The Fractional CFO Relationship
This article appeared in the May/June 2022 issue of MiMfg Magazine. Read the full issue and find past issues online.
As a manufacturer, you face various financial challenges. Whether it’s looking at the ROI of a new equipment purchase, determining terms on a new large customer contract or considering various business models or strategies, manufacturers need critical financial thinkers in their organization to work through these and many other financial issues.
Typically, the company’s CFO would drive these analyses and business discussions internally. For example, supply chain challenges, or “onshoring opportunities,” are putting cashflow pressures on manufacturers to make key decisions with debt and cash management. Your CFO should be modeling various inventory stocking and purchasing strategies, as well as what level of investment in inventory makes sense for the business. It’s critical to understand overhead support levels needed for the various operational and inventory strategies being evaluated.
The question many manufacturers face is whether they can afford a high-end CFO when the organization has numerous critical talent needs across sales, engineering and quality. A more recent trend has organizations looking at fractional or outsourced CFO structures to fill these needs.
What does a fractional or outsourced CFO relationship look like? These relationships can work on an hourly, as-needed, basis or a flat monthly fee based upon a block of hours. Many companies integrate this role into their company’s management team and key meetings. These arrangements can have set schedules and structure to establish consistency and a pattern of on-site meetings so everyone can plan workloads accordingly. The combination of scalability, flexibility and access to high-level skillsets allow manufacturers to budget and plan to meet their organization’s needs.
A couple keys to successfully finding an outsourced or fractional CFO include properly matching culture, personality and experience to fit for your organization along with clearly defining the focus area and priorities for this role. Below are some attributes to look for when assessing a potential fractional CFO:
Strategic thinker. What’s our value proposition in the marketplace? Are we focused on the right customer and product lines? Where do we want to be in five years and how do we get there? These are questions that a CFO is driving to answer though a collaborative strategic planning process.
Predictive not reactive. CFOs are forward-thinking and ensure the company has the right tools in place (forecasting, financial modeling, cash projections) to navigate the outlook in front of them.
Drives financial results. CFOs are focused on key financial metrics such as inventory turns, working capital maximization, product and customer profitability, ERP software utilization and proper banking structure and rates.
In the end, all manufacturers need to find a way to get CFO-level capabilities into their business to ensure they are well positioned for the future. Fractional CFO relationships can allow manufacturers to match the right level of CFO support within their annual budget. Outsourcing has been functional and cost-
effective across IT and human resource departments. Moving your CFO role to an outsourced structure can shift your entire back-office operation to outsourcing and allow your management team to focus on their core competencies and what they do best.
About the Author
Tom Shemanski, a principal with Rehmann, serves clients in an advisory capacity, providing fractional and project-based CFO services, business financing solutions, turnaround management, strategic planning, system implementations, and transactional advisory services. He may be reached at firstname.lastname@example.org.
Rehmann is an MMA Premium Associate Member and has been an MMA member company since July 2006. Visit online: rehmann.com.