts 

6:33 Why are marketing budgets so important? 

15:22  Accrual Basis vs. Cash Basis Accounting Explained 

19:57 Why good bookkeeping is essential for decision-making 


How Fractional CFOs help established businesses make strategic decisions

A Fractional CFO is like a financial guide for businesses. While bookkeepers and accountants handle the past (like making sure bills are paid and dealing with taxes), fractional CFOs focus on shaping the future of the business.

They’re the ones who dive into the numbers from the past – but they don’t stop there. They also work closely with different parts of the company, like sales and marketing, to understand how the business operates. This means they’re not just looking at numbers; they’re connecting the dots between what the company does and its financial health.

Their main job is to predict where the business is heading financially. They do this by creating budgets and financial forecasts. This is super important because if a business only makes decisions based on what’s happening right now, they can end up reacting to problems instead of preventing them.

So, fractional CFOs help business owners make smart choices that consider both the past and where they want to go in the future. They use their financial expertise to ensure the business is on the right track and that every decision aligns with long-term success.

“Fractional CFOs take care of the future of the business, the financial future of the business.”Kathy Svetina (2:14)

How to make future projections and budget forecasts

An important part of small business financial planning is to make future projections and budget forecasts. Here are steps on how you can start to build this out. 

Set clear goals

Start by defining your business goals for both the short and long term. Knowing what you want to achieve is essential for financial planning.

Annual planning

Schedule annual planning sessions, preferably in the fall, to prepare for the upcoming year. During these sessions, create a budget that outlines your expected expenses and revenue.

Consider using financial software

You can make this process easier by using budgeting and forecasting software like Fathom. However, remember that proper setup is crucial. Seek assistance from a bookkeeper or accountant to ensure accurate results.

Analyze past data

Review your historical financial data, such as sales, expenses, and cash flow. This information will help you make informed projections.

Collaborate with sales and marketing

Work closely with your sales and marketing teams to ensure their strategies align with your financial goals. Every decision they make can impact your finances, so keep them in the loop.

Hiring decisions

Before hiring new employees, assess your financial capacity. Can your business afford the additional costs? Make sure your budget and forecasts account for these expenses.

Regularly review and adjust

Financial forecasting is an ongoing process. Continuously monitor your financial performance compared to your projections. If you notice discrepancies, adjust your strategies accordingly.

Think ahead

Always consider the long-term consequences of your decisions. Ask yourself how your current actions will affect your business in the future. This forward-thinking approach helps you avoid making reactive decisions.

The specific details of your budget and forecast may vary based on your industry and the size of your business. Small businesses can often manage these tasks independently, especially with budgeting software. However, seeking professional guidance during the setup phase can ensure more accurate forecasts and financial planning.

By proactively managing your finances and thinking about the future, you can steer your business toward success.

“The problem with making decisions based on what’s happening now, you become very reactive and make decisions that won’t serve you. That’s why it’s important to really take a look at where you’re going to be in the future and make those projections.”Kathy Svetina (2:50)

Why is cutting marketing a bad idea?

Marketing budgets are crucial for businesses, but many make the mistake of cutting them when they need to save money. This is a bad move because slashing marketing funds leads to fewer sales and less brand recognition in the future. It’s like trying to save on a road trip by using less gas – it might seem like a quick fix, but it hinders your progress.

Instead, it’s smarter to regularly review your marketing spending. Look for ways to optimize costs without losing your market presence. Don’t just cut marketing because it’s the easy option. 

Marketing is an investment in your business’s future success, so it’s a necessary spend – but spend the funds wisely. A strong marketing presence is vital for your business’s growth and recognition, making marketing budgets a crucial part of responsible financial planning.

“If you think of advertising and marketing as a slush fund that you can just cut off because that’s the easiest way to do…you are setting yourself up for less sales, less brand recognition, and that is going to impact the business significantly in the future.”Kathy Svetina (7:05)

Accrual basis vs. Cash basis accounting explained

Accrual basis and cash basis accounting are two distinct methods for tracking all the financial transactions of your business. Each has its own set of advantages and disadvantages. 

Accrual basis accounting offers a more comprehensive view of your financial health and it’s best to either use it from the beginning or transition to it as soon as possible. In accrual accounting, you record transactions when they occur, even if the cash hasn’t changed hands yet. This allows you to track things that haven’t hit cash yet, such as accounts receivable –  meaning you know who owes you money and when payments are due. 

On the other hand, cash basis accounting only records transactions when cash is received or paid, which leads to gaps in your financial data. As with the accounts receivable example,  you would not have that record in your financial system and may lose track of outstanding invoices. And to manage your cash flow effectively you need this information readily available. So, while cash basis accounting may seem simpler, it often lacks the depth of information necessary for making informed financial decisions and managing your business effectively. 

Why good bookkeeping Is essential for decision-making

Good bookkeeping involves recording every financial transaction regularly and accurately, ideally on a daily basis if you have a lot of transactions. Weekly is fine too if you don’t have much activity, but monthly is the bare minimum so that you can “close” your books properly. When your books are “closed,” it means all past months’ data is correct and complete, giving you trustworthy numbers to work with.

Now, here’s why this matters: Imagine you miss recording a bill or some expenses. Your financial records become incomplete – and that’s a problem. Missing a bill or failing to record transactions can lead to unreliable numbers, making it challenging to plan for the future or make informed decisions. 

Good bookkeeping is the foundation upon which sound financial decisions are built. It will provide your business with the clarity and accuracy it needs to succeed and will help avoid costly errors in your financial management

Summary

Fractional CFOs are the architects of your business’s financial future. They go beyond traditional accounting roles, working proactively to ensure your company’s long-term success. By setting clear goals, engaging in strategic planning, and maintaining sound bookkeeping practices, you can take charge of your financial future.

Additionally, remember that marketing budgets are investments, not expenses. Cutting them may provide short-term relief but will harm your business’s growth and brand recognition in the long run. 

Finally, if you’re on a cash accounting system, talk to your finance team and consider switching to accrual basis accounting. This will give you a comprehensive view of your finances and provide valuable insights. More importantly, it will give you more control over your finances.  


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About host – Kathy Svetina

Kathy Svetina is a Fractional CFO for growing small businesses with $10M+ in annual revenue.

Clients hire her when they’re unsure about what’s going on in their finances, are stressed out by making financial decisions, or need to structure their finances to keep up with their growth.

She solves their nagging money mysteries and builds a financial structure with a tailored financial strategy. That way they can grow in a financially healthy and sustainable way.

Kathy is based in Chicago, IL and works with clients all over the US.

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