It may be time to hire a chief financial officer (CFO).
As law firms grow, their financial needs generally evolve beyond basic bookkeeping, requiring somebody with a business growth mindset who can help navigate large financial decisions and strategic planning. Unfortunately, these types of executive level staff come with a hefty price tag that could drastically impact your firm’s budget.
This is where outsourcing a fractional CFO can come into play — particularly for small firms and midsize firms that are looking to take that next step in their growth. In this article, we will review what financial strategy looks like, how to recognize if your firm needs to bring in additional financial leadership, what fractional CFO support looks like and how to choose the right partner.
Do You Have an Accountant or a Financial Strategist?
Whether you’re eager to bring on additional strategic support or trying to decide if it’s a function your firm currently needs, you’ll want to identify the support you already have in place.
To start, it’s important to clarify and understand the difference between having accurate financials in place versus strategic financial leadership. A firm without strategic financial leadership generally lacks the following:
- Rolling cash flow forecasts
- Matter-level profitability analysis
- Pricing discipline
- Compensation modeling tied to performance
- A structured capital plan
It’s common to see firms that have capable administrators but limited financial strategy in place, according to Josh Kalish, legal consultant and managing partner with Law Firms of the Future. “The firm administrator may be excellent operationally,” Kalish says, “but does not have deep law firm finance experience in compensation design, partner capital, pricing strategy or profitability analytics.”
If this sounds like your firm, and you’re at a place where you need to start thinking beyond bookkeeping without the price tag that’s attached to a full-time CFO, a fractional consultant may be a good fit.
What Does a Fractional CFO Actually Do?
A fractional CFO builds the strategic finance function of an organization without the cost of a full-time executive. They may support other businesses in addition to your own, but the upside is that you gain executive leadership without the responsibility of a full-time salary, benefits, bonuses and all the other costs typically associated with a C-suite hire.
A fractional CFO builds the strategic finance function of an organization without the cost of a full-time executive.
A fractional CFO can also provide objective oversight and recommendations, which can be beneficial when difficult conversations or decisions are on the table, such as compensation structures or cash-flow issues. They can also assist with a number of analytical functions that your accounting staff may not be equipped to handle, such as long-term financial planning, risk management evaluations, scenario modeling, mergers and acquisition guidance, and regulation navigation.
The Tipping Point: How to Recognize if Your Firm Needs CFO Support
There is no one-size-fits-all approach to staffing your firm’s finance team, but there are some key indicators that it’s time to consider bringing in outside financial support:
- Your firm’s lead administrator or financial staffer is taking on more analytical tasks that are pulling them away from regular responsibilities.
- Your firm has run into unexpected cashflow surprises, such as not having enough cash on hand to fund payroll.
- Bookkeeping tasks, such as balance/income statements or accounts receivable reconciliation, are late or taking weeks to complete.
- When the person managing finances is also handling payroll vendor changes, IT issues and HR, the analytical work suffers.
- When leadership or managing partners start digging through the weeds regarding the financials.
“When it’s time for [the administrator] to really put on that analytical hat, that’s when it happens,” says law firm legal consultant John Jakovenko, CLM, SPHR.
There are a couple ways you can consider going about staffing your firm for financial growth. If your firm is looking to keep their administrator in that analytical role, it’s important to offload any tasks that are pulling time away from that, whether it’s bookkeeping, financial reporting or payroll.
