Fractional CFO 

Is it time to engage the services of a fractional CFO, a chief Financial officer?

How are you supposed to know? What can they bring to the party that’s different from a CPA or a bookkeeper that you’re currently working with?

Those are a few of the questions we’ll explore with today’s guest, finance expert John Hannum.

What You’ll Discover About a Fractional CFO:

* How a fractional CFO differs from a bookkeeper and a CPA

* Whether a startup should consider consulting with a fractional CFO

* The value a fractional CFO can bring to a small business

* What factors to look for when hiring a fractional CFO

* And much more.

Guest: John Hannum 

John is the founder and CEO of PPS Solutions PC, a firm that provides Fractional CFO services and full-service accounting and finance to growing businesses.

With a 25+ year background in corporate finance and as CFO of companies with phenomenal growth trajectories, he now focuses on bringing the Financial Firepower commonly employed by large successful companies to the smaller, growing businesses that need it most.

Related Resources:

If you liked this interview, you might also enjoy our other Finance episodes.

Contact John and connect with him on LinkedIn, his company LinkedIn profile, and on YouTube.

Also visit his business website.

_____

How to Boost Efficiency and Profits with Fractional CFO Services

Is it time to engage the services of a fractional CFO, a chief Financial officer? How are you supposed to know? What can they bring to the party that’s different from a CPA or a bookkeeper that you’re currently working with? Those are a few of the questions we’ll explore with today’s guest. Stay tuned.

This is Business Confidential Now with Hanna Hasl-Kelchner helping you see business issues hiding in plain view that matter to your bottom line.

Welcome to Business Confidential Now, the podcast for smart executives, managers and entrepreneurs looking to improve business performance and their bottom line.

I’m your host, Hanna Hasl-Kelchner, and I’ve got another powerful guest for you today. He’s John Hannum. John focuses on bringing the financial firepower commonly employed by large, successful companies to smaller businesses that are growing and in his opinion, need it the most.

He’s the founder and CEO of PPS solutions PC, where he puts his twenty-five plus year background in corporate finance and as a CFO of companies with phenomenal growth trajectories to use in providing fractional CFO services and full service accounting and financing to small businesses.

Yes folks, we got a live one and I am delighted to have him join us today. Welcome to Business Confidential Now John.

Thank you so much for having me, Hanna. It’s a pleasure to be here.

Pleasure to have you. Let’s talk about fractional CFOs. I know this is your topic. And what is it about a fractional CFO? What do they do? How is it different from an accountant and a bookkeeper? Help us out. Well, we need to have a good baseline understanding of what it is and why it’s different before we can figure out how we need it.

Perfect question to start, it is different than your CPA, and it is. Most businesses don’t quite understand that. So most of what I do is actually educating even people, even clients that we work with on a daily basis, kind of educating them on how they should interact with us and employ us and what our skill set is.

So to start with, a CFO is really in the boardroom, in the business, in the C-suite, kind of however you want to say that in your business, that person’s engaged in your business at the high level, and it’s engaged on a daily, weekly, or monthly basis. So they’re actually involved in your operational decisions, helping you from a financial perspective.

They’re bringing that finance hat, that finance perspective to the executive table, quite a bit different in the relationship that you would have with your normal CPA, who you would call in and kind of advice of a situation or talk about a specific thing that you need help with mostly, usually your tax return or something to do with a big government type of, of interaction. The CFO is embedded in the company every day in a traditional, larger company, they’re dealing with overseeing accounting.

They’re not doing the entries. You’re not sitting at a desk and touching the accounting usually, but they’re making sure that the accounting is good and they are doing financial planning and analysis. So preparing the budget, reviewing the budget, bringing that budget to the rest of the organization, working to make sure that that we know what the organization is going to expect to do. So from a fractional perspective, we do the same things.

We should be the CFO. We just don’t do it for one company. So we need to help with the accounting. We need to help with the decisions and be involved with the management on a daily, weekly, or monthly basis. And we need to be preparing and executing that budget on a monthly basis.

Well, that’s a whole lot. And I’m just wondering at what stage of a business’s development is it appropriate to have that level of participation? You’re talking about daily, weekly, monthly, even if it’s just done fractionally, where there’s a phone call once a week or a meeting once a week with a fractional CFO, it still seems like it’s requiring a pretty sophisticated level of business growth or existence, shall we say, not necessarily a startup.

Or maybe I’m wrong. I mean, is a fractional CFO something a startup should consider consulting with?

Certainly, a startup, depending on how that startup is capitalized and that startup, what that startup intends to do when it starts itself up. A CFO is almost required in some of those cases. If you’ve got a highly capitalized company, then that startup or, if you really need to have some regulatory filings, there really should be somebody doing that strategy from the very beginning. I think the size of slice of a CFO that that most companies need is fairly small.

When they when they start out, though, your CPA might fill in that that gap and be able to provide you with the information that you would need to set up your chart of accounts or do your first budget, that type of thing. Put the plan behind a business plan to get the SBA done. But my belief is that you should have that CFO in there.

Now, when I say daily, weekly, and monthly in a large company you’re walking into the CFO’s office in the plant or in the in the headquarters all the time. There’s somebody in there all the time. We’re always doing something in a small company, you’re actually operating the company and, and doing stuff out in the field all the time.

So  the number of times you would need to contact your CFO are probably a lot less is maybe not daily, weekly, monthly, but definitely at least monthly where you’re involving them in good decisions. You know why I say that is really just the engagement. So when you have a financial question, when you want to look at your at your numbers and your budget and think about strategy with numbers, that’s when you should call your CFO.

So smaller company needs a little slice of CFO, maybe that looks like a monthly call. And reviewing your goals and your strategy. Maybe that looks like biweekly calls. Maybe as we engage more, it’s attending the Tuesday morning staff meeting or  being in the office one day a week, it could look like just about anything. But as your company grows, you should employ a little bit more CFO along the way.

The best thing that we could do, our success in a fractional CFO role, literally would mean we work ourselves out of a job, because you’re able to hire a full time CFO and give that person the compensation package that they deserve.

Are there certain types of industries or types of businesses that might need a fractional CFO sooner than others? I mean, I’m thinking we might have entrepreneurs here who have a coffee shop or maybe a series, a number of coffee shops throughout a community as compared to someone who is developing an app or something in the tech field, or maybe biomedical field. Any thoughts on that?

In general, the coffee shop would be kind of a small business, right? Your CPA is probably well positioned to give you information that can help you. You may  want to engage a consultant slash fractional CFO to help with some initial financing or some SBA paperwork, you know, something to start the business but probably don’t need to have your fractional CFO if you have one on a weekly staff call just to figure out what’s going on in the coffee shop where I focus is in business growth.

If you have one coffee shop, but you want to take the profits of that and start investing in number two, three, four, make a plan for distribution and a roasting plan and other activities of a coffee empire. Then you should have a CFO in there from the very beginning, and you’re probably going to need to allocate some resources to that, to that activity, to that person and make sure that they’re embedded in the management.

Certainly if you’re talking about something that isn’t retail based or a small business, that could be very large quickly, like startups and the app space or SaaS software as a service. You know, anything technical like that, you may be actually raising capital as well, so you’ll want to have a CFO on board that gives your company legitimacy, knows all those regulatory filings, especially with the crowdfunding and the Reg CF and all of the things that go with that. It would be terrible to kind of do that alone.

Most CPAs again, don’t do that. There are some that do. A consultant or a fractional CFO would probably be the appropriate place to go there. It’s really not the size of the business or the type of the business so much as it is what the business wants to do with itself. That would drive the need for a fractional CFO.

All right. Well, let’s focus in on those factors a little bit. If it’s not so much the size, but more like where they want to go. And I can certainly understand when you’re talking about third party funding, needing that expertise to help sort of put a seal of approval on the forecasts and cash flow analysis and things like that is important as compared to somebody who’s maybe bootstrapping it themselves, where, okay, it doesn’t work out. It doesn’t work out.

They’re not having to be accountable to somebody else who says, hey, what are you doing with my money? That kind of thing.

But let’s talk about this idea of where a business wants to go, because I’m sure there’s some listeners out there who are saying, yes, I do have growth plans. Maybe they want to take their business model and franchise it, or maybe they just want to go from local to statewide, or maybe national or maybe international, but they’ve got some big plans or big ideas that they’d like to be able to execute. Help us understand how a fractional CFO can help with that growth process.

Sure. That’s the point of us. It’s our role to build the finance behind whatever that dream is. There’s a business plan and you’re going to need a business plan to get money from a bank to do all kinds of things. I think it’s a great exercise to go through to actually write a business plan, because it goes it makes you do this exercise where you’re going to think about what you want to do, describe it to somebody else, write it down on a piece of paper, and then explain it in a way that somebody else says, yes, that’s a great idea.

Behind that business plan is actually a spreadsheet or a set of numbers that that explain the finances of that. How much is it going to cost? What’s going to go into it? What do we expect to come out of it? And that’s really where the CFO adds some tremendous value. I mean, if you want to do something, whatever that something is, you have to know what it’s going to cost. How many people do you need to do it? What’s your assumption on what kind of revenue is going to come in if you do a what does B look like?

All of that’s fairly complicated from a finance perspective. So what a CFO does is takes that vision and puts it into numbers and says, are you sure that if we hire one salesperson here, you can get $1 million worth of sales here? Are you sure that  if we put this plant somewhere that we can produce X, Y, and Z and we make the spreadsheet behind that, that spreadsheet becomes the basis for the business we sell the idea of it based on the spreadsheet.

We make it into a budget and mark our performance against that. If we expected to do X and sales and X and expenses for some income, did we do that? If we did, how did we do it? Did we do it? Well, let’s do more of that. If we didn’t do it, if we didn’t make the mark, we have to understand why we didn’t make the mark and reforecast so that we know what the business is going to do tomorrow.

Based on this updated idea of what we did today. So the role of the CFO throughout that process is really key. And how like you could employ a full timer. It’s very easy to go into the weeds in an effort like that, but a CFO should be able to do those types of strategic activities in fairly short amount of time and still be able to service a fractional client with their expertise through that process at a fractional rate, rather than wasting all of their time doing the grunt work in it? That makes sense.

Yeah, makes perfect sense. You’re hiring the expertise and the experience, especially the experience. So would it be fair to say that a fractional CFO can boost the efficiency and profits of a company?

It is our mission. Part of what PPS solutions specifically. Our mission states is that we help entrepreneurs achieve their vision of success. So, I don’t know many entrepreneurs that whose vision of success doesn’t, doesn’t involve more profit. So, you know, kind of inherently, most of the time, we are looking for ways to make the company more profitable rather than less or rather than anything.

But really, there may be some nuances there too. We might be working with a company that that wants to make more profit, because they want to treat their people very specifically fairly, or they want to give back to a cause or do something differently. They want to create a sustainable process, which isn’t necessarily the cheapest process. So we’re very keen on understanding what the mission of the company is and the vision of success. And then we help create a plan to do that.

Most of the time you have to do that by being efficient and more profitable. So our mission very much is tied to profitability, and we don’t necessarily have a magic spigot for profit. What we do is actually work with the company to understand the levers of profitability. And you’ve had some people on your show previously that have talked about those levers, which was very insightful.

We work with the with the entrepreneurs to understand those levers and to execute them in a daily basis. When you pull a lever of profitability, did it do what you wanted it to do? Oh, it did or didn’t it do more of the good thing, do less of the bad thing, and continually hone your business over time.

So you’re like the financial coach here and having the numbers to back it up.

The CFO is a financial coach and not another rah-rah coach, not somebody who says you can do it, but somebody that really says, how did the play go? Everybody always uses football metaphor. So we make the X’s and O’s on the, on the chalkboard afterwards and say, how did we do that? Did we do well or not? How do we do it differently in the future? A CFO never has the magic.

I’ve seen things done a thousand different ways at different companies and a thousand different ways of successfully doing something. There’s no magic template. You can certainly use your experience. Sometimes works. And that I know doesn’t, but it’s really a collaboration that coaching, collaboration of the entrepreneur, the CFO, probably some marketing people and some other disciplines in addition to finance as well, that make the magic of business success. We just bring the finance for that.

That all sounds great, John. I appreciate that perspective. And I’m sure some of our listeners do and some are saying, yes, but a CFO, even a fractional CFO sounds like an expensive proposition, even if it’s just a small piece. That’s something for the big times, for the big boys. How are fractional CFO services priced? Are there fixed fees? Is it’s done hourly. Is it a monthly retainer? I don’t need specific numbers, but I just like to give listeners an idea of what to expect in terms of a pricing model.

Sure. Well, it’s a little bit like asking what flavors of ice cream are there? There’s really there are firms out there that do things in a lot of different ways. So I’ll kind of explain what we do and also some of the other firm models that your listeners might see in the world and how to differentiate or how to decide what’s right for them.

You mentioned an hourly model. Some people work on that. I consider that a consulting model. And you can get somebody for a very limited number of hours and allow them to do specifically what you ask them to do. The bad thing is that they have to allocate those hours over to you and work for you. Those hours, if they didn’t accomplish the thing that they needed to do during that time, it might stretch out into longer or you didn’t get it done.

And so the bill either changes or it didn’t, uh, didn’t happen to me that that feels like a consulting model in additionally, because it might mean that they’re telling people to do things and then going away from that process, it’s also right for reduction. So if I’m paying you for 20 hours a month, for example, and I need to reduce expenses, I can just start cutting that to ten. And we’re not getting the same, the same efficiency or effectiveness.

And to me it’s something great for a consultant, but not necessarily for a fractional CFO. There’s also kind of the one day a week model, where it’s kind of the part time CFO model that I would say launched our industry. You took a CFO and they went to a different place every day.

And you can have five clients because there are five days of the week and maybe a little bit more than that. If you’re super, one works an extra hours, but one day a week and you pay one fifth basically of, of the salary to that expected salary to that person. It’s nice because you get that whole day of interaction you get one fifth.

I think the drawbacks of that are on the days that they’re not there, they’re somewhere else and doing something else where they’re not accessible to you. So if you have your Monday CFO and you need to ask a question on Friday, that that to me is an issue or a difficulty. Also, I know for myself when I’m when I’m in client for a whole day, you’re not actually doing all of the work that for that client that day you might be spending some time doing other things and really not being effective for all of the all of the day. So you still have to spend those number of hours and there might be some, some inefficiency there.

PPS Solutions works on a subscription model, which I do like better. When I first started the company, we were in a consulting model. And I kind of pivoted away from that into the subscription model. So for a flat fee every month, based on the kind of services that you need, the size of your business, etc..

We’ll put together a proposal that will kind of be in that three level, a bargain to the Cadillac version, of a CFO and you’ll have access to that person throughout the month, throughout the throughout the year, throughout the weekday, week, month. So you might have 1 or 2 meetings on the calendar to talk about financials goals as they close the books.

We need to review the financials every single month, because it’s super important that you stay involved in the financial health of your business, regardless of what’s going on. We have to have that meeting and need for the owners entrepreneurs to be engaged in that meeting. You  might not need that person for a whole lot of time in between, right?

That person is still doing things like making sure that your business is keeping up with all of its accounting, making sure that you’re still registered in the right states and doing all the compliance stuff, maybe doing schedules or analysis to keep the budget up to date, but you’re not actually dealing with them every day.

They’re still doing all those CFO tasks for you on a monthly basis, but you also have access to them. So if you do need a question on a Friday and they traditionally even work on your engagement, even if they’re not in your office on Monday, you can still call them, ping them, have that interaction, and say, oh, I need to make this decision today. So can you help me with that?

To me, it’s a way for small businesses to have the appearance of a CFO. You know, a lot of times we actually use the email addresses for client side. So our CFOs might have the client side emails and just literally their signature block, says CFO of XYZ company. So for a flat fee of just a few thousand dollars a month, at the bottom of that level, you can really have a decent access to a CFO. Uh, start getting too needy with it. We might have an issue. And you’re taking up time from the other few companies that that that CFO is servicing.

But I really like the subscription model. So that’s where I tend to devote most of my energy.

Well, thank you for that overview. I think that especially pointing out the pluses and the minuses of each depends what people are comfortable with and what they’re looking for. So it’s good to know that there are these different options out there when trying to find a fractional CFO if you’re ready to go that route.

Which brings me to my last set of questions about how do you go finding somebody? I know you’re good, John, but maybe not everybody can access you. How do they go about finding a good fractional CFO? Where do they look and what questions should they be asking in order to identify the best person to work with? Because I’m sure there are people out there as they are in every profession.

Oh yes, I’m great. I can do XYZ for you, and you find out that they’re full of hot air and they’re really not qualified. They really don’t have the expertise. What would I need to ask in an interview with them to determine whether it’s a good fit or not.

It’s a great question. And just like everything fractional, I would say if you remove the fractional from it, you can answer the question by just saying, how would I normally hire a CFO? Where would I go? Right. You can start searching for fractional CFO. And there are a bunch of firms out there. By all accounts, national census right now is about 11,000 firms, most of them CPAs that have added the fractional CFO service on.

There’s a lot of people in the space, not nearly enough to service all the businesses that need them. It’s still a fledgling industry. But you can actually Google it now. Nobody does it, but you can Google fractional CFO and actually get somebody from that search.

I would say the number one thing to look for, and this is going to be counterintuitive, because you’re going to want to think of industry, knowledge, and experience. Those things are important. But the number one thing is cultural fit and personality. So you have to like your CFO. If you don’t like talking to your CFO, you’re not going to talk to the CFO. And if you don’t talk to the CFO, you’re not going to be successful. So, you know, point blank, you have got to like the person.

You have to really engage with the person that you’re that’s going to be in your in your business. So they really are in your business. I would say industry experience right below that. If you’re in the construction industry, I probably wouldn’t try and find somebody in healthcare, aerospace, something else. Look, for somebody that has the industry experience, their firm resume is going to clearly state what their CFO experience is.

The CFOs have experience in these industries, and that’s what they should support. Most of the CFOs that I know only support industries that they have direct CFO experience in some of the CPAs, because they touch a large number of businesses, do work in all general business.

My personal belief is that industry experience and being in the CFO chair within that industry is key. And then the hardest part of hiring the CFO is to determine if they’re technically competent. I would say a couple of things about that. One, if they have CFO experience of more than a few years, they are probably technically competent because they’ve lasted in that environment and it is a high pressure environment.

Number two, there are ways that that you can test that. So there are some skill set tests available online. You can talk with the recruiter. If you work with a recruiter, you can talk to that recruiter about what type of test to use and that and just basically get some type of certification from them that they that they understand your industry. There are a lot of buzz word people out there.

When I interview, I’ve developed the ability to kind of dig beyond the buzzwords, but everybody uses twenty-five buzzwords and can kind of get through that. And that’s a danger when you’re an entrepreneur and don’t know what those buzzwords are. That sounds great, but in the end, they’re not going to be useful. So I would say employing a skill set test as necessary, available online would, would be useful in that regard.

Very good. I understand what you’re saying about the entrepreneur and that’s exactly why I wanted to have your view on that, because you get bombarded by so many emails about, oh, we can do your software, we can do this, we can do that. And it’s like, yeah, great. Well, how do I know if you’re any good?

And then sometimes you do try some people out and you’re so disappointed and it’s like, yeah, you overpromised and under-delivered and it just wastes my time. So I appreciate these insights that you’ve provided. You’ve certainly helped our ability to make more informed decisions about hiring a fractional CFO, and I thank you for that.

I probably missed one, if you don’t mind.

Sure.

Because it’s kind of the most important hiring. Evaluating somebody that that you don’t know, personal recommendation is key, right? Who are the other successful people in your business and who do they interact with? Most of my business, probably 92% of the business just off the top of my head that we’ve achieved in the last four years has come through recommendation. Nobody is googling and calling fractional CFO.

I started to do some podcast business now since I’ve been out educating people on, on our existence. So that’s great. But 92% of the, of the people roughly have come through some type of, of referral that says, here’s what you need and here’s a person I recommend doing it. So, ask people that you know in your network, hey, I need some finance help. I need a CFO. Who do you know? And they may surprise you and know somebody. And I’ll always take a personal recommendation from somebody I trust versus somebody off the internet.

Very good. That is an excellent point and I’m glad you brought that up. I appreciate your time and the insights you’ve provided about how a fractional CFO can boost a company’s financial efficiency and profits and help them get to where they want to go.

If you’re listening and you’d like to know more about John Hannum and his firm PPS Solutions PC, that information, as well as a transcript of this interview, can be found in the show notes at BusinessConfidentialRadio.com.

Thank you so much for listening. Be sure to tell your friends about the show and leave a positive review. We’ll be back next week with another information packed episode of Business Confidential Now. So until then, have a great day and an even better, more profitable tomorrow.

Join, Rate and Review:

Rating and reviewing the show helps us grow our audience and allows us to bring you more of the rich information you need to succeed from our high powered guests. Leave a review at Lovethepodcast.com/BusinessConfidential.

Joining the Business Confidential Now family is easy and lets you have instant access to the latest tactics, strategies and tips to make your business more successful.

Follow on your favorite podcast app here as well as on Facebook, YouTube, and LinkedIn.

Download ♥ Follow ♥ Listen ♥ Learn ♥ Share ♥ Review ♥ Comment ♥ Enjoy

Disclosure:

This post may contain links to products to products on Amazon.com with which I have an affiliate relationship. I may receive commissions or bonuses from your actions on such links, AT NO ADDITIONAL COST TO YOU.