Fractional Accounting – A New School of Thought Takes Shape

IT managed services have recently taken center stage in the fight for global acceptance as cloud-based solutions and an outsourced IT model gain popularity. Cyber threat management, data protection and privacy, and compliance to third parties have shifted priorities from a “do-it-yourself” mindset to one of collaboration and strategic partnering.

So what does that have to do with “fractional accounting?” And why is that relevant to CEOs, Presidents and Business Owners? All excellent questions as we segue into the mainstream.

Large Fortune 2000 businesses can easily afford the services of a full accounting and finance team. From CFO to staff accountant, the complexity of basic operations combined with the need for significant financial and data analysis requires the continued due diligence of a high performing team. In a highly competitive landscape with reputations on the line, access to real-time, accurate, and complete financial data must be at the executive’s fingertips.

CEOs and CFOs realized their existing ERP and conjoined legacy applications housed vast amounts of data they were incapable of mining. This trend laid the groundwork for the “Big Data” revolution, and you saw a host of predictive and prescriptive analytics software companies continuing to break new ground to fill the need. Fully staffed teams became the norm, and fee-based recruiting agencies searched for potential hires.

But where does that leave small- and mid-sized businesses? They do not have the luxury or the cash flow to bring on a full-time CFO complemented by a Controller, Senior Accountant, and Staff Accountants. So the void is filled out in many inefficient, and sometimes dangerous, ways:

 

  • Hire a Full-time CFO….and pay $150,000 and up for accounting services. This figure is much higher when you add the employer payroll taxes, employer portion of health insurance, vacation, bonuses, and more. We often see this situation with our clients. The CFO is relegated to managing and executing the accounting function, which is not a good use of his or her time. Plus, it’s expensive. And as the CFO gets buried under more and more accounting work, business owners find that they’re not getting the high-level financial analysis they needed in the first place. Not to mention the high likelihood the CFO will ultimately quit to pursue greener pastures.
  • Hire an Office Manager….and let them do the accounting. We see this in about half our clients, and it is met with good intentions. An Office Manager works double duty managing the office and running the accounting department, which seems like a cost-effective way to kill two birds with one stone. Alas, these individuals rarely have accounting degrees, let alone their CPA, and we typically find a host of problems – incomplete or sloppy work (not on purpose), timing issues, inaccurate financial statements, unreconciled accounts, looming tax issues, and more. Combine that with the high likelihood your CEO is unknowingly going down the wrong path because they do not have the financial planning and analysis needed to make the right decisions. This is dangerous – it’s what you don’t know that can kill your business. Cash is king, you only have so much cash to run your business, and steering the ship in the right direction is vital to your continued growth and success.

Leading small- and middle-market businesses are leveraging the high value and low costs that fractional accounting provides to turbocharge their accounting and finances.

Fractional accounting is high value and cost effective at the same time, which makes good business sense to consider. Business owners are demanding more from their accounting function, and expecting financial planning and analysis to help them make the right business decisions. The growing need brought about a new paradigm as leading companies turned to a fractional accounting model.

It’s simple – only use, and pay for, the accounting and finance resources you need, when you need them. Signature Analytics is a full-service accounting and finance firm, and we provide full teams to our clients at a fraction of the cost of full-time, internal staff. As a former business owner myself, I’d have bought our services immediately, and been that much better for it.

Of course, proof is in delivery. How do business owners deploy this model in their businesses?

Here are steps you can take to understand if fractional accounting is right for you. Since the model can also complement your existing accounting function, it is worth going through an analysis. A simple conversation could save you thousands a year, not to mention increase the value of your business.
1. Determine your needs and pain points. It’s vital to understand what you need to help your business grow. Accounting is at the foundation and requires diligence, accuracy, completeness, and timely input to be effective. Some key questions to ask:

    • Who does your accounting? Are they a CPA? Do they have an accounting degree from an accredited school?
    • Are you receiving the information you need to make the right decisions for your business? Financial planning and analysis is vital to help you determine choice A over B, and any significant allocations of working capital that affect cash flow need this due diligence.
    • Are you comfortable they have the expertise to properly record and account for all transactions that reflect the operations of your business?
    • What stresses you out as a business owner that you feel you’re not getting answers to? For example…
      • Are your monthly or quarterly Board meetings a slug fest, even though you believe you’re doing the right things to run the company?
      • Are you worried that you are paying too much in taxes, and you’re not sure how to plan effectively to minimize your tax exposure?
      • Have you been denied by banks to get a bank loan or increase existing lines of credit?
      • Are you concerned about where your cash is going and unsure how to forecast your cash flows?
      • Do you understand the gross profit of all your products and services?
      • Do you have a handle on your employees’ profitability and utilization, and do you understand their fully loaded cost?
      • Do you truly know your lines of business and their growth and profit potential?
      • And many more

2. Carefully consider your options. Oftentimes, small and medium businesses employ a CFO or an Office Manager/Controller combination to “take care of the books.” Either option has its advantages and disadvantages. The key is understanding the strengths and weaknesses of your accounting and finance function, and the advantages and disadvantages of keeping with the status quo. A fractional accounting model provides you the flexibility to adjust the mix of your accounting and finance team as your business needs change. That is crucial as your business grows and the level and complexity of your enterprise demands higher level oversight and analysis to achieve your goals.

Ultimately, the success or failure of your business starts at the top, which can be lonely at times, we know. Steering the ship demands passion, executive leadership, and the drive to be successful. It also requires top-notch financial data and analysis to make the right decisions. Fractional accounting is a way to get what the big companies have in spades at a fraction of the cost.

About Signature Analytics

Signature Analytics is an outsourced accounting firm providing ongoing accounting support and financial analysis to small and mid-size companies in stages ranging from innovative start-ups to well-established businesses. Our team of highly experienced accountants act as your entire accounting department (CFO to staff accountant), or complement your internal accounting staff, to provide the ongoing accounting support and financial analysis necessary to effectively run your company, analyze operations, and guide business decisions.

Author: Steven Conwell has more than 20 years of experience in strategy, operations, finance, accounting, sales, marketing, and corporate branding. He recently joined Signature Analytics as the Texas President  for Dallas and Fort Worth Metroplex. Read his full bio here.

Watch our overview video to learn more: signatureanalytics.com/video/