Navigating the economic uncertainty we are facing has been like navigating a river’s tumultuous rapids—twists and turns that blind you from seeing what is coming next, with the constant threat of a dangerous impending drop up ahead. For a business, economic uncertainty creates financial instability, making it challenging to accurately predict what is around each twist and turn—namely, future revenue, expenses, and cash flow. This likely means that over the past several months, financial conversations regarding the readiness to pivot quickly in order to remain competitive and sustain profitability have increased drastically. It also likely means that if your business doesn’t already have one, it may be a good time to consider the services of a fractional CFO.
During periods of economic uncertainty, a fractional CFO can provide valuable financial and strategic support to the business in several areas. Below are the top three:
- Forecasting and Budgeting. By working closely with the management team, the fractional CFO can help ensure that the budget remains sustainable and aligned with the business’s overall financial goals, regardless of how uncertain the economy may be. To do so, they will often analyze the company’s financial statements and provide recommendations on cost-cutting measures, capital expenditures, and cash flow management, helping the business conserve cash and weather economic turbulence. They do this through:
- Setting and Monitoring Financial Targets. After establishing realistic financial targets and monitoring actual results against those targets, a fractional CFO will track expenses and identify areas where the business may be overspending or underspending to keep the budget in check.
- Identifying Cost-Saving Opportunities. Analyzing the business’s spending habits and identifying opportunities to reduce costs without sacrificing quality or efficiency is never as important as in times of economic crisis. A fractional CFO can determine which expenses are critical to the business’s operations and which expenses can be reduced or eliminated.
- Improving Cash Flow Management. Monitoring accounts payable and receivable, managing inventory levels, and optimizing working capital all help to improve cash flow and ensure that the business has the resources to fund any necessary expenses in the event there is a decrease in revenue.
- Providing Financial Forecasting. With financial forecasting, including establishing models to project future cash flow and expenses, the business can plan for expenses in both the short and long term.
- Labor Spend. A fractional CFO can help the business manage labor costs effectively and make informed decisions about labor resources during periods of economic uncertainty, including:
- Segregating Labor Costs. Labor costs can be segregated by department, location, project, or employee category to provide multiple views of labor spend. This can help the business understand where labor costs are being incurred versus the amount of revenue generated in the same area.
- Tracking Time and Attendance. Implementing time and attendance tracking systems capture employee hours worked and paid time off. This information can be used to analyze labor costs by employee, department, or project.
- Developing Labor Cost Reports. A fractional CFO can develop labor cost reports that provide multiple views of labor spend, such as total costs, costs per employee, costs per department, and costs per project. These reports can be customized to provide the business with the information it needs to manage labor costs effectively.
- Analyzing Labor Efficiency. This involves comparing actual labor costs to budgeted labor costs or industry benchmarks. Through this detailed analysis, the business can identify areas where labor costs may be higher than expected and develop strategies to optimize resources.
- Sustained Investments Analyses. A fractional CFO can also help the business analyze sustained investments to assess the financial feasibility of the investment, forecast its financial performance over time, and make informed decisions during periods of economic uncertainty. This is often accomplished through:
- Conducting Financial Analysis. Analyzing the financial performance of sustained investments and comparing the return on investment (ROI) against other opportunities includes evaluating cash flows, profitability, and risk factors associated with the investment.
- Providing Strategic Guidance. Providing strategic guidance is one of the key benefits of having a fractional CFO, including advising on the investment’s alignment with the business’s long-term goals and its potential impact on its financial position.
- Identifying Risks. Identifying risks associated with sustained investments and developing strategies to mitigate those risks is crucial during economic turbulence.
- Monitoring Performance. A fractional CFO will monitor the performance of the sustained investment over time and provide regular updates to the business’s management team. This can include analyzing financial statements, assessing the investment’s impact on key performance indicators (KPIs), and identifying areas where the investment may need adjustments.
In these three ways (and many others), a fractional CFO provides the financial expertise, insights, and strategic guidance a business needs to navigate periods of economic uncertainty. By managing the budget effectively, delivering multiple views of labor spend, and analyzing sustained investments, the fractional CFO will help to ensure that the business makes informed decisions that align with its overall financial goals and position the business for long-term success … regardless of the economy.
At Agile Planners, we provide strategic guidance and outsourced CFO services to companies of all sizes. We can help provide the strategy your organization needs for the growth you want. We understand that no two organizations are the same. And with our experience and financial knowledge, we can help develop the right strategic plan for your business to grow and reach its goals. Simply, we’ll be your trusted partner, so you can focus on running your organization. Contact us today to learn more about how we can help.