Establishing a Reporting Process with Your Fractional CFO

If you’re a small business owner, hiring a full-time CFO may seem like an unnecessary expense. That’s where a fractional CFO can prove invaluable. By providing part-time, outsourced financial leadership, a fractional CFO gives you access to high-level strategic insights without the overhead of a salaried executive. 

However, to capitalize on this arrangement, you need to establish a clear reporting process and communication cadence with your fractional CFO. Without structured expectations and processes, you won’t get the financial visibility you need to drive growth.

In this post, we’ll explore how to work with your fractional CFO to institute reporting that meets your needs. Follow these steps to set up an effective system:

Determine Your Reporting Needs

Before determining the specifics of your reports, you need to step back and assess what financial insights you need on a regular basis. Think through the following questions:

– What are your most critical financial metrics and KPIs? Do you need insights on cash flow, profit and loss, accounts receivable, burn rate, etc?

– How frequently do you need reporting – monthly, quarterly, annually? 

– Are there specific goals or growth targets you want to track progress toward?

– What level of detail do you need in these reports? High-level overviews or detailed breakdowns?

– Do you need differing levels of reporting for yourself vs. your board or investors?

– Are there specific reports required by stakeholders like your bank or investors?

Your fractional CFO should be able to guide you through this process, making recommendations based on financial best practices for your stage of business. Be as comprehensive as possible when making your list of reporting requirements.

For most small businesses, you’ll want at minimum a monthly profit and loss statement, balance sheet, cash flow report, accounts receivable aging report, and a KPI dashboard to track metrics like customer acquisition costs, churn rate, lifetime value per customer, etc. But your needs may vary.

Define the Reporting Format 

Once you know what data you need to see regularly, it’s time to define the specifics of your reporting format and delivery. Key decisions include:

#Report Format

Do you want the standard financial statements delivered as PDF documents? Or would you prefer slides, interactive dashboards, or direct access to cloud accounting software? 

Most fractional CFOs are happy to provide reports in any format you prefer. But take into account how you plan to consume the reports. PDFs allow for easy sharing but lack dynamic features. Dashboards and cloud platforms offer interactive data but may provide more depth than you need.

#Frequency

In line with determining your needs above, decide how frequently you require reporting – monthly, quarterly, annually, etc. Monthly reporting is recommended for most small business owners. However, if you have investors you may need quarterly reviewed financial statements. Discuss options with your fractional CFO.

#Level of Detail

Do you want just the highest-level overviews of profit and expenses? Or are segmented breakdowns and individual line-item details needed for analysis? Decide your preferences here. Too much detail can lead to analysis paralysis.

#Data Visualizations

Do you want your fractional CFO to provide charts, graphs, or other visuals to illustrate key data points? Visualizations can help identify trends and provide comparisons over time. Select visual elements that best match your data analysis skills.

#Benchmarks 

Discuss including relevant financial benchmarks in your reports – like industry averages, target growth rates, or budget vs. actuals comparisons. Benchmarks provide context for assessing your business performance.

Review and Provide Feedback

Before you officially kick-off recurring reporting, your fractional CFO should provide one or two sample reports for your review. Treat this as an opportunity to closely evaluate their work and provide feedback. Look for:

– Relevance – Are all the metrics you requested being tracked? Do any unnecessary numbers need to be trimmed?

– Format – Is the layout and structure intuitive for you? Are there any formatting issues? 

– Visual Elements – Do charts/graphs effectively highlight key takeaways? Are they clear or do they need design improvements?

– Benchmarks – Are relevant comparisons, averages, or benchmarks included to add context?

– Storytelling – Does the reporting tell a cohesive story or spotlight insights? Or is it just data without synthesis?

Allow several rounds of feedback so your fractional CFO can fine-tune the reports to your specifications. This upfront alignment will pay dividends when recurring reporting begins. Don’t be shy about requesting revisions – the reports need to work for you.

Establish Ongoing Communications

With your reporting format defined, work with your fractional CFO to establish cadence for ongoing communications. Key elements include:

#Standing Report Reviews

Schedule recurring meetings to review financial reports together rather than just sending them over email. This gives you a chance to ask questions, clarify uncertainties, and align on actions stemming from the data. 

Monthly, quarterly, or whatever frequency you’ve defined for regular reporting. Consistency is key.

#Update Requests

Clearly communicate when you need unscheduled updates, flash reports, or briefings on pressing issues. Don’t leave your fractional CFO guessing about when additional inputs are needed.

#Communication Methods 

Leverage the right mix of communication channels – like email, chat, and project management tools – to share information and stay aligned. Over-relying on just email can cause confusion.  

#Executive Summaries

Ask your fractional CFO to preface reports with high-level executive summaries covering key takeaways, risks, opportunities, and action steps. Don’t get lost in the details.

The specifics of your communication flow will evolve over time. But set clear expectations upfront to enable an efficient recurring reporting process.

Iterate and Improve 

Treat your reporting process as a living entity that will need occasional reassessment and improvements. A few best practices:

– Set reminders to revisit your reporting needs and processes on a quarterly or annual basis. Business needs change – reporting should evolve too.

– When you notice ineffective elements in your reports, communicate these directly to your fractional CFO vs. letting frustrations fester. Quick feedback loops lead to better outputs.

– As your fractional CFO gets to know your business, they may have ideas to enhance reporting. Be open to suggestions that could provide better visibility. 

– When key business circumstances change – like raising a new round of funding or acquiring a company – do a fresh assessment of reporting requirements.

By periodically reviewing and refining your reporting process, you’ll ensure it matures alongside your evolving business landscape. Don’t settle for status quo.

The Benefits of Effective Reporting

With a thoughtful reporting process in place, you’ll gain many advantages that directly impact your business performance, including:

Enhanced visibility – The right reporting provides the visibility you need to spot issues early and capitalize on new opportunities. You have the financial insights to inform strategic decisions.

Accountability – When metrics are tracked consistently, you can hold yourself and your team accountable to hitting key targets. Reporting motivates focus.

Investor confidence – For fundraising, thorough financial reporting demonstrates your command of the numbers and business health. Investors gain confidence in your oversight.

Proactive management – You transition from reactive to proactive management when you have access to timely financial data. You can course-correct issues before they escalate.

Better communication – Reports provide factual insights you can share with stakeholders, keeping everyone on the same page.

Peace of mind – Perhaps most importantly, effective reporting allows you to sleep better at night knowing your financial position and risks. You worry less about the unknowns.

While the process requires commitment on the front end, the long-term dividends make the investment worthwhile. Follow the steps outlined here to start maximizing value from your engagement with a fractional CFO. Leverage their expertise through reporting that helps move your business forward.

In Summary

Here’s a quick recap of the key steps covered in this guide:

– Carefully determine your specific reporting needs – metrics, frequency, level of detail required, etc.

– Define the format for reports – visual or plain text, PDFs or dashboards, etc.

– Review initial sample reports from your fractional CFO and provide feedback until aligned. 

– Establish cadence for communication – standing reviews, update requests, and preferred channels.

– Revisit your reporting processes quarterly to implement improvements over time.

– Leverage effective reporting for enhanced visibility, accountability, confidence, and focus.

With the right foundation in place, your fractional CFO will become an invaluable partner in oversight, strategy, and growth. Aligning your processes in the beginning saves countless headaches down the road. So take the time to thoughtfully institute reporting that meets your needs and supports your vision for the business. The investment will pay dividends for years to come.