Benefits of a Fractional CFO in a recession

The threat of a recession in 2023 could make you reluctant to take on new contractor expenses but engaging a Fractional CFO should be one major exception. You are missing an essential skill set for navigating a recession if your small business does not have a professional financial expert on your team.

Not sure if a fractional CFO is the right hire for your business? Here’s how financial experts think about small business strategy and help you weather the downturn.

What does a recession mean for your business?

Before any planning can be done, a CFO will help you understand what a recession means for your business. Although most companies see revenue declines during a recession, many businesses stay steady or even grow during recessions. The recession’s impact on your small business largely depends on your industry and market position.

Businesses that grow during recessions:

  • Price themselves at a discount to competitors
  • Market themselves as a bargain
  • Cater to financial distress situations (i.e., pawn shops or bankruptcy attorneys)

Businesses that stay steady during recessions:

  • Hold government contracts
  • Provide consumer staples like gasoline and food
  • Have long-term multi-year contracts
  • Have a diverse and resilient supply chain

Most other businesses will see a reduction in volume or price during a recession. Once you know where your business sits, a Fractional CFO can step in to analyze your opportunities and threats further.

How a CFO helps a business in a recession?

CFOs bring a playbook of best practices to businesses facing recessions. These strategies are grounded in your business’ data, balancing intuition with facts to ensure your unique approach is appropriate.

CFOs analyze your unique financial position.

CFOs will analyze your business’ strategic position, including:

  • Market position, brand, and pricing
  • Gross margins
  • Volume versus break-even
  • Cost vs. expense structure
  • Overhead obligations and restructuring opportunities
  • Capital structure and financing
  • Working capital cycle

The outsourced CFO will make customized recommendations based on your conditions. For example, a product company with shrinking volumes, strong margins, and a typical working capital cycle would benefit from liquidating inventory through discounts or bundling. On the other hand, a luxury resort will likely need to reduce staffing but avoid slashing prices.

CFOs maintain best practices to avoid unforeseen risks

Following financial planning best practices will allow your business to thrive regardless of whether or not there is a recession in 2023. Financial planning in a recession or growth economy should include:

  1. Business forecasts with base-case, best-case, and worst-case scenarios.
  2. Collaborative budgeting with managers to ensure alignment of execution.
  3. Routine monthly or weekly financial planning meetings with a Fractional CFO.
  4. Monthly variance analysis of actual results vs. forecast, including non-financial KPIs

CFOs hold you accountable.

Processes alone do not make your business resilient – you also need a collaborative team willing to challenge assumptions. Who on your team will call you out when they think you are wrong? Financial professionals have a reputation for being brutally honest, ruffling feathers, and pulling heads out of the sand. That’s part of the job of an Outsourced CFO – to hold you accountable and save you from the delusions that haunt overly-optimistic entrepreneurs.

Plan early to avoid catastrophe

The earlier you engage a Fractional CFO, the more opportunities you have to grow and avoid insolvency. Contact us for a free consultation to learn more about how a CFO can help your small business.

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