Q&A with a CFO
I did a short presentation to a local networking group I’m part of to explain what I do. At the end I had folks write questions on post-its and I answered as many as I could in the time I had and then followed up with an email. These were such great questions and things that come up a lot, I thought - “hey this would make a great blog post” and here we are!
Enjoy…
Walk us through typical topics in a strategy session?
Strategy sessions are meant to cover 1, maybe 2 topics and have the client walk away with actionable next steps.
The two most recent strategy sessions have been 1) a deep dive into the financial health of a trade business to understand what caused a dip in net income from 2023 to 2024 and 2) working through payment processing issues
Other strategy sessions have included:
Reviewing forecasts before they get sent to a bank for financing
Pricing
Building a basic budget
Understanding cash flow
Validating a business model
Strategizing new payment terms and policies
Should I hire (W2) or outsource (1099 or agency) support?
It all depends on what you need! (the worst answer that you never wanted)
Hire a W2 when:
You need a full-time person in that role or that employee won’t have another source of income
The role requires specific hours
You’re going to dictate the processes & procedures they follow to complete tasks
You require loyalty to scale
You’ve had someone in a 1099 roll for more than 3 years (typically most states will flag a 1099 after 3 years and you need to convert them to avoid risk)
Hire an expert when: (for this circumstance, I’m mostly speaking to agency support, not 1099)
You need a C-suite level exec when you don’t need someone full time (i.e. Fractional CFO, Fractional CMO, etc..)
You have a specific task that can be outsourced by a firm (i.e. Executive Assistant, SEO, Google ads)
You’re still figuring out what works for your business and need flexibility
Hire an hourly 1099 when:
You’re learning what you need and know you don’t need full time support
You don’t need FULL expertise, but you also don’t need to dictate how / when they get the job done
The function your filling is less than 20 hrs a week (there’s not hard and fast rule that you should move up to expert or W2 after this, but I typically see this as an indicator you can consider something more permanent)
You only need this role for a short period of time
Things to keep in mind:
States & Cities vary in regulations around W2 vs 1099 - so be mindful of where you’re business and your support is located.
W2 employees provide a lot more loyalty than 1099s
W2 are almost always cheaper in the long run on a purely hourly comparison basis, but 1099’s provide flexibility.
There is NO truly wrong answer other than compliance issues that you can run up against (again - consult state and local regulations!)
What are the 3 most common mistakes you see with small business owners?
Not having cash reserves - especially for taxes. Savings for taxes from your owners draws is the easiest business mistake to fix and yet it’s so common. After taxes, you still need to save for future business investments (think $10K in marketing) and have some “OH SHIT” money for when things go bad - because they will, and when you’re prepared things are less bad.
Wasting money on marketing & sales strategies that aren’t working. In general (consult your local expert) things like Facebook/google/Instagram ads should show some results in 3 months - if they don't - cut the cost! And things like SEO can take 6-12 months to see results. Once you know this you can make better decisions. Don't just open Instagram because you think you have to - know why you need to (not everyone does!)
Not taking care of themselves financially. I’ve been there too and I've seen so many owners that put ALL their time and energy into a business that isn’t working or that could be doing so much better. Owners that don’t take care of themselves financially are in a much higher risk of burnout and making poor decisions than those that take great care of themselves and are mindful of paying themselves well!
What are some tactical strategies for automating monthly financial / accounting etc. while maintaining the quality and specificity needed?
This isn’t exactly automation, but keep a monthly meeting on your calendar to review your financials from the prior month. And don’t skip it! The biggest mistakes I see are made by business owners that choose not to pay attention. It’s a quick fix, and yes, you have time for it, you do NOT have time to skip it.
Get a GOOD bookkeeper. Not all bookkeepers are of equal talent and energy. Make sure you have a good one that sends you reports, gives you access to your accounting software and that is available when you have questions.
Set some basic KPIs (Key Performance Indicators) that help you know things are working. Some basic finance KPI’s are: Gross Revenue, Net income, Net income $, Owner Pay, Revenue by customer
Do you consider AI a threat to your industry?
Ha! Not a chance! Finance is nuanced and requires a high level of creativity. AI (as we know it now) can only give you answers it already knows. A GOOD CFO is going to give you advice that can’t be pre-programmed in a computer. There are too many human variables in running a business that an AI tool can’t solve. For example, what do you do when you have a client who is overpaying all their staff, but unwilling to not completely take care of all their staff? AI can’t fix that because it doesn’t have empathy or creativity.
With that said- it will impact all of finance & accounting - maybe eventually for the better but it will be messy for a while. Data entry sounds good with AI, but even now the QuickBooks “AI” can’t match expenses property for some APIs so I think it will be a hot mess before it makes a positive impact. And it will take a while before it can replace even the most basic bookkeeping functions.
And don’t get me started on the revolt that will come from trying to take Excel away! (joking…but not joking).
How do you and the client decide how much of their budget should be allocated to specific buckets (network/sponsorship/employee retention/ R&D, etc..)?
I love this question! It depends a lot on 2 things- 1) what industry they're in 2) what phase of business they are in.
As a general rule, I don't like seeing any of the main buckets (overhead, marketing & sales, or R&D) be more than 30% of the overall spend.
I also look a lot at % of revenue and work with the client to understand what's currently taking place and the future goals of the business, then we set the right % based on what makes sense (and it can vary from year to year).
For example, 5 years ago, Salesforce was spending 40% of its revenue on Marketing & Sales - recently I had a client (a tiny event space) that spent 2% of its revenue on Marketing & Sales. I would think Salesforce was slightly over what it needed (in my opinion and without really knowing much about the internal business) and the event space should at least bump it up to 3% but they didn't need much because of how their clients found them.
Generally - headcount (excluding owner's draws) should be no more than 30% of Revenue and that is often high for many businesses.
R&D can be all over the map. One of my current large clients is spending close to 50% on R&D because they're actively developing their product. But in about 18 months we'll need to see that shift down to 30-40% with Marketing & Sales getting more of the spend.
What are the 3 most popular shortcomings you see when working with new clients?
1) they have a less-than-ideal bookkeeper or CPA who has given them some bad advice - or with bookkeepers - they may not be doing their job. That can get them into tricky situations without their knowledge.
2) They don't know how to read financial statements - I can teach them! But it's always good to know when you're a business owner.
3) Their personal finances are a mess. People manage business and personal finances the same. If there's a personal finance issue - it will flow to the business. It can be challenging to navigate
At what point in our business do we need a fractional CFO?
My motto is a CFO is a necessity not a luxury - with that said there are very few CFOs that make themselves available to small businesses. I would suggest finding someone with finance knowledge to help along the way -- this is why I'm launching my toolbox subscription that can help $0-$1M in Revenue. If that's not needed then - consider some kind of CFO support around the $500K mark and more formal CFO support around $1M. It also very much depends on your type of business. Some businesses can get to $30M easily with no CFO - though, I don't recommend it.
How, what, when, and why should you pay yourself as a business owner?
A few things to consider:
1) why are you running your business? what do you want to get out of it? At the end of the day, businesses exist to make $$ and if you're the owner you should benefit from that.
2) What do you need to live off of? Does the business support that?
3) What do you want to do with the business in the future? Many businesses don't sell because the owner hasn't been paying themselves so there's nothing for the new owner to gain from the purchase
