The Role of a SaaS Fractional CFO in Your Small Business Journey
Let us introduce you to our imaginary friend, Adam.
Adam is the founder of a promising SaaS startup. After months of toil and hard work, his company is finally gaining some paid subscribers, increasing his revenue.
But before Adam can celebrate, he notices something. His company’s cash flow is a mess, the expenses are ballooning, and he can’t seem to know how to forecast his company’s revenue for the next quarter.
This is the exact situation many SaaS startups have to go through. So, the SaaS fractional CFO is just the solution you need.
In this guide, we’ll break down what the SaaS fractional CFO is and what role they can play in your small business journey.
What does a SaaS CFO do?
As a startup, one of the major issues is the good old greenback. You don’t have enough resources or don’t want to spend a lot on your “finance department.”
A SaaS Fractional CFO takes a fraction of the time to do the amount. Unlike the full-time CFO, a fractional CFO works flexibly and has no huge price tag.
But you would be thinking, “I can do this part-time thing myself.” Sure, you can if you have the right skills. However, fractional CFOs are not just number crunchers. They take a deep dive into your business’s finances and come up with a plan that can take care of all your headaches.
You could handle details such as SaaS revenue accounting, managing deferred revenue, SaaS billing, SaaS payment solutions, funding, and more.
For instance, a fractional CFO for SaaS companies monitors MRR (monthly recurring revenue) and CAC (customer acquisition cost). Although these terms may sound like scary jargon, they are important for tracking business goals. MRR highlights the monthly revenue you can expect to receive, while CAC illustrates the amount you spend on marketing and advertising.
In addition, it’s not all about the current financial state; they also SaaS revenue forecasting. This forecasting helps in predicting future revenue streams. Without these services, you won’t be able to grow and sustain your SaaS startup.
When talking about sustaining, Tangent Consulting offers specialized fractional CFO services for SaaS companies. Our experts understand the challenges of a SaaS startup and work our way through each detail. We’ll talk about this later; for now, let’s talk about how a fractional CFO can help your small business.
How a Fractional CFO Can Help Your SaaS Business?
If doing accounting and finance seems like a trigonometric equation, now is the time to hire a fractional CFO. But that’s not all. Let’s see what a fractional CFO can do for you.
Financial Planning
This can be a cliche, but one of the basic roles of a chief financial officer is to do financial planning. A SaaS fractional CFO will help you develop a solid plan highlighting realistic goals, budgeting, and KPIs (key performance indicators).
For instance, a fractional CFO tracks down the key metric burn rate when doing financial planning. A burn rate describes how much money a startup uses to fund its operations.
We are feeling lucky today, so here’s how the burn rate is calculated:
(Monthly Revenue – Cost of Goods Sold) – Gross Burn Rate = Net Burn Rate
Where; Total Monthly Operating Costs = Gross Burn Rate
So, this is one of the many metrics a fractional CFO uses to make a SaaS startup financial plan.
According to an Accenture study, 78% of companies met their strategic goals when tracking their KPIs.
Cost Management
Starting a SaaS startup requires high operation costs. Major expenses include software development, marketing, advertising, and others.
A SaaS fractional CFO can help identify cost reduction methods. They will look into the expenses and look for inefficiencies. Then, they’ll look into opportunities and reduce spending.
When you are too occupied with managing the business, you may not have the time or the expertise to look for these inefficiencies. However, with the help of fractional CFO for startups, every dollar is spent wisely, ultimately contributing to your bottom line.
According to Harvard Business Review, a company can increase its profitability by choosing the right costs.
Financial Forecasting
We touched on financial forecasting earlier, but here’s a more detailed version. A good SaaS fractional CFO service provider develops detailed financial forecasts that consider various scenarios.
They forecast revenue growth, predict cash flow, plan for capital expenditures, and provide other valuable insights. These can help a SaaS startup grow and determine whether its financial efforts are working.
Here’s a crazy stat from Gartner: 81% of companies take too long to remediate performance issues, and they cannot properly do financial forecasting.
Scaling
As a business owner, you want your SaaS startup to be the coolest kid in Silicon Valley. However, as your business grows, you can’t get preoccupied with everything. So, a Saas fractional CFO can systematically help you scale your business operations. They make sure that your finances are running smoothly for the business’s growth.
They can also help with the technical aspects of SaaS payment solutions and integrate the best SaaS management platforms for your business.
See, it’s not about just numbers 😊
Fundraising
CB Insights research shows that 29% of startups fail because they run out of cash. With the fractional CFO on your side, you won’t end up on that list. They develop a comprehensive plan based on the Pro Farma forecast. This forecast shows the improved financial conditions of the company to secure funding according to GAAP rules.
That’s not all; there’s a lot of other things like investor meetings, receipts, company documents, addressing everything strategically, and getting the best possible funding deal for your business.
How do you choose the SaaS CFO?
All that CFO info has made you think, “Hmm, I may need a fractional CFO. But how can I find it?”
To choose the right CFO service provider, here are some tips to help you make the right choice:
Industry Expertise
Business practices have come a long way since we started doing business around 17,000 BC. Today, CFOs are expected to play an active role in developing revenue strategies.
So, you need to look for a service provider with a track record in the SaaS industry. They should be able to understand the industry’s unique challenges and how they can work their way through SaaS revenue forecasting.
Customer retention
Most SaaS businesses operate on subscription-based models. For instance, Shopify is a SaaS with a subscription model, meaning revenue depends on subscription billing.
So, your CFO should be able to keep the churn rate as low as possible. The churn rate is the percentage of users canceling their subscriptions at a specific time.
A SaaS fractional CFO should have various strategies to keep the churn rate low so you can retain more customers. For example, a CFO can segment lost customers like a sales team and identify patterns to tell why customers are leaving.
Flexibility
No doubt hiring a fractional CFO saves you tons of money. However, they should be flexible to work with your schedule and be available when you need them the most (like a tax season).
Automation
As a SaaS business owner, you must know how important automation is. So, when hiring a CFO, you need to look for those services that can automate your business financials.
For instance, they should know the best SaaS management platforms and other financial tools to simplify financial operations.
Final Thoughts
We know managing a SaaS startup is not easy, and if you manage finances yourself, it’s doubly difficult. However, the process can get super simple with the right SaaS fractional CFO. They can take care of all your finances, increase revenue, scale up your business, and help in decision-making (and that’s just the tip of the iceberg).
If you think now is the time to hire a fractional CFO, Tangent Consulting can help. Our team has over 10 years of experience in SaaS and across all industries.
The process is super simple: Just tell us what you are looking for, and we’ll do the rest. It could be what your business needs. So, get in touch with us today, and we can tell you more about how we can help you.
FAQs
Is a fractional CFO worth it?
Having a fractional CFO comes with a lot of benefits, like financial planning, cash flow management, revenue generation, and so much more. Plus, you don’t have to commit to a long-term contract and spend much money.
What is another name for a fractional CFO?
A virtual CFO is the other name for a fractional CFO. However, a virtual CFO works remotely, while a fractional CFO can be in-house or remote.
Can there be 2 CFO in a company?
Having 2 CFOs can be a great benefit if your company is growing rapidly or facing financial problems. You can divide the roles between the two. So, they can come up with strategic solutions.
