As your landscape company scales, so does the complexity of your finances, and you may be debating whether it’s time to bring a CFO into the picture.
The good news is there is a stepping stone role between having just a bookkeeper and a full-time CFO. Fractional CFOs can fill that gap, helping your organization identify areas for improvement and giving you the courage and data to act confidently and pull the right levers.
“One of the reasons why it’s a popular model is because it’s generally a lot more affordable to small, mid-sized firms than hiring a full-time CFO,” says Jacob Hall, co-owner of Insight CPA. “You can generally get 50 to 80% less spend on a fractional CFO than a traditional in-house CFO. For most companies under, say $30 million, a fractional CFO makes a lot more sense financially.”
When Should A Landscape Company Hire a Fractional CFO?
Hall notes that a company of any size can benefit from a fractional CFO, but it starts to make sense financially for companies at the $5 million revenue mark.
“If you’re in that $2 to $3 million and you’re scaling really quick, and you just need that higher- level fractional CFO type person, then it could work then,” Hall says. “But generally, that $5 to $30 million is seen as a range where a fractional CFO comes in and helps out the management team.”
Andrew Trower, CPA and founder of Andrew Trower & Associates, agrees that if a fractional CFO is providing high-level strategic insight, even companies in the $1.5 to $2 million range can benefit.
Some of the signs that may indicate you’re ready for a fractional CFO beyond your revenue size is if you lack a clear financial roadmap, need better financial forecasting to aid with growth or if you are continuing to make consequential decisions without a financial advisor.
“If a fractional CFO of a $25 million landscaping business can take your net margin from 10% to 14% in a year by getting you that clarity, doing the analysis, and then having the action items, that’s an extra $1 million in profit,” Hall says.
What Results Should You Expect From a Fractional CFO?
Unlike a CPA or a bookkeeper, your fractional CFO is not in the day-to-day financial weeds. Instead, they focus on the bigger picture and help owners understand where they stand financially within their market and their industry.
“On the guide, interpreter, planner side of things, you get a sounding board of someone who has seen this and knows what other businesses have done or are doing, and so it’s just good consulting on top of the reporting and analysis and forecasting,” Hall says.
Trower says their capabilities include complicated journal entries and reconciliations, calculation of labor burden rates, budgeting, and establishing pricing markups.
“Professional CFOs also set financial guardrails for the company to deal with seasonality at different risks,” Hall says. “So, setting certain margins of safety, cash balances, that kind of thing.”
Hall says while your bookkeeper and accountant can tell you what happened in the past financially, your fractional CFO should be looking to the future. They can help you see what opportunities and what risks you’re facing.
Within the first six months, Trower says some of the tangible results of having a fractional CFO include a budget (depending on when you start with them), calculation of Multiple Overhead Recovery System (MORS) markups, and calculation of labor rates and burdens by department.
Hall adds that you should know where you’re currently at and what KPIs to focus on to reach your goals. If a fractional CFO is unable to provide any specific deliverables within the first six months, this is a typical sign of a bad fit, and it’s time to part ways.
One common misconception is that a fractional CFO will come in and clean up all your bookkeeping and handle all the accounting.
“Generally, the engagement agreement will specify that the responsibility for bookkeeping is retained by management, rather than the fractional CFO,” Trower says.
Hall says it’s important to understand fractional CFOs are not a silver bullet to instantly make more money.
“Ultimately, a good fractional CFO should be empowering owners to act and execute,” Hall says. “They’re not magicians, but they’re going to try to give you the best advice to go out and change the situation for the better.”
Choosing a Qualified Fractional CFO
Trower recommends seeking out a fractional CFO who specializes in contracting or landscaping specifically. They should be well-versed in estimating/pricing, job costing, budgeting/planning, and financials.
When interviewing fractional CFOs, ask how many landscape companies they’re currently working with. Hall says it can be a red flag if they have their attention divided between 24 other companies.
Other questions to ask include their general financial background, contract terms and cancellation policies. Trower also encourages vetting your potential fractional CFOs by requesting references.
“A fractional CFO, unlike say a CPA, is not a licensed thing,” Hall says. “Anybody could say, ‘I’m a fractional CFO.’ So you’ve got to be careful because anybody can say it, and because it’s so lucrative. Do your due diligence on who you’re hiring.”
As for how many hours your fractional CFO should work, this will vary widely based on the engagement. It can be as little as 5 to 10 hours a month, up to 50 hours a month.
When to Transition to a Full-Time CFO
One drawback of fractional CFOs is their limited bandwidth for each client. In some situations, pairing a fractional CFO along with a full-charge bookkeeper and/or assistant controller position can meet your needs.
However, Hall says if your fractional CFO works more than 50 hours a month, this begins to move into more of a traditional part-time CFO employment situation.
“You have to think yourself as an owner, would having somebody at this level working for me 40 to 50 hours a week more than pay for the additional cost based on what we’re doing?” Hall says. “When that starts to make sense, it is a great thing to have somebody’s mind fully dedicated to your business.”
If you plan to acquire other landscape businesses in the future, or you’re building to sell and want to maximize your exit value, Hall says a full-time CFO may be a better fit.
Trower notes that a full-time CFO typically garners a salary of at least $150,000, so you also have to consider if you can afford an in-house CFO.
“Obtain one or more quotes from fractional CFOs and compare their rate to what you would pay an in-house CFO or controller,” Trower says. “Robert Half publishes up-to-date salary ranges for a variety of positions, including controllers and CFOs, on their website for all major metropolitan areas. Use this to compare.”
Ultimately, the decision to hire a fractional or full-time CFO shouldn’t be based on your revenue alone. The complexity of your finances, your long-term goals and the capabilities of your existing accounting team will help you determine whether having a dedicated financial executive would generate enough value to justify the additional expense.
