If you’ve reached the $2 million to $10 million in revenue range, congrats! You’re no longer a scrappy startup. But you’re not exactly a corporate giant, either. Most likely, you have elements of both worlds. So, what’s the best step forward for managing your finances: basic bookkeeping vs. advanced financial management?
As with all businesses, there’s no one-size-fits-all answer. You might be a founder or co-founder with deep financial expertise so that you can handle much of the day-to-day money management. But even if you are financially savvy, as a founder of a successful business with a lot of responsibilities, time is finite.
Instead of spending so much time managing the financials, you should focus on other aspects of growing your business. That’s where a fractional CFO can help. How do you know when to level up your financial game? Let’s look at what basic bookkeeping and advanced financial management entail and the telltale signs that your company has reached beyond the days of only bookkeeping.
What is Basic Bookkeeping?
Basic bookkeeping is like brushing your teeth. It’s not glamorous, but keeping your financial operations in order is essential. It ensures you have accurate records, which are crucial for tax filing and basic financial reporting.
It’s pretty basic, but it is necessary to ensure you don’t run into big problems come tax time. Basic bookkeeping involves things like:
- Tracking expenses. Keeping a record of every penny that goes out, even that $5 coffee you expensed.
- Recording transactions. Documentation is mission-critical for any growing company, and basic bookkeeping ensures you stay on top of it.
- Documenting receipts. The IRS loves a paper trail, and you should, too.
- Reconciling bank statements. Watch out for discrepancies between your books and bank statements.
As you can see, basic bookkeeping is necessary for your business. You wouldn’t have made it here without it. Or, if you have, you’ll want to get organized as soon as possible to avoid a massive headache and potential problems down the road.
For meticulous founders with a knack for numbers, basic bookkeeping might be all they need to keep the ship afloat, especially in the early stages. But as you push beyond $1M-$2M in revenue, things are likely becoming a bit more complex.
The most talented founders will find that advanced financial management becomes essential at this stage because you want to make strategic financial decisions for the long-term success of your business. If you’re not quite ready to hire a full-time CFO, a fractional CFO is the perfect addition to your team without the full-time commitment.
What does advanced financial management entail? Let’s find out.
What’s Included in Advanced Financial Management?
Do you love the idea of implementing financial systems that allow you to easily and automatically track your budget, forecast, and even extract actionable insights from your data? It sounds great in theory, but it’s not always easy to implement. A fractional CFO with the right experience can handle all of this to optimize your resources, maximize profitability, and help you grow sustainably.
Some of the key aspects of advanced financial management include:
- Financial Planning and Analysis (FP&A). Things like budgeting, forecasting, and analyzing your financial performance fall under this umbrella. You need accurate data to create accurate forecasts.
- Cash flow management. You need enough cash to meet your current obligations while investing in growth opportunities.
- Risk management. It’s critical to identify potential risks and determine and implement strategies to mitigate them immediately as you scale.
- Financial reporting. Detailed reports go beyond basic financial statements and provide insights into your business's current and future health.
- Strategic decision-making. You can use financial data to inform business-altering decisions.
Signs You Need Advanced Financial Management
There are a few signs that it’s time to invest in advanced financial management. If you don’t, it might hinder you from reaching your growth potential. Let’s look at four signs you need advanced financial management.
#1: Rapid Growth and Expansion
Congratulations! Rapid growth is super exciting, but with growth comes complexity. You'll need more than basic bookkeeping to manage the increase in revenue, expanding operations, and everything else that comes with it. You’ll want to ensure your resources are being used efficiently while keeping track of cash flow in and out. At this stage, you want to develop long-term financial strategies that align with your growth objectives.
#2: More Complex Financial Transactions
You may be experiencing more complex financial transactions due to multiple revenue streams, international operations, or mergers and acquisitions with and of other companies. You want to keep these processes smooth to accelerate growth without worrying about compliance.
#3: Increased Regulatory Requirements
As you grow, compliance with financial regulations becomes even more critical. The risks of non-compliance are severe and costly when dealing with several million dollars in revenue. If you’re facing increased financial regulations, you’ll want advanced financial management to help with timely and accurate financial reporting, internal controls to prevent fraud, and to ensure you’re prepared in case of an audit.
#4: A Need for Strategic Decision-Making
Every decision you make at this point in your growth journey has implications down the line. You can rely on simple bookkeeping to identify effective KPIs, measure results, and gather insights to make decisions. You need data-driven information to identify growth opportunities, optimize pricing strategies, and plan for worst-case scenarios.
Actionable Steps for Founders to Identify If They Need Advanced Financial Management
Now that you know the signs that your company might need advanced financial management, here are the actionable steps to actually determine if you fall into any of those categories.
- Assess your financial complexity. If things are getting too complicated for your financial team, consider advanced financial management services from a fractional CFO.
- Monitor your growth trends. Rapid growth usually requires more sophisticated financial processes.
- Evaluate compliance. Are you meeting all regulatory requirements?
- Consult a fractional CFO. It’s time to bring in the big dog who can help implement those processes, make data-driven decisions, and give you the financial guidance you need to hit your next milestone.
You want to understand your financial situation without getting bogged down in the details so you can extract actionable insights to streamline your financial operations and grow your business.
Next Steps
Now you know the difference between basic bookkeeping and advanced financial management. You know the signs and symptoms for identifying whether you need to uplevel your financial processes, and now we’ll look at tips for working with your first fractional CFO.
What do you need to do to ensure a successful working relationship with a fractional CFO?
First, you need to define your needs clearly. Do you need help with financial forecasting, cash flow management, or something else? Next, you’ll want to set realistic goals together. You can work together with your new fractional CFO to figure out what financial KPIs you need to focus on to achieve the results you want.
Regular check-ins, clear communication, and ongoing iterations of your financial strategy based on real-time financial data that will drive your business forward.
Basic bookkeeping is essential, but it’s only the starting point. As your business grows, so do your financial management needs. A fractional CFO can provide the expertise you need without having to bring someone on full-time. Contact us today if you’re ready to take your financial management to the next level.
