Top CFO Questions SOLVED (Q&A with Michael)

Hey, my friends. Welcome back to the CFO Report. My name is Michael King. I talk about starting, scaling and optimizing fractional CFO services. Today is a really exciting episode because I'm taking your questions. Last week I went on LinkedIn and I posted kind of an open ended question. I said, what would you guys like me to talk about? What knowledge could I impart? What things could I address? What perspectives do you want to hear? And we had some great questions. I took the top five and I'm going to share my answers that I had for those folks today. So without further ado, let's dive in. All right, our first question today comes from Howard Tunnicliffe. And apologies to anybody if I bought your name up. I apologize. It was done with the best of intentions. But Howard asks, what behavior or Skill are fractional CFOs most commonly lacking? I love this question because interestingly, it's not the technical acumen, right? It's not the ability to do forecast or projections or any of that kind of stuff. I actually think it's some different types of skills. So the first one, I think, hands down I see a problem across our industry is the ability to set and manage expectations. And I've talked about this before, but I look at setting and managing expectations is two distinctly different things. A lot of times we kind of lump them together, but I think you got to kind of break them up and evaluate yourself on each of them. So the first one is setting expectations. How good of a job do you do in the sales process, during the onboarding process, and then month to month, day in and day out with your clients, of setting expectations? And what I mean by that is how good of a job are you doing of letting the clients know what to expect? The biggest frustration that clients have, you know, you guys have a CFO call or whatever and agree to go off and do some work or some project and you don't let them know what you need from them. You don't let them know when they can expect the first deliverable from you. You don't let them know what types of things they need to be providing you so you can be successful. That's setting expectations. I don't see enough people doing a good job with that. There's too many assumptions that go on along the way also around setting expectations. I think this is really where boundaries start to come in. A lot of us talk about clients that they don't have boundaries. They're emailing us or texting us or voxering us or slacking Us all hours of the night. They want to know really quick, hey, when is this going to come back? You're like, oh, you just asked me for it. Setting expectations around communications is vitally important as well, because if you don't do a good job of it, it leads to burnout throughout the relationship, resentment, all those kind of things. So I would say, like, first and foremost, setting expectations. But then there's managing expectations. So once you've told your clients or your team or whoever what the expectations are, you also have to do a good job day in and day out of managing those expectations. You have to let them know if they push boundaries or if they don't meet expectations, that there's a problem. Because it's one thing to, like, tell people what's going to happen, but then as things start to drift, and a lot of times they do, even without negative intention, it's just the customer or client or your employees, whatever might be in a particular season. And so they start to push because they've got their own agendas. It's so important that you manage those expectations and say, hey, look, I know you're wanting this faster, but like I told you a couple of weeks ago, the quickest that I can get you what you need and get it at the level of quality that you need, it's going to take until next Wednesday, like I told you. So I would say that first skill that most fractional or virtual CPU CFOs are lacking is setting and managing expectations. The second one that I think is so important that a lot of people lack in our industry is time management. You know, a lot of us came from firms where we worked for other people, and they kind of dictated our schedule and what we're doing. But when we start our own firm, there's two things that we've got to really be aware of. And it's easy to get to kind of over index on either one of these things. The two things you got to be aware of is one, yeah, you're a fractional CFO and you've got client work, but the other part is you're also the CEO of your company. And. And so it's really important that you're balancing your time and managing your time to make sure that you're putting enough attention on each of those, because if either of those lack, it can have consequences for your firm or your clients. So it's really important that you start to develop skills around time management. I'm a big fan of time blocking. We like to block my schedule out two or three weeks in advance. And that way I'm able to look at the calendar and see at a high level how much time I'm allocating to the different types of key activities that I know are important from a client perspective perspective, but also from the perspective of running my firm. So the third skill or behavior that I think fractional CFOs are lacking on is understanding their value. I think for a lot of us, when we come from that firm environment, we're used to the, like I like to refer to as the almighty billable hour. You've got to log hours. You've got to log hours. It's easy for us to. To associate our value with the amount of time that we put into things. But I think it's also easy for us to just overall underestimate the value that we bring to our clients. Because a lot of times, especially as we get better as fractional CFOs, it takes less and less time to get a quality product out the door and add tremendous value. And so we start to feel guilty and sometimes even shame about the amount of time we're spending relative to how much we charge. So what that ends up doing is it kind of rears its head in a couple of ways when we undervalue ourselves. We either end up doing more work than our scope of work requires because we feel like we have to, or we end up not charging enough for our services. And I think it's even worse when both of those things happen. We're undercharging because we don't recognize our value. But at the same time, we're also providing more than the scope of work. And that's where you get into a place where you're making, you know, half as much money as you were making working for somebody else, but you're working twice as many hours. And I don't think any of us got into business to make less money and work more hours. So I think really appreciate your value and your worth as a fractional CFO and realizing that that's not necessarily correlated with how many hours that you work. Then the fourth behavior that people really struggle with in our industry is letting go of the need for perfection. All the way through accounting school, you know, we've had it beat into our heads that we have to be so meticulous and everything's got to be perfect. But that just doesn't work as a firm owner, especially if you're not doing, like, tax work anymore. Right. If you're really working on the strategic kind of things. As an example, cash flow forecast doesn't need to be perfect. And in fact, I'd argue that it's trying to get it closer and closer to perfect has an extremely diminishing return on your time investment. I remember in grad school, I have an MBA with a concentration in data analytics. And I remember one of my grad school professors said, you know, the thing about forecast and projections is there's a 100% chance you're going to be wrong. The best you can hope for is to be less wrong. And to me, that's a really empowering observation because you've got to get those forecasts and projections accurate enough that the business owner can make informed decisions. But beyond that, you're just kind of spinning your wheels. So I think it's really important for us as an industry to realize, yeah, we have to do good enough, we have to produce a quality product, but we have to let go for that, that need that, like, inherent, like in our DNA need that a lot of us have to be perfect. It will not allow you to scale your firm the way that you want it to scale. So thank you so much, Howard, for that question. Our second question comes from Francisco Gomez. He says, what do you think about outsourcing, bookkeeping, accounting, other types of services overseas? I'm going to give you my hot take. This is an unpopular opinion. I actually don't outsource anything in my firm anymore, overseas or domestic. And that's just my opinion. Right. That's just what we've decided to do. So before I go into this, I want to just say, like, if you want to outsource, that's completely, completely okay. I don't think that you're wrong for doing it. It's just not what we want to do. So that said, let me give you a little bit of insight, Francisco, on why we don't love to outsource. Number one thing for me, when we outsource services, we lose quality control. We really lose control of that end product. Yeah, there's opportunities for us to QA it and those kind of things before it goes to the client. But the overall product and the process that's used to arrive at the product, we don't have enough control on it. And that is really, really important for me as a firm owner. I want to make sure that things are done systematically, using our processes and procedures, because it's important for me to have anything that we put out the door be replicatable. Everything should be standardized, procedured out because it's so Important that the consumer, the client, gets a consistent end product. I don't have the ability to make sure that that happens when we outsource. The other thing I don't love about it, Francisco, is when we outsource and something goes wrong, I'm on the hook for. For it. And so let's say that I've got a bookkeeper that I outsource to, and the books aren't done on time or they're done incorrectly, whatever the situation might be. Now I'm on the hook for it, and I can't very well say, well, you know, sorry, client, we actually outsource your bookkeeping services, and they screwed it up. So it's. It's not our fault, right? It doesn't work that way. They're paying us to do the bookkeeping in this situation. It's not like I can just, like, point my finger and absolve myself of responsibility for it. So I just don't love it. Then on top of that, they think about all those different kind of headaches that can possibly come up. Then I think to myself, all right, if I did it, how much money is in it for me? Right? And I'm like, you know, what are you going to mark up bookkeeping, 20%, 30%? You're paying a bookkeeper 500 bucks a month to do a set of books for a client. You're going to mark it up 100 bucks, maybe $150. So now I'm taking on all of this risk, I'm taking on all of the potential issues that come for, like, $150 a month. It's just not worth it. What I would rather do is instead of outsourcing it, I would rather have a couple of referral partners that we trust that we can tell the client, hey, look, if you need bookkeeping services or tax prep or whatever the case may be, I actually know this guy Francisco. He's awesome at bookkeeping. His firm is great. I would love to introduce you to Francisco and his firm, and you guys could see if that relationship makes sense. We have a great communication line with Francisco, and so if you want to work with them, that'll be great. But if you don't, we'll be happy to work with whoever you end up going with. So I just don't like it. Now, one thing that I have learned over the years, when it comes to outsourcing anything overseas, something that's important for me to keep in mind is time zone differences. So as an example, I'm in central Time in North America. And if I were to outsource work to the Philippines as an example, there's a major time zone difference. And what I found, Francisco, is that because of that time zone difference, it can really kind of impede timely communications. What I found a lot of times is I've got a question maybe about the accounting work that someone in the Philippines is doing. You know, we ask them a question that it's 2 o' clock in the morning, their time. By the time they get it, it's, you know, 10:00pm our time. So a very basic question or a very basic issue can literally drag on two or three or four days just to get, you know, some fairly simple issues taken care of. So if you are going to outsource, I would encourage you just be mindful of that time zone difference and make sure that that's not going to be a problem for the type of work that you're doing. Francisco, thank you so much for the question. I hope that was helpful. All right, our third question comes from Kurt Cole. Kirk says, Mike, where are you based? I'm in Dallas, Texas. Kirk. I hope that was helpful. All right, our fourth question comes from Stephanie Alexander. Stephanie says, Mike, do you have any strategies for getting beyond the hourly rate model for consulting? How often have you seen FFP CFO gigs work out versus being less profitable? So for those of you who don't know, FFP is firm fixed pricing. So think about like a fixed pricing model is what Stephanie is asking here. So the first one, what are strategies for moving beyond the hourly pricing? You know, a lot of us want to get out of the hourly pricing. We want to get into that fixed pricing model so that we can generate recurring revenue, which I love. That's. That's the way my firm has been for years. I started off hourly and realized quickly that that was not the game that I wanted to be in. There's just so many benefits to having that fixed pricing model, especially when it's recurring revenue, because growth becomes so much more predictable. Margins, cash flows, all those things become so much more predictable. The other benefit that I love about it is we're able to better communicate the value we're going to provide. And we don't have clients, you know, looking at the hours we build every month and start questioning like, was it really worth it? You know, I see that they worked 12 hours over here. That feels like a long time for them to do this or that. It really eliminates a lot of those problems. So how do you move from that, that hourly model into the FFP or the firm fixed pricing model that you were asking about at a super grossly simplified level. I think the first thing you got to do is just figure out what is your scope of work. Like, you've got to sit down. Whether you're a solopreneur, if you got a team, you got to sit down and think about what is that scope of work that we want to provide and start listing out those services and really understand how long does it take you to provide those services, like to deliver them and get them out the door. What is your time commitment or time requirement to do those things? And then also make sure that that scope of work lines up with the work that your clients need from you. I've got a four part series that I'll link to in the descript below if you want to check it out. Where I talk about starting a CFO firm and I go into detail on how to do this process. And then the second step is based on what that scope of work is. You've got to just sit down and figure out your pricing. And I like to think of, of pricing. You know, there's a couple of different factors that go into play there. One is, you know, thinking about your effective hourly rate. Even though you're not going to be charging your clients by the hour, you've still got to sit down and think through like, all right, am I making more than minimum wage? You know, if it takes me 100 hours a month to get this particular scope out per client, I'm only charging them $1,000. Boy, that doesn't sound very attractive to me from a return on my time investment or for being a business owner. So you got to think through like, okay, if it takes x amount of hours and I'm going to charge them this much, you know, is the juice worth the squeeze for me? So that's thing one, you got to think about your effective hourly rate. The second thing that you've got to think about is the value proposition to the client. A lot of times I see firm owners, particularly when they're just shifting from corporate America into their own firms or moving from hourly into the fixed price, they're like, I'm going to charge them what I'm worth. You know, I've got somebody in my ear, a coach, telling me, you got to charge more, you got to charge more. And you know, you get to a point where somebody wants to charge $10,000 a month for a CFO package, which is great, but is there enough value there for, for the client. So as an example, if you've got a client that's only doing half a million dollars a year in revenue, it just doesn't make sense for them to pay you $10,000 a month. And I would argue for a business that's only doing half a million dollars a year, there's the value proposition is lacking. You're not going to be able to add enough value to them for $10,000 every month. That it's going to. In my mind, I call it the straight face test. Can you tell me with a straight face that you're really adding multiples of $10,000 a month to their business? If they're only doing half a million dollars a year, you're probably not going to be to able to convince me that that's the case in most examples. Like I said, the first thing you got to think about your effective hourly rate. Then you've got to think about the value proposition to the clients. And then the third thing is, I don't like to consider this a lot. This is probably 10% of how I weight my pricing. But you got to kind of look at market rates. What are other people in the industry charging for a similar service? The reason I don't put a ton of weight on that is because I know the value that we provide and I know that I'm typically really good at communicating that value, which means I close at a pretty high rate. But I do think it's important to kind of keep your finger on the pulse of the industry and what other people are charging that shift from, from hourly to fixed price. First get that scope of work, then get the fixed price dialed in. And then here's the third thing, and this sounds so obvious, this sounds so much like common sense. But as I always like to say, common sense isn't always common practice. The third thing you've got to do, Stephanie, is you got to go sell it. I see so many fractional CFOs out there that don't get out there and sell. They do all the back end work to set up their firms. But then, you know, you got to go out and tell people about what you do and get them to come and give you money. It's like that metaphor like you got to leave the cave, you got to go out there, you got to kill something, you got to drag it home and you got to cook it so you can eat it, right? And that's really what sales is. You got to leave your comfort zone of the cave and go out there and find business Convince customers to give you money. That's like the big gap I see, see for fractional CFOs right now is they're just not leaning into marketing and sales. And in fact, I've got another episode where I really dive into this because I think it's so important. That's really it, you know, like if you want to get out of that hourly and move into that fixed price, just figure out the scope of work, put a price on it, go out there and sell it time and time again. It works great. The second question you asked Stephanie is how often have you seen those fixed pricing gigs work out versus being less profitable? Really just depends. I think a lot of it really depends on your ability to adhere to the scope of work, your ability to set and manage expectations with the clients, but also your ability to, when you sat down and figured out the scope of work and how many hours went into it, how good of a job did you do with that? A lot of the people I coach, I tell them like, hey, sit down over the next 30 days and calculate how long it takes you to get product out the door. And I'm as guilty of this as anybody. Nobody wants to track their time, right? So we end up estimating, right, how long it's going to take to deliver, you know, whatever our CFO service scope of work is. Every single time we underestimate how long it takes to get it out the door, then it can start to become less profitable. If you're not diligent enough about really knowing the amount of time that goes into that and then, you know, beyond that, if you've got employees and those kind of things, not managing their work and managing their deliverables in their efficiency. See, with the work that they're doing, those things, those are all traditional kind of things. I think in any business that can make, make a particular engagement less profitable. We've been on fixed pricing for going on five years now, I think maybe five and a half years. We haven't charged hourly for anything. Everything that we do is monthly recurring. It's fixed price, it's fixed scope of work. It works great. And honestly, I think that that is the ideal way to run a CFO firm and it can be remarkably profitable. You know, there's no reason, if you're a solopreneur to not be able to see, gosh, 50, 60% net margins. If you've got a team, you know, you're an S corp, you're paying yourself, you should still be hitting 20, 30% net margins, you know, year in and year out, for the most part. Stephanie, I hope that was helpful for you. All right, our fifth question comes from Arad Bayness. Mike, how do you structure your offer and what's in place to limit scope creep? Those are great questions and I kind of touched on these a little bit earlier in this episode. But how do we structure our offer? It's really straightforward, right. I think that there's a couple of things that all fractional CFOs have to do, just as it's kind of a cost to do in business. Then there's things that you could also add on if you have the interest, the experience, the expertise to do them. But those like fundamental things, you've got to do a financial review where you're kind of just looking over the previous month's reporting financial statements. Right? You really have to do cash flow forecasting. I think that CFOs have to do budgets and projections and I think that all CFOs fractional CFOs need to work with their clients on setting financial goals. So the review, the cash flow forecast, budgets and projections and financial goal setting, really, that's at the core of, we call it our CFO core package. That's really what's at the core of it. And in addition to that, we do a monthly call with our clients where we present what I call the CFO reports. That's kind of where the name of this channel came from. But we present the CFO report, which is a Google sheet that we have. We've integrated G acc. It pulls data out of the financial reporting System, you know, QuickBooks or Xero or what have you. And we have tabs, right? Where the first tab is the financial reviews, then cash flow forecasting, then budgets, projections, goal setting, we walk them through that. So that's the second kind of big chunk of our deliverable is that monthly CFO call where we go through those things, we answer questions. That's really kind of the heart of our deliverables with our clients. We also tend to do bi weekly check in calls. So these are just 30 minute check in calls every other week with our clients to allow them a touch point with, with our team. So as they have more tactical questions or they want to pick our brain on something, they have that opportunity. And I found that those are best handled outside of the CFO call. The actual monthly CFO call should kind of lean more towards the strategic conversations. As I like to say. We want to be talking about things that are as far away from the zero as possible on those monthly CFO calls. So those bi weekly check in calls, that's where we can talk about things that are maybe a little bit less strategic. Maybe they're around, you know, hey, we're looking at hiring this person help us calculate total labor burden or they're wanting to know about, you know, if the, the CEO can bump up his distributions. Like those kinds of, like smaller, more tactical kinds of questions. Great. For the monthly check in call or for the biweekly check in call. So we've got the CFO report, we have the monthly call, the biweekly calls, and then also in our scope of work, we allow communications, kind of unlimited communications between email, Slack and if those don't work for some reason, we do allow our clients to schedule calls with us on calendly and we don't bill extra for that. But it's so important. Again, I talked about this earlier in this episode. You have to do a great job of setting and managing expectations and if you do a good job with that, your clients aren't going to take advantage of that. Like unlimited communications policy. You know, we've got, gosh, I don't know, 15, 17, 18 clients on that unlimited communications policy and it's really never an issue because if they start pushing those boundaries, we just let them know like, hey, I know you want to hop on this call, but could we talk about this during our next biweekly check in call? And they're always great with that good communications that starts on the sales call where you set those boundaries, then during your onboarding call and then throughout the relationship, you've really got to communicate the expectations around communications and then it won't get away from you. So those are like the things that you have to do. In my opinion as a fractional cfo, you really can't get out away from that in my mind and still do what I consider to be the bare minimum. Now beyond that, there's all kinds of other other things that you could do if you wanted to. We have a package add on where we do tax strategies and tax planning. We have another package where your CFO from my team will fly to you once a year and do a day long strategy session with your team. There's all kinds of other things. There's some firms that like to do bookkeeping and accounting and tax prep work. You could also include those if you want to. Like we've just decided we don't want to do those things right. So it's, it's not right or wrong to do it. I think the important thing is, is for you as a firm owner, you've got to understand what scope of work do you want to offer and be okay not offering everything else. I hear a lot of people saying, Rob, like, everybody I talk to on sales calls, they want us to also do this and this and this. And I don't want to do that. And I'm losing business because of it. And I'm like, no, you're not losing business because they want those things. You're losing business because you haven't learned how to sell the value that you bring properly yet. Because I'm telling you, we sell all day long. We haven't offered bookkeeping, accounting, tax prep, anything that we don't want to do for years. So it's all around, like, learning how to sell and communicate that value proposition to the people that you're talking about. Your last question was, what's in place to limit scope creep? And I've really been hitting on that since the top of this episode. Setting and managing expectations. You have to have the discipline of, as the CEO of your firm, to push back on clients. When scope creep starts to come in, you've got to be the one that says no. And I know for a lot of us that is. It's really hard because most people that get into the fractional and virtual CFO industry, we have this massive heart for service. But it's so important to say no when our clients ask us to do things that are outside of the scope of work. If they ask for something that's outside of the scope of work and you want to do it, then you can handle it a couple of ways. Inside of our course, the CFO Academy, we walk through this whole framework that we use to determine how to answer these questions. But if it's going to take us less than, like, two hours and we have the interest and availability to do the work, most times we will go ahead and tell the client, hey, normally, you know, we would charge extra for this because it's not part of the scope of work, but we're happy to do this for you. In this case, if it's more than a couple of hours, hours of work and we have the interest and the availability, we'll put together a proposal for a project. Again, it's going to have a really tight scope of work. It's going to have a clear beginning and a clear ending, a fixed price. We're going to give it to them, and if it's important to them, then they're going to engage us to do that work. If they're not then they're going to say no and that's okay. I think it's so important, you know to limit scope creep. You've got to be okay saying no and sticking to your guns. Thank you so much for the questions there Arad and for everybody else if you're watching this on LinkedIn every so often I will drop an open ended question and say hey what do you want me to address on our YouTube channel or on our podcast and people drop questions down there. So if you have questions I would love for you to join me on LinkedIn or you can post in the comments section below if you've got any requests. I love answering your questions so don't hesitate to drop those in the comments below if you find it helpful. In the meantime I can't wait to see you back next week right here on the CFO Report. Have a great day my friends.