11. What is a Fractional CFO?

This week's episode is a little different. Since I started my business, I found that a lot of business owners don't really know what a fractional CFO, what they do, or that they were even an option for smaller business.

So today, I'm letting you get to know me and giving you an inside look at what I do and how I help businesses. I'll talk about how my 30-year career brought me from supporting $200 million dollar business to helping small business owners make more money.

You'll learn:

• What a fractional CFO is and how one can help in your business
• How to figure out if you might be ready for a fractional CFO
• What it's like to work with me and why I'm not a fit for every business

Mentioned in this episode:

• Book your free financial assessment
• Get my free cash flow guide and learn 10 ways you can improve your cash flow

For the full show notes, including the transcript, go to www.carlamoats.com/podcast/episode11




This episode was produced by The Podcast Teacher.

DISCLAIMER: The information in this podcast is for informational purposes only and does not constitute an accountant-client relationship. While we use reasonable efforts to furnish accurate and up-to-date information, we assume no liability or responsibility for any errors, omissions or regulatory updates.

Transcript

Hello there and welcome back to the Purposeful Profit podcast. I am your host, Carla Moats, and I am a financial whisperer for female business owners that want businesses that they love and they also want to finally find financial freedom. 

So today's episode is going to be a little bit different. This is episode number eleven…I got through my 10th episode last week and all my episodes to date have been pretty much talking about profit, talking about cash flow, explaining why they're important, and doing some education on numbers. My style is pretty direct, no-nonsense, straightforward, not a lot of necessarily chitchat. And I thought I'd do something a little bit different today.

I thought I'd let you get a chance to know me a little bit. So I'm going to give you some background on me today. I'm going to talk a little bit about why I created this podcast, why I'm passionate about working with women business owners and helping them make more profit. At the same time, I'm going to answer probably the number one question that I get when I talk to people about my business, which is what in the world is a fractional CFO? And how do I know if I might need one? Because it's one of the things that I've noticed too when I worked in corporate, everybody kind of knew what a CFO was. And if I work with people who come from a corporate background, they're often familiar with a CFO. But when I work with entrepreneurs that are serial entrepreneurs or came from something other than the corporate space, a lot of them aren't really familiar with who the CFO is. So I'm going to talk about that a little bit today. So this is just kind of going to be a low-key, kind of get to know me session. 

So tell you a little bit about myself…again, I'm Carla Moats, I live outside Chicago. I live in a suburb of Chicago, St. Charles, Illinois. I always tell people that I'm from Chicago because most people, even around the world, they can find Chicago on a map. They can't necessarily find St. Charles. But I live in a little suburb that's about 40 miles west of Chicago. And I've been out here for probably about 20 years now, a little over 20 years. 

 I have spent 30 years in corporate, public accounting and consulting, so I've done a little bit of it all. About half of that I spent in a Fortune 500 company where I held a variety of finance roles. I am an inactive CPA. So what is an inactive CPA is a CPA who passed the exam, in my case, many years ago in 1993, I passed it in Maryland. And I just haven't kept up with all these CPAs. It's pretty expensive. It's typically not required in corporate. So when I moved from Maryland, where I got certified to Illinois, I just never transferred it over. And one of the things about being a CPA is the licensing requirements in each state are different. So you can't become a CPA in Iowa and just move across the border and become a CPA in Illinois. You have to go through all different requirements. And Illinois requirements were quite different than Maryland's. I was already working in corporate by that time. I'd been in my career for about 10 or 15 years. And they required you to go basically back and work underneath a CPA, doing audit work for two years. So I just never bothered to transfer it. But the jist of it is I took the exam a long time ago, and I'm just now inactive. 

So what have I done during my career? I've worked with business owners from Micro Business (less than 20 employees, less than a million dollars), up to seven and eight figures. I was a controller of a product line when I worked at the Fortune 500 company. I managed two P&Ls for a business that had about $200 million in business, and we ran about 70% margins. So again, when you hear me talking about profit, I managed a P&L that made 70% margins. We drove 40% of our division's overall profits. We always had a lot of pressure on us. If we had a bad year, we could really affect the division because we drove 40% of their division's overall profit. You probably heard me talk on podcasts how our margin number, which is your percentage, your profit dollars as a percentage of revenue. That was really our most important metric, because if we hit our revenue number, we still really needed to maintain that margin because we had such a large impact on the business. 

I also managed the invoicing area, so when I talk about needing to have one of my episodes, I talked about the need for structured invoicing and accounts receivable processes. I manage invoicing and accounts receivable operation. I'm trying to think back. I think we processed about, I want to say it's about 20,000 invoices a month, about 15,000 payments. So it was a high volume shop. I did a lot of work there, had a team there. We did a lot of automation projects. I was involved in ERP implementation, so I was involved in implementing Oracle. I've worked on some merger and acquisitions. So again, done a little bit of everything. And like I said, I've also worked in consulting. I worked in public accounting. I did an obligatory stint in public accounting early on in my career. 

And then I've also done a lot of work in consulting. A lot of the consulting I'm doing is I would come in, I would be an interim controller, an interim senior financial executive. Did everything from stepping in to be a controller when somebody left the business or was on maternity leave, to doing financial planning analysis, which is forecasting budgeting. Also worked on a lot of projects. I worked on mergers and acquisitions projects. I worked again on a lot of ERP implementations. So I supported pretty much everybody from your owners, I worked with small business where I was interfacing and I was working directly with the owner, to when I was with a Fortune 500 company, supporting C-level executives. 

Corporate is a great place to get a lot of experience and there were a lot of things I liked about it. But I reached a point in my career where I was tired of the politics and just tired of a lot of the bureaucracy. And one of the things I found since I'm working with smaller business owners, when I worked in a consulting firm, we had some small business owners, we also had some larger companies. And then of course, now in my business I'm working with female business owners and they're typically maxing out at five to 10 million in revenue. 

I much prefer working with small business owners than working in corporate. Like I said, a lot of it is politics. I can work for myself. But I especially love working with driven, visionary, high-energy female business owners. There's like this dichotomy. They're typically high achieving, they're driven, and they've accomplished a tremendous amount. They have these big visions. But they are very often still fearful of their numbers. They have a lot of money mindset, blocks. They don't understand their numbers, they often avoid them. And what I really like doing is empowering them with their money, with their business numbers, and their finances.

Because when I can take my ability to help them understand their numbers, to help them lose their fear of the numbers and quit avoiding them. When I can take that and then they can combine it with their drive and their track record of success and the vision and the dreams they have in their business, there's just huge things they can really accomplish epic things. And I love seeing them go out and go after this next big thing and really accomplish epic things. 

As I started working with small business owners, I really saw this huge gap out there. There was a real lack of access to high-level financial advice. I would often talk to women who were in many cases scared of their bookkeepers, intimidated by their bookkeepers or their accountants or their CPAs. In many cases they had been “mansplained” to, you'll hear me refer to a mansplain-free zone, a judgment-free zone. And they were intimidated, they were afraid to ask questions. They didn't have anyone who could fill in the space between the bookkeeper and the CPA preparing the taxes. 

I'll probably do a future episode where I'll talk about putting together your whole financial team at various stages of your business. But typically one of the first things people will do is they'll hire a bookkeeper. And then they will often hire somebody to prep their taxes. And there was nothing really in between. 

I've had people come to me not too long ago, I actually signed a client who came to me and said, I don't think I'm big enough for you, for CFO level help, I think I need a new bookkeeper. And we got on a free call and we talked about her current situation. And I have a set of questions I ask people where I can real quickly tell, typically if your bookkeeper is part of your problem. And I could tell her bookkeeper wasn't part of her problem. The issue was she had outgrown her bookkeeper. She had questions that her bookkeeper, with a typical bookkeeper skill set, just wasn't able to answer. And so I was able to help her. So there's just this huge gap between the bookkeeper and the CPA. They didn't have anybody who could provide them high-level strategic advice. They didn't have a sounding board who they could throw ideas out and who could ask questions from a financial perspective because they might have a marketing person, they might have a salesperson, they might have an operations person, but very often those people don't really have a financial background, so they're not asking the financial questions.

At the time I was doing some business and financial coaching on the side, often for free, and everyone kept telling me, this is what you need to do, you need to be a business coach, you need to help people with their numbers. And as I was doing this too, I had a couple of entrepreneurs in the high six figures, low seven figures, keep telling me that your zone of genius is really to simplify things, to help me get clarity around my numbers. 

That's really my zone of genius, I think, is really simplifying things and trying to explain things in a way that you'll understand. So if there's something that's podcast that you don't understand, you’re like, oh, that's over my head if you want to shoot me a message. Because again, I have people at the podcast at all different levels listening to me, but if there's something that you don't understand that I can break it down for just about anybody. That's why I'm so passionate, why I tell people to quit saying I'm bad with numbers, because I really believe that I can teach anyone the basics of what they need to do to understand the numbers in their business. And so today I'm really working mostly with business owners, female business owners, at the bottom end, probably around 250K in revenue and up. And I work as a fractional CFO.

There is some commonality in what I do from client to client, but I don't have standard packages. Everything I do is very bespoke, very custom. I'm only working with a handful of clients at a time. And this is one of the things that sets me apart from a lot of your fractional CFOs. I follow a fractional CFO, his name is Michael King, he's kind of like the head guy. He coaches a lot of fractional CFOs, and his model is you start a firm and then you hire all these people under you to be fractional CFOs. And you go out and you do the sales and you bring them in, and you have ten CFO's under you. And if each CFO is billing out at $40 to $60,000 a year, the numbers add up really quickly. Zero desire for that right now in my business, so when people hire me, they are working directly with me. I want to be an extended member of my clients team and again difference too with a bookkeeper aside from skill set is a lot of your bookkeepers and your fractional CFO firms, they will have 50, 60 clients at a time. I don't do that. I'm working with a very select handful of clients at a time. So that's kind of my background.

Some other personal information. I have a daughter. She's going to be a senior in high school. This is being recorded in late July 2023. In a couple of weeks, she is going back for her senior year. I definitely have some mixed feelings about it. She's an only child. I'm a solo mom. It's kind of like starting to see lots of lasts every place I look, but I'm also seeing lots of firsts. So we're knee-deep in the college process and everything. 

I was originally from the Midwest, born in Indiana, but I've spent most of my childhood out on the East Coast, went to Virginia Tech. So if you are out there and you are a fellow hokey - Go Hokeies! So that's a little bit about me. 

Let's talk know one of the questions I always get from people, which, again, when I started my business, I hadn't really anticipated, because in the finance space a fractional CFO, everybody knows what that is. But as I wrote to more and more business owners, what I was finding is often they don't know what it is. And even once they do know what it is, they don't really know how to use them. And so I wanted to just kind of talk to you about what is a fractional CFO. Whether it's me you end up working with or it's somebody else. I think it's good to just understand what they are because I'll also help you distinguish know the bookkeeper and the CPA tax person. 

So what's a CFO? Your CFO in an organization is your high level leader of your financial organization. They oversee all your financial activities and strategies of a business. They work directly with your executive team, with data, so they can make better decisions. They are typically not the person that's in doing your accounting which is why you'll hear me talk about I don't really do bookkeeping I have a person that I refer my bookkeeping work to if you need a bookkeeper, but your CFO is a little bit higher level. They may be reviewing and approving. I'll review, I approve financial statements depending on the client. If there's journal entries that need to be made, I might be reviewing and approving those. But they are really there as a strategic guide for you. And a full time private company CFO is probably going to run you. About $200,000 is very low end. Public CFOs are much more expensive, they can be in the millions of dollars. But a private company CFO is probably 200K at the very low end. And that could differ a little bit depending on where you live in your market. Businesses below 25 million don't truly need a full time CFO? But like I said, I've seen this gap in the market where they do need more than their bookkeeper or more than just tax strategy. Okay. 

And so your fractional CFO is basically a part time CFO. Now, the one thing I will say is CFO Services really runs the gamut. To me in the way I talk about it, CFO Services for me is really a catch all for anything that's above and beyond your bookkeeper, that fills the gap between your bookkeeper and your tax preparer. 

You're getting a fraction of their hours. How much depends on what you need. So I have one client right now that I'm meeting with just once a month to help her understand her financials. I have another one that I'm spending several hours a week on as we're doing some cleanup. I also do some coaching. I have some clients where I'm meeting with them once a week and we're doing some financial coaching. 

But I think the thing that you really want to understand is your CFO is really meant to be an embedded part of your team. And I think especially in the fractional space, a fractional CFO I feel like is a little more hands on than, say, a corporate CFO because, yes, I want to play a leadership role in your business. But I'm also a doer, so I'm also going to get my hands dirty and get my hands in the weeds. And I would say the same thing. If a CFO in a small business, even a $25 million business, they're going to be more hands on than a CFO of a $250,000,000 business. 

Fractional CFOs come with different specialties and philosophies. I've talked about the ones where they're basically scaling up this big firm. I am definitely a boutique concierge type firm. I specialize in women-owned businesses. Some of my clients will have a spouse that's in business with them, but they are an integral part of their team. I'm working with business owners who are not seeking outside funding. So I don't work with people who are looking for private equity, angel investor, Shark Tank type businesses. There are CFOs that specialize in that. And if that is you and you want a referral, feel free to let me know, I don't have background rolling private equity and investors. So I'm not going to get into something that's really not my jam. 

My clients are always ready to pursue growth. They have a big vision, some kind of dream for their business. They need some financial guidance. They might have dreams for things they want to do in their business, but they know deep down in their gut that their finances aren't going to get them there. And so that's what they want is they want some financial guidance. Sometimes they're working towards being able to sell down the road, which could be in three years, it could be in 15 years. 

A couple of things that probably mark most of the people that I work with is they want help improving cash flow and profitability. If you listen to my first ten episodes, you've heard me talk about cash flow and profitability all the time. Those are my two big things because I have some background in the process area, and I think it was last week's episode, I talked about how when you don't have good processes, it shows up in your cash flow and profitability. So because I have a lot of process background, that also helps me improve their cash flow and profitability. So I'm not just providing them reports. 

And again, I said there's different philosophies for CFOs. There are CFOs out there that really focus more on just reporting. I'm more in the weeds in terms of helping you figure out your processes. Again, it varies very much from client to client.

 So what's a fractional CFO do. I'm just going to give some highlights of some of the major buckets of things that we do. And as I list these things, I'm obviously not going to do these for every single client. So what we do for each client really depends on what your needs are, but just some of the major buckets… obviously financial reporting and analysis. Every client I have at a baseline minimum, we're doing monthly financial review meetings. I'm reviewing your financial statements, I'm helping you understand them, providing you with some commentary. For most of my clients, we're also going to do this on a quarterly basis, which gets a little bit deeper. I'm going to help you understand your backward-looking numbers. 

If you are using Accrual Accounting, I'm probably involved in working with your bookkeeper to make sure that your entries are actually being done correctly. I'm often reviewing the bookkeeper's work again, especially if it's Accrual Accounting, because unless you're working with a bookkeeper who is a part of an accounting firm, your typical freelance bookkeeper does not have a lot of accounting background. Some of them do because it's unregulated field, but a lot of them don't. And so sometimes I'm reviewing your bookkeeper's work. I'm creating custom reports, dashboards, KPIs. I'm helping you get better reporting. Okay, so that's category one. 

Then you have financial planning and budgeting. I'm helping you develop your annual budgets. We're doing monthly and quarterly forecasts, financial forecasts, cash flow forecasting. That's typically the first thing I'll advise clients to do. If they don't have any type of budgeting and forecasting, the first thing I'll ask them to do is let's do a cash flow forecast and let's put in place an annual budget.

I help you set financial goals. I've talked before about how I really believe in all business owners having a revenue and a profit goal. Next thing I'll work on is cost management. This is where I'm getting into the weeds. I'm going to review your cost structure. I'm going to identify areas where costs can be optimized through better terms, through efficiencies, through automations.

I'm getting sure that your subscription recurring fees are getting reviewed periodically and you don't lose sight of what you're actually paying for. 

Another category I'll help in is profitability improvement. I'll help you understand your profitability by customer or product. Your typical financial statements are really just the starting point for your reporting. It's really important you understand your profitability by customer, by product. 

I'll look at your pricing. We'll look at different business models. We'll identify opportunities to improve margins. Similarly, I'll work with you on cash flow management. I'll give you some guidance to manage your cash flow. We'll do cash flow forecasting. I'll help you negotiate better terms with your vendors or clients. Okay. I'll develop a cash management plan. If you happen to be somebody who's flushed with cash, we'll look and make sure we don't have $100,000 sitting in a non-interest-bearing checking account. 

I am a strategic partner. This is a big part of it is I'm really collaborating with you and your team on strategy. I'm helping you scale in a financially viable manner. I'm helping you make data-driven decisions. I'm helping you just being there as a strategic sounding board. And then I am working with you on financial processes. Again, I've got a lot of process background, a lot of process improvement background. I'm looking at your financial processes. When I do onboarding for a maintenance client, I'm always doing a detailed review of your financial processes and give you some advice on internal controls and potentially helping you develop SOPs and policies.

I'm interfacing with your tax advisors. I don't prepare taxes myself. What I tell people about taxes is I probably know more than you do, but it's not my specialty. I have a lot of contact sales. So I might help you source a strategic tax advisor and compliance services. All my work includes an annual meeting with your tax team. Because we are interacting closely with your tax team. You get your taxes done at the end of the year and then I'm also playing a role with your staff development, and mentoring. Sometimes I'm overseeing your internal or external accounting team. I might be helping you design your finance organization, source members of your finance team. I'm there to mentor. If you have an internal bookkeeper, they have accounting questions I can be there for that - doesn't really matter if they're internal or external.

And then lastly, business growth strategies. Yes, I focus on profit and cash flow, but I'm also focusing on your top line number. I'm helping you explore and evaluate new opportunities. I'll help position you for sale. I will help you analyze business models, pricing. We'll identify potentially new products, new revenue streams. So I want to help you grow. Part of helping you grow your profit is also helping you grow that top-line number. 

So then the question is, how do I know I need one? So here's some things that might tell you you're ready for a fractional CFO. You're outgrowing your bookkeeper. You're asking questions that they can't answer. You're getting pulled into financial minutiae. If you have a lot of invoicing and accounts receivable, this can really come into play. Where you're being pulled into financial minutiae that's keeping you out of your zone of genius. Maybe you're ready to scale. You want to do it in a financially viable way. I've touched on this in other podcasts. I need to do a future episode just on the whole idea of scaling and what scaling really means, and being able to do it in a financially viable way.

You're ready to look forward and not just backwards. So forward is budgets forecasting. You think your finances are a hot mess and you don't even know where to start. I would say 90% of my clients come to me now today, because they know their finances are a mess. They don't have any idea where to start. Something has happened to get them to where they want to take the bull by the horn. You're having cash flow issues, you're having profit issues. You don't know where your money went. And then you just want high-level finance and strategy advice and a sounding board.

So at this point, I'll talk to people and these are the things I hear from prospects all the time, or people that aren't even yet prospects, just people, a cocktail party or anything. They think “my finances are a hot mess. I'm embarrassed for someone to see my dirty laundry.” I hear that all the time. People tell me all the time, I can't believe I'm pulling back the curtains on my dirty laundry. They think they should be able to do this alone. I think this is particularly with women, we tend to think that we should have to do all this alone. They think their finances should be in better shape. My clients are typically high achievers. They're used to success, so they feel a little bit of embarrassment. They feel like their finances should be in better shape. And I tell them all the time, finances aren’t your zone of genius. And sometimes I'll think they're not big enough for CFO services.

When I hear those things, what I always tell people is, first, I'm a judgment free zone. I can tell you now there's nothing that you're going to present to me that I haven't already seen in my 30 plus years. So there's nothing you're going to show me where I'm going to be shocked. And I want you to spend your time in your zone of genius. I'll talk in a future episode about The Big Leap and the whole zone of genius and what that's done for me and my business. What I really enjoy doing is freeing you up to focus on your zone of genius, to go out and just do epic things. And big-time CEOs have a team. There is no big-time CEO out there who doesn't have a financial person at the right-hand side. Okay? So you do not need to do it alone. 

All right, so just trying to dispel some of those things because I think there's a lot of people that hold themselves back from getting that extra help because of all these thoughts that are running through their head.

What it's like to work with me? I work with clients on both projects and ongoing services. Projects have a start and end date. Cleanup is an example. Sometimes people will just need me want me to come in, and they just want to do a slide up while they want to create a budget. Their finances are a mess, they want to get them cleaned up. A lot of my clients will start as project clients and then become an ongoing client. Everything I do is bespoke, I mentioned that.

My smallest client, revenue wise right now is at about 250 - 300K. I've had clients this year up to about $20 million in revenue. Like I said, you're working directly with me. Over time, I'm going to have a virtual assistant, somebody who's probably going to do some of the initial legwork, but you're always working directly with me. And the first step is we do a financial health assessment. 

If any of this resonates with you, if you feel like you'd just like to have a discussion, explore it more, I really invite you to go to www.carlamoats.com/workwithme, and I do a financial health assessment. So I basically take you through our process to help you assess your financial health. I'll ask you some questions, but really I want you to help self-diagnose as part of empowering you, and we're going to also talk about your goals and objectives. And not everyone is a fit. I told you earlier, I don't do people who are looking for private equity or are Shark Tank type people. Not everyone is a fit, and I will tell you if you're not. I've had clients where I've met with them, and you're not ready. You're not ready for a CFO or you're just not the right fit for me. And if you're not, I will tell you. 

If I think I can help you and it's something you're interested in, we'll talk about what that would look like. I often present a couple of different options. I've said again, all my work’s bespoke, I'm really committed to making the higher-level financial help accessible to people at all different revenue levels with all different kinds of budgets. So often I'll present you a couple of different options, and if we're not a fit again, you will walk out of that meeting knowing what you need to do to improve your financial health. So if you go through the whole call and you're like, it just doesn't feel like a fit, or I don't think I'm ready, no worries. It's very low-key. And you'll walk out and you will know some things that you can do to improve your financial health. 

If this does sound like something you're ready for, if you're sitting around saying, I think I've got questions for my bookkeeper that they can't answer, I feel like maybe I've outgrown them or I've got some plans for my business, and I'm just not sure financially how I'll make them happen. Or I know I'm leaving money on the table, or I know my finances are a hot mess. I really encourage you to go to www.carlamoatss.com/workwithme and you can go there and you can book a free financial assessment and we can start to have a discussion. This is just the beginning of the conversation, and I love talking to entrepreneurs about their businesses. It's something I really enjoy doing. 

So I hope today's episode has helped you understand what a fractional CFO is. It's let you get to know me a little bit. Hope you feel like you get to know me a little bit better. I love talking to my followers. If you have a question or you just want to say hi, please drop me an email at carla@carlamoats.com. I really want to be accessible to female business owners. I've got an opening for project work in September. Again, I take a limited number of clients, so not every time somebody comes to me do I have an opening. But I've got an opening for some project work in September, and I have one opening also for ongoing work. And so if you think you might be a fit I would love to work with you. All right, and then I will see you next week.