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Understanding the importance of Fractional CFOs for SMEs

calendar27 Mar, 2024
timeReading Time: 5 Minutes
Fractional CFOs for SMEs

Normally, the Chief Financial Officer or CFO is the key managerial person in any company which overlooks the entire financial and business reticulum of the organization. They are responsible for the entire internal structuring of the company as well as drawing a roadmap for the future course of the company operations and plans. A CFO can be both a person as well as an abstract idea of services that are provided by a professional in the course of undertaking financial advisory for a company. Typically, services of factional CFOs for SMEs involve professionals who have years of experience in financial planning and business strategy, however, those services can be fairly expensive and out of reach for start-ups and small businesses. Fractional CFO services or interim CFO Services are new-age, highly specialized, and niche financial services that do not exclusively work with one company, but only provide part-time services to their clients at a fraction of the price charged by a full-time CFO. Hence, Fractional CFO services denote contractual services provided by a CFO or an initial services provider, to smaller companies in their activities such as investment, expansion, restructuring, financing, internal audit etc.

What are Fractional CFOs for SMEs

 Small and Medium-Sized Enterprises (SMEs) can be identified as any shop, establishment, business, manufacturing unit, etc. that are covered under the Micro, small, and Medium Enterprises Development Act, 2006. As per the Act, an SME is defined as units having net Investment in plant and machinery not exceeding Rs. 1 crore, similarly, industries having net investment in plant and machinery exceeding Rs. 1 crore up to Rs. 10 crores and from Rs. 10 crores up to 50 crores are known as small and medium industries respectively.

Fractional CFOs for SMEs are very useful, cost-effective, and specialized financial services that help SMEs achieve the desired growth in the initial stages. Most startups, Small and Medium-Sized Enterprises, or even venture-backed enterprises struggle in the initial 2 years to gain footing, and without sound financial planning and, in fact, CFO expertise. Keeping in mind the budget constraints and limited capabilities of SMEs, Fractional CFOs for SMEs are an excellent type of financial that can create an overall vibrant symbiotic ecosystem of dynamic financial growth for the local economy, which can even proliferate to foreign jurisdictions.

Key Areas of Fractional CFO Services

One of the most striking features of fractional CFO Services is that it is very versatile, hence beneficial for all types of business structures. Since, fractional CFOs services work closely with all major key areas of the business, such as finance, marketing, operation, human resources, management etc. in order to help them overcome obstacles related to finances, attain growth, improve strategy, put procedures in place, raise capital, or successfully manage an audit or transaction. Let us look at the various areas of Fractional CFO for small businesses-

  1. Financial Services Advisory

The main duty of Fractional CFOs for SMEs for small businesses is to oversee the company’s finances and any gaps in planning, accounting, budgeting, and risk forecasting. Even with an accountant’s help, the financial processes of expanding businesses become too difficult for the founders to manage alone. They need someone who can see the big picture in addition to the finer points of accounting and financial reporting.

  • Navigate Due Diligence

While raising capital or investment rounds, Fractional CFOs for SMEs assist the business in their due diligence exercises. They help the business with the necessary paperwork, and documentation that entails the transaction and ensure that all synergies of the company are performed smoothly and with limited hindrances.

  • Cultivates Better Internal Governance

Internal monitoring functions such as audits, anti-money laundering, management controls, and others are essential when startups expand in order to assess the financial health of the organization and cultivate better internal governance. In several circumstances, statutory audits may also be required by law. A company’s purchasing and sales processes, taxation, and all financial transactions could all be closely examined during an audit in addition to the cash flow of the business.

  • Devise Strategy for Growth and Expansion

Fractional CFOs for SMEs help in providing strategy for growth and expansion for the SMEs. They conduct thorough scrutinization and analysis of the company’s financial condition, future risks and mitigation forecasts, ability to raise further capital and amount, internal controls and governance, and all such parameters. Through this scrutiny, they formulate and devise strategies for the future growth of the company and subsequent expansion. 

Benefits of Fractional CFO for small businesses

The benefits of availing the services of Fractional CFOs for SMEs are mentioned below:

  1. Creates a Better Internal Governance Model

A company’s members, shareholders as well as external investors anticipate effective financial management and a strong growth infrastructure. Fractional CFO Services assist a company in forging closer ties with these key stakeholders and ensuring that they have enough faith in you to reveal financial information and guarantee increased transparency. In addition, should your startup run into difficulties, your CFO will find answers and present them to the board.

  • Nurtures Business Intelligence

Navigating complex entrepreneurial aspects such as running a functioning business effectively and as a Fractional CFO for SMEs provides the much-required business intelligence and advisory to the business which helps them to nurture their prospects and foster stronger ties with existing and as well as prospective clients, stakeholders, management persons, and customers.

Fractional CFOs for SMEs vs. Full-time CFOs

The merits of Fractional CFOs for SMEs are self-evident as compared to Full-time CFO services. However, in the case of SMEs, the relevance of fractional CFO services only compounds and becomes more relevant, since it serves the purpose of being a cost-effective and financially efficient way of tackling internal mismanagement and bolstering economic growth of the company. Fractional CFOs offer highly skilled financial expertise for a fraction of the cost of a full-time CFO’s services. This makes it possible for startups and small businesses to hire top financial personnel without going over budget.

Further, Fractional CFOs are professionals who work a few hours a week or as consultants on a project basis. They provide flexible schedules and pricing proposals to the companies that suit their budgetary projections. Scalable financial leadership is provided by Fractional CFOs for SMEs, who can easily adapt their services to match your changing demands as your business expands.

Another very important aspect of the services of Fractional CFOs for SMEs is that they provide tailored services to small businesses and SMEs. Fractional CFO Services are professionals and professional services that have years of experience and vast treasures of knowledge that help small businesses grow and prosper in this competitive environment.

Conclusion

Around 63 million Small and medium Industries contribute 6% of the manufacturing GDP and 24% of the services GDP in 2023. Small and Medium Enterprises are one the fastest growing industries and business models in India today. With the fastest-growing commercial sector today, enterprises face huge challenges and setbacks in the form of a lack of guidance and financial management. Fractional CFOs for SMEs can help industries grow and tackle the challenges that may be faced by them in the course of their venture. Finding the right Fractional CFO service provider that fits the budget and aspirations is however a challenge for most Small and medium Enterprises.

We at Corpbiz, provide a hassle-free and easy services of Fractional CFOs for SMEs. Our team of industry experts will assist you at every step of the process, ensuring that your company meets all legal obligations and complies with Indonesian regulations. We collect data and information about your business and analyze it to determine the best structure for your business. If you are planning to start a new business and require a company registration, we’ve got you covered. We’ll help you choose the best structure for your company and ensure you comply with all legal requirements. Also, as a Virtual CFO (VCFO) services provider, we are uniquely equipped to provide tailored services for our clients that exactly meet their needs and organizational requirements. To know more about our services, get in touch today.

Frequently Asked Questions (FAQs)

  1. What are Fractional CFO Services for Small Businesses?

    A fractional CFO is a chief financial officer who works part-time or as needed, offering financial management and strategic help to companies. Fractional CFOs. for SMEs and small businesses are a very effective and pocket-friendly way to manage the company’s internal finances and business strategy to ensure future growth and financial stability

  2. What are Small and Medium Enterprises?

    Small and Medium-Sized Enterprises (SMEs) can be identified as any shop, establishment, business, manufacturing unit, etc. that are covered under the Medium-Sized, small, and Medium Enterprises Development Act, 2006. As per the Act, an SME is defined as units having net Investment in plant and machinery not exceeding Rs. 1 crore, similarly, industries having net investment in plant and machinery exceeding Rs. 1 crore up to Rs. 10 crores and from Rs. 10 crores up to 50 crores

  3. What is the difference between full-time CFO and Fractional CFO Services?

    Full-time CFOs are hired on a retainer basis and exclusively look after the financial and business mechanisms and operations of a company. Fractional CFO services on the other hand work on a part-time or project basis for a company by providing financial and business intelligence services necessary for the growth of a company.

  4. How are Fractional CFO Services better for SMEs?

    Fractional CFO Services are best meant for small businesses and Medium-Sized-enterprises for a number of reasons such as the low cost of professional services, flexibility of engagement, tailor-made services, variety of services, and innovative approach to CFO services such as Virtual CFO (VCFO).

  5. What are the key areas in which Fractional CFO Services help Small Businesses?

    Fractional CFOs help small and young businesses navigate the complex aspects of an enterprise such as financial advisory, due diligence and transaction advisory, internal governance, strategy for growth and development, and better transparency and relation-building with market stakeholders.

  6. Is a fractional CFO worth it?

    Yes, Fractional CFO Services are definitely a viable option for SMEs and Small businesses that can allocate only a fixed amount for their financial and internal improvement requirements. Fractional CFOs are definitely relevant in the current marketplace for each and every kind of enterprise.

  7. Are fractional CFOs in demand?

    Yes, Fractional CFO Services are in high demand nowadays due to the insurgence of a large number of startups and small companies.

  8. Why should I hire fractional CFOS for SMEs?

    Fractional CFO Services are most useful for SMEs since they help the enterprise grow and make the best use of the resources available to achieve the best growth strategy.

  9. When should I hire a fractional CFO?

    Fractional CFO services are most practical to hire when a company is undergoing major restructuring or expansion activities such as seed investment, equity distribution, change of management, adjustment to market situations etc. Fractional CFO Services are most useful in these situations.

  10. Does a small company need a CFO?

    Yes, small companies need CFO services more than other enterprises because to invest money wisely.

  11. How do I find a Fractional CFO for my startup?

    Corpbiz is a market leader in Financial Services advisory. For small and medium-sized enterprises, we have a unique Virtual CFO (VFCO) segment that is specifically designed to help startups, SMEs and One personal company to have very unique and tailored services designed for the needs of the companies and enterprises. You can rely on Corpbiz as a reliable, highly efficient and cost-effective method for your enterprise and their A-Z needs.

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