Common Problems Fractional CFOs Can Help Solve

Small businesses face a wide range of financial challenges, from managing cash flow and expenses to developing financial strategies for growth. For many small businesses, hiring a full-time CFO is not feasible due to budget constraints. However, fractional CFOs offer a solution to this problem. Fractional CFOs are financial experts who work on a part-time or project basis to help businesses with their financial needs. Here are some of the common problems fractional CFOs can help solve:

1. Cash Flow Management

Cash flow management is one of the most critical financial challenges small businesses face. Fractional CFOs can help businesses manage their cash flow by developing cash flow projections and identifying opportunities to reduce expenses and increase revenue. They can also help businesses develop strategies to improve their cash conversion cycle and ensure that they have adequate cash reserves to meet their financial obligations.

2. Financial Analysis and Reporting

Fractional CFOs can provide businesses with the financial analysis and reporting they need to make informed decisions. They can create financial reports and dashboards that provide a comprehensive view of the business's financial performance. They can also analyze financial data to identify trends and provide insights into the business's financial health.

3. Budgeting and Forecasting

Developing and managing a budget is critical to the success of any business. Fractional CFOs can help businesses develop and manage their budgets, ensuring that they are aligned with the business's goals and objectives. They can also provide forecasting services to help businesses plan for the future and make informed financial decisions.

4. Financing and Fundraising

Fractional CFOs can help businesses secure the financing they need to grow their business. They can provide guidance on financing options, such as debt or equity financing, and help businesses prepare financial statements and other documentation needed to secure funding. They can also assist businesses with fundraising activities, such as developing pitch decks and identifying potential investors.

5. Risk Management

Fractional CFOs can help businesses manage financial risk by identifying and analyzing potential risks and developing strategies to mitigate them. They can also assist businesses with insurance procurement and risk transfer strategies.

6. Business Process Optimization

Fractional CFOs can help businesses optimize their financial processes to improve efficiency and reduce costs. They can identify areas where processes can be streamlined and make recommendations for process improvements. They can also help businesses evaluate and implement new software and tools to improve their financial processes.

Conclusion

In conclusion, fractional CFOs provide small businesses with the financial expertise they need to solve a wide range of financial challenges. By hiring a fractional CFO, businesses can access the financial knowledge and experience they need without incurring the high cost of a full-time CFO. Whether it's managing cash flow, developing financial strategies, or optimizing financial processes, fractional CFOs can help businesses achieve their financial goals and set themselves up for long-term success.

The Basics: Cash vs. Accrual (Plain English)

Cash basis accounting means nothing touches your books until it touches your cash account. You don’t record a sale until the money shows up in your bank.

Accrual basis accounting means you record the transaction when it actually happens — not when the cash moves. If you ship a product today but don’t get paid for 30 days, you still record the sale today. You record it as accounts receivable, then swap that out for cash when it hits the bank.

What Works Best for E-Commerce

For most e-commerce businesses, the right answer is accrual— or at least a modified accrual system.

If you’re selling DTC and don’t have receivables, that’s one thing. But you do have inventory. And inventory is likely your single largest asset, and your biggest expense is the cost of that inventory when it is sold.

You also probably have accounts payable — vendor terms, delayed payments, etc. If you’re not recording those, you’re missing critical parts of your financial picture.

So even if you don’t have receivables, you still need accrual for payables and inventory. Without it, your books aren’t giving you the full story.

Why Cash Basis Gets Dangerous at 7 Figures

Once your business scales, the cracks in cash basis accounting start to show.

Say you start selling wholesale. Larger orders, delayed payments. If you’re not recording sales when they happen, your revenue is disconnected from reality.

Same thing on the inventory side. More sales means more inventory. More vendor terms. You need to know how much cash is tied up in product and what you owe vendors. You can’t track that without accrual accounting.

Sticking with cash basis when you’re at or above seven figures means you’rerunning a complex business on a bookkeeping method built for lemonade stands.

When Cash Basis Might Be Okay

There are rare cases where cash basis works. Usually it’swhen:
- Your inventory is homogenous (like bulk vintage clothing)
- You don’t sell wholesale or give customer terms (your customers pay when or before they get the items)
- You pay for inventory up front (no payables)

And even then, you’re limited in how much insight you can get. Cash basis meansyou only see what’s happening when the money moves — but a lot happens beforeor after that.

So yes, the IRS allows some businesses to expense inventory as they buy it —but for most e-commerce brands, accrual is the better long-term choice.

Still using cash basis accounting? Or unsure if your books actually reflect reality? Lonely, and just want to talk to someone? Book a call and let's chat!

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What Is EBITDA (In Plain English)

EBITDA stands for Earnings Before Interest, Taxes,Depreciation, and Amortization.

It’s a way to measure the cash flow generated by the operations of the business, without the noise of non-operational accounting entries.

By backing out interest, taxes, depreciation, and amortization, you’re removing costs that aren’t directly tied to day-to-day operations and would look totally different under different ownership.

It gives you a number that reflects how much profit the business actually produces from operations — a useful way to compare performance across companies, time periods, or potential buyers.

Why EBITDA Matters If You're Selling (Or Scaling)

When you're valuing a business, one common method is toapply a multiple to EBITDA. A software company might be worth 20× EBITDA. A manufacturing business might go for 10× (bote these are just for illustration, please reach out if you want an actual range for your company).

The idea is to look at comparable businesses, what they sold for, and how that sale price relates to their EBITDA. Then you apply a similar logic to your business to get an estimate of what it might be worth on the open market.

Yes, there are other valuation methods — based on revenue, assets, and sometimes just hope and dreams. But EBITDA gives you a cash-based, semi-objective number you can work from.

Normalization vs. Manipulation

Let’s talk about a dirty little secret: most small business owners run some personal expenses through their business.

That conference in San Diego? You stayed three extra days. Did you reimburse the company? Probably not.

This is where “normalizing” EBITDA comes in. You add back expenses that technically hit EBITDA but aren’t really business-related or wouldn’t existunder new ownership — travel, meals, vehicle expenses, etc.

So is EBITDA manipulated? Sometimes, yeah — but it’s more often just adjusted to reflect the true economics of the business.

What founders *should* be worried about isn’t manipulation — it’s accuracy. Most small businesses don’t intentionally fudge their numbers — they just have sloppy books. Bad bookkeeping, unreconciled accounts, missing entries. That’s what really skews EBITDA.

How to Calculate EBITDA in a Shopify Business

Step one: clean your books. If your inventory, receivables,or payables are wrong, your EBITDA will be too.

For product-based e-commerce companies, COGS is your biggest expense and inventory is usually one of your biggest assets. If those aren’t tied out, the whole foundation crumbles.

Once your balance sheet is clean, identify any expenses that should be normalized — personal travel, car payments, anything that wouldn't show up under different ownership.

Then do the math:
- Start with Net Income from your P&L
- Add back Interest Expense
- Add back Income Taxes (not payroll taxes — only income-based taxes)
- Add back Depreciation
- Add back Amortization

That’s your EBITDA. It’s a measure of the business’s operational cash flow. And it’s only meaningful if your books are tight and your normalizations are honest.

Thinking about selling? Trying to get a real handle on cash flow? Afraid your books are a mess? Just want to chat and talk about sports? Book a call here