When it comes to business, cash flow is king. Fractional CFO services play a crucial role in assessing areas where an organization can slash costs and strengthen cash flow to improve overall performance. These services provide valuable insights and expertise to help businesses develop and implement effective cash flow strategies.
Finance leaders must oversee the balance sheet where a company’s assets and liabilities reside. Fractional CFO services can enhance the company’s ability to build a culture around cash flow by providing additional perspective and resources. With a fractional CFO around to build a cash flow culture, other members of an organization can follow in their footsteps to ensure that a business is on the path to greater success through changing economic cycles.
Forecasting Cash Flow
While cash flow forecasting generally falls within the realm of treasury, it increasingly requires engagement and transparency among peers to create a more unified approach to cash management. Fractional CFOs can provide cash flow forecasts and predictions that inform a leadership team on how their decisions impact the business’s overall liquidity. In doing so, it helps other business leaders understand the importance of cash flow with a sense of accountability for business performance.
To accomplish this, a CFO will involve other departmental leaders from groups like IT, sales, procurement, and even accounting in a cash flow analysis. A CFO might go so far as to create a cash council within the organization, leaders who will challenge the various aspects of the business that affect incoming and outgoing cash flow. As a result, the business will pursue a more cohesive approach to cash flow management rather than having a patchwork mentality.
Forecasting Tools
While corporate governance is a good place for fractional CFOs to begin, they also depend heavily on forecasting tools for cash flow forecasting. These tools are designed to accurately assess a business’s liquidity position and requirements. The precise forecasting tool varies depending on organizational features, including the size, resources and capabilities of the business. However, the goal is similar: to bolster visibility, locate factors driving cash inflows and outflows and strengthen the long-term cash-flow outlook.
CFOs might rely on a traditional Excel model or technology-enhanced solutions, including AI, machine learning or software as a service (SaaS), to complement other forecasting tools. Fractional CFO services can provide guidance on which tools are best suited for the business and help implement and integrate them into the existing financial processes.
Data Analysis
Data analysis is where CFOs shine, which serves them well when seeking to optimize cash flow. Data analysis is achieved with a cash flow model that tracks all a business’s cash inflows and outflows. Fractional CFO services can help develop and refine this model, ensuring that it captures all relevant data points and provides actionable insights.
To get the most out of the data, a CFO will incorporate KPIs through which they will earmark the biggest contributors to value creation, such as working capital (inventory, capex, etc.), revenue and expenses (overhead, real estate, etc.), areas they will target for enhanced performance. A fractional CFO can help identify the most relevant KPIs and develop strategies to improve performance in these areas.
Once the CFO has exhausted those areas, improving revenue and slashing costs where possible, they will turn to the market for further insight. This is where KPIs come into play, as the CFO will typically compare these with industry benchmarks to identify opportunities for more value creation at the cash flow level. Fractional CFOs, in particular, can provide valuable insights into industry benchmarks and best practices because of their breadth of experience across companies.
Takeaway
Regardless of the sector in which a business operates, it would benefit from the cash flow strategies provided by fractional CFO services. Once the systems are in place, it is just a matter of maintaining or tweaking them along the way to produce the best results. Fortunately, CFOs have more technology at their fingertips than ever before, and with the guidance of a fractional CFO, they can leverage these tools to optimize cash flow and drive business success.
