Why A Professional Services CPA Won't Satisfy Your Financial Needs Alone

5 min read
11/17/22 9:00 AM

As modern professional services businesses prioritize in-depth data insights above all else, having a strong financial plan backed by the right resources is invaluable. Modern consulting solutions and professional services can help you get closer to your revenue goals. In fact, this can be the biggest factor in deciding how profitable your business is in the coming year. 

According to SmallBizGenius, "The most profitable small businesses made over $1 million last year, while the least profitable 16% made less than $10,000. In 2018, 37% of US-based small businesses reported expected annual sales of $50,000, while in 2020, the percentage jumped to 43%." If you maintain traditional bookkeeping practices and reactionary financial management, your business is much more likely to fall toward the bottom half of small businesses. 

Contemporary solutions like fractional CFOs, predictive financial models, and proactive financial management are key to creating long-term business success. In this article, we'll take a deeper look at the following:

  • The difference between outsourced CPAs and fractional CFOs
  • How fractional CFOs take a deeper look into the needs of your business
  • How you can transition from using a conventional CPA to a fractional CFO

Breaking Down the Role of Outsourced CPAs and Fractional CFOs

Many small and mid-sized businesses look at growing their revenue above all else. But growing top-line revenue with no regard for expenses and burnout could be detrimental. So when you want to scale up your business, it’s just as important to consider your financial team as part of your revenue engine. Most small organizations have a bookkeeper (either in-house or outsourced), but today's most successful organizations have both a CPA and a CFO.

What Is a CPA?

CPAs can help you manage the financial risk of your professional services business by focusing on tax laws and compliance. For example, a CPA will ensure you file the right documents for your business entity, your quarterly and annual revenue or profits, and your payroll. However, this role looks retrospectively at past revenue and expenses and is largely reactionary. While they can make estimates based on past performance, this provides limited insight into the future. Your CPA won't generally provide proactive financial models about quarterly revenue goals or anticipated areas of growth.

What Is a Fractional CFO?

A fractional CFO, on the other hand, takes on the role more akin to a traditional CFO than a bookkeeper. Someone in this role will help provide forward-looking financial guidance on your objectives, your growth potential, and what strategic steps you should prioritize for the quarter or year ahead. As part of this more advisory role, a fractional CFO will assess different approaches to allocating your capital and resources so they can prepare a nuanced strategy for increasing revenue.

What Is the Difference Between CPAs and CFOs?

Both roles and capabilities are crucial to your business. You need to maintain compliance with tax and financial regulations to protect your business. A CPA focuses on keeping your books in order, ensures you pay your taxes properly, and otherwise helps keeps your company in good standing. This is essential.

But you also need to set data-based models to grow your business in a sustainable and predictable fashion. A fractional CFO will help you meet your financial objectives in the most efficient way possible, keep your growth on track, and help you establish a plan for the future.

The difference between a CPA and a CFO is much like the difference between the defensive and offensive parts of a team; you need both to win, and it's too risky to operate without either element.

Knowing When to Go Beyond Traditional Bookkeeping

For many small businesses, a CPA or bookkeeper is the end of your financial department. When you have a very small team, a third-party CPA who can keep things in order is a hefty but necessary investment. However, if you want your professional services department to succeed, investing even further in a fractional CFO is often the right move. 

Of course, it's not the right move for every business at every stage, so examine your business through this lens to determine if it's the right step. Look for these indicators that a CFO is either necessary or extremely helpful:

  • Your company has a lot of confusing financial and sales data, making it hard to choose the right financial path forward.
  • Your business is growing, but your business infrastructure — equipment, personnel, network systems, etc. — isn't big enough to meet your growing needs.
  • Your leadership team or financial team had a sudden bout of turnover, and you need a new financial leader at the helm as soon as possible.

3 Ways a Fractional CFO Can Help You Reach your Goals

A fractional CFO offers numerous advantages to your professional services business. These are the three most important objectives one can help you realize:

1. Interpret and Leverage Financial Data for Proactive Business Advisory

If your business has jumbled data or you don't have the mechanisms in place to collect and analyze data, your fractional CFO can help. By leveraging data about past performance, overhead needs, and developing economic and regulatory trends, you can start to make business decisions powered by financial modeling. This limits the risk of uncontrolled growth or spending while minimizing the risk of missed opportunities.

2. Implement Automation and Financial Technology

Today's businesses can't operate successfully if they rely on manual sales and financial processes. Tools such as automated financial software, accounting software, secure communication platforms, and more are crucial for speeding up transactions and keeping comprehensive records of your business activities. 

Today's financial technology often includes higher levels of business intelligence features and dedicated implementation support to power faster operations and more accurate processes that would otherwise burden business owners with wasted time and compliance risks. This saves you time, reduces the risk of business errors, and makes regulatory compliance easier than ever.

3. Succession Planning

Most CFOs and business leaders don't have a succession plan. After all, if they don't plan on leaving or there's not a good candidate in the existing pool of personnel, it can feel like an unnecessary hassle. But smooth transitions allow business growth to continue with little disruption for employees or customers, and it's important to recognize that your business's leadership team won't stay the same forever. Proactive planning for future inevitabilities, even if it doesn't feel urgent, is exactly how a fractional CFO can help your business stabilize and increase its overall value.

Creating Financial Success With the Best of Both Worlds

CPAs and CFOs aren't interchangeable, and your business can't safely grow with just one. Instead, you can prepare your professional services business for stable, profitable growth by adding a fractional CFO to your financial team. 

At Dillon Business Advisors, we help power small and mid-sized businesses by providing personnel for three fractional roles that maturing organizations need: a CFO, a Controller, and a Client Success Manager. Our fractional teams will help your business grow by providing proactive expertise, financial knowledge, and the support your business needs to grow. Reach out today to learn more about which role your organization needs for a strong start to the year ahead.

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