Who should you trust with your annual budgeting? Many companies wrongfully delegate this task to their accounting or finance teams, not realizing that those personnel aren’t equipped to handle the complexity or responsibility involved. While it may seem counterintuitive to hire an outsider to handle this important task, a fractional CFO for budget planning could be key to your company’s financial health in the coming year.
For small and medium companies that lack an executive level financial officer, fractional CFOs are a perfect solution. They have the knowledge and experience to successfully guide your budget decisions and align them to your company’s goals. Below, we outline the value and process of hiring an interim CFO to help you lock in your budget for the coming year.
Budget Planning: The Cornerstone of Financial Health
Every dollar in a budget reflects a strategic decision. Proper budget planning forms the backbone of fiscal health, ensuring that resources get allocated where they generate maximum ROI. However, navigating the intricate maze of financial forecasting, cash flow predictions and risk mitigation requires a seasoned hand.
Harvard Business School outlines 5 reasons annual planning and budgeting are important:
Determine resource availability. Ensure the resources you need to run your company are available with a careful analysis of past and present data.
Prioritize initiatives. Determine where to invest more and where to pull back. Your budget determines your priorities for the year. Invest in the programs that align best with your goals.
Set and report on goals. A deft CFO will set up the proper metrics for tracking and assessing your progress.
Attract financing. A detailed and balanced budget plan can make your company more attractive to investors who see you as a sound financial asset.
Provide a roadmap for pivots. As financial climates change, you may need to pivot your strategies. A comprehensive budget plan will have built in contingencies and give you direction around unforeseen challenges.
The Value Proposition of a Fractional CFO
Imagine leveraging top-tier financial acumen on-demand. This means access to a wealth of knowledge and strategies previously reserved for corporations with deeper pockets.
A fractional CFO offers exceptional value for budgeting and other projects. They bring valuable knowledge of best practices and experience across multiple industries with the goal of helping your company thrive. The benefits of a fractional CFO include:
Flexibility. You get on-demand service tailored to your business needs. Hire a CFO whose experience aligns with your goals.
Specialized expertise. Fractional employees work in a variety of environments and bring experience across multiple industries and businesses.
Third party perspective. ● Sometimes, having a third party take vitals for your company’s financial health reveals areas you’ve overlooked. The right expert identifies areas of strength along with weaknesses, so that you go into the next fiscal year prepared. And the best external experts are able to bring in other finance team members, if needed, to build bench strength.
Planning for the unexpected. Assessing risk and mitigating financial turmoil are two of a CFO’s most important roles. Trust your financial well-being to an experienced professional who can include cautionary provisions in your annual budget plan.
How a Fractional CFO Helps in Budget Planning
Before you finalize next year’s budget, consider the ways in which CFO strategic planning enhances and improves your prospects.
1. Strategic Financial Insight
Before you set your budget, you need a clear understanding of what you’re budgeting for. Setting your goals for the coming year and aligning them with your budget is critical for success. An experienced CFO can streamline this process around multiple departments and offer valuable insight based on industry trends and forecasts. Budgeting is more than paying for your operations, it’s about taking the temperature of the current economy and planning the best path to success.
2. Cash Flow Management
Predicting the ebbs and flows of cash can be tricky. A fractional CFO illuminates potential shortfalls, ensuring that liquidity crunches are a thing of the past. By looking at historic data and analyzing current efforts, a CFO predicts expenditure patterns and offers solutions in areas that fall short.
3. Cost Analysis and Reduction
By pinpointing areas of inefficiency, a CFO ensures that every dollar spent is a dollar that drives value. This involves upper-level analysis that takes a critical look at spending across departments. A good CFO doesn’t simply slash budgets, they suggest areas for cost-cutting without compromising on quality, productivity or future strategic growth areas.
4. Risk Management
A fractional CFO brings an objective perspective when assessing present and future risk. Because they operate at the executive level, they see across departments, identify vulnerabilities and craft strategies to mitigate problems before they arise. These strategies can be critical to your survival, especially during times of financial uncertainty.
5. Performance Metrics and KPIs
Successful budgeting requires an understanding of the right metrics and key performance indicators (KPIs) for your business. An effective CFO will not only pull in the necessary data, they also ensure that it is accurate. Additionally, they improve data collection and set up tracking systems to measure success so that you remain on the right trajectory throughout the fiscal year.
The Collaboration Process: Working with a Fractional CFO
Working with a fractional employee of any type should be a satisfying collaborative process. The key is to match the right individual with your company’s culture and unique needs. Here is an overview of the steps to include in the CFO budget planning process:
1. Onboard and Understand Your Business Landscape
This includes reviewing previous years' records and understanding the company’s current financial position. An experienced CFO is able to see not only the big picture but specific areas in need of improvement.
2. Set Budgetary Goals
Once your CFO has a snapshot of your financial health, they collaborate with management to determine both short-term and long-term financial objectives.
3. Draft the Budget
Your CFO will dive into the annual budget planning process with line-by-line allocations that take into account strategic planning, cash flow, cost analysis, risk management, value creation and performance metrics. They also work with your team , integrating key employees into this process, or if needed, bring in other team members to shore up the finance department’s capabilities. The team may go through many feedback cycles and revisions before delivering a finalized budget plan.
4. Ongoing Monitoring and Adjustments
Ensuring that your budget is on track and serving your company’s needs requires monthly and/or quarterly reviews. The great benefit of a fractional CFO is that you can use them on an “as needed” basis. Once your financial reporting and tracking systems are in place, pull your CFO in periodically to review progress and adjust budgets based on current business dynamics.
Find A CFO to Plan Your Budget
Every decision in your annual budget paints the roadmap to your company's success. Don't leave it to chance. A fractional CFO can be key to a robust and forward-looking budget by offering top-tier financial insights, strategic foresight, and cost-effective leadership without the full-time commitment.
Connect with Growth Operators today to solidify your financial foundation and pave the way for dependable growth with a CFO who understands the budgetary needs of your organization. Our CFOs bring years of operating experience across over 20 industries, and arrive ready to contribute on day one. We assess and help prioritize your financial objectives, aid in short and long-term forecasting, build financial models and provide leadership guidance to the internal team. Growth Operators and can supplement our Fractional CFO with a team of seasoned finance and accounting executives when needed. Our team approach to value creation provides a deeper pool of knowledge to draw from to ensure you get the right budgetary guidance.
Citation: Catherine Cote, “Why is Budgeting Important in Business? 5 Reasons,” Harvard Business School