Your business can be profitable and still run short of cash. You might have healthy sales on paper but still find yourself checking your bank balance before payroll or waiting for a customer invoice to clear. As your business grows, the timing of money coming in and going out can become harder to manage.
A fractional FD gives you access to senior financial expertise without the cost of employing a full-time finance director. Rather than looking only at what has happened, they use forecasts and financial information to help you understand what’s coming next and make decisions before cash gets tight.
On this page, we explain how a fractional FD improves your cash flow and stability, and what that means for your business.
Why does cash flow become harder to manage as your business grows?
Growth often requires you to spend money before you receive the return. You might need to buy stock, take on staff or invest in equipment to deliver a new contract. Meanwhile, your customer may not pay for 30, 60 or even 90 days or longer.
Once the sale is recognised as revenue in your accounts, it can contribute to your reported profit even though the money hasn’t yet reached your bank account. So, although the work looks profitable on paper, you still need enough cash to pay wages, suppliers and tax in the meantime.
How can a fractional FD improve your cash flow?
A fractional FD can help your business in many ways, but when it comes to boosting your bottom line, the benefits are clear:
Build a cash flow forecast
A fractional FD can build and maintain a cash flow forecast covering customer receipts, payroll, supplier payments, tax, loan repayments and planned spending. That gives you a clearer view of your pressure points. You might look comfortable now but have a VAT payment, payroll and a large supplier bill due before two major customers are expected to pay. When you spot this six weeks ahead, you have options. Discovering it six days ahead leaves you with far fewer.
Find where your cash is getting tied up
If a cash flow forecast shows that your position is likely to become tight, the next question is why?
Your fractional FD can use your management accounts and other financial information to identify where cash is being held up. Customers may be taking longer to pay, stock levels may have increased or your supplier terms may no longer match the terms you offer customers. From there, you can improve credit control, invoice promptly, ask for deposits, review stock or negotiate different payment terms.
Stress-test your plans
A fractional FD can model different scenarios to test how resilient your plans are. What happens if your largest customer pays a month late? What if sales are 10% below forecast? Could you still make payroll if costs rise?
This shows how much breathing room you have before cash becomes a problem. If a late payment would leave you short for payroll or a cost increase would push your cash below a comfortable level, you can act early by delaying spending, changing payment terms or arranging finance before you need it.
Make growth decisions with cash in mind
These same principles apply when you’re deciding whether to hire, invest or take on a large contract. A new £200,000 order might look attractive. But what if you need £60,000 of materials and extra staff before the customer pays you?
Your fractional FD’s forecasts may show that it makes sense to negotiate staged payments, arrange finance in advance or delay another investment. They may also show that the opportunity needs different terms before it makes financial sense.
How does a fractional FD improve financial stability?
Financial stability doesn’t mean nothing unexpected will happen. Customers can pay late, sales can fall and costs can rise. The difference is how prepared you are when your circumstances change.
Regular cash flow forecasting and management reporting help you keep more financial headroom, spot problems sooner and make commitments based on what your business can support. If you need funding, you can start looking before the situation reaches the point of urgency.
Do you need a fractional FD?
Not every business needs a finance director. If your finances are simple and cash flow is predictable, good bookkeeping and accountancy support may well be enough.
However, as your business grows, your financial decisions become more closely connected and it becomes increasingly important to take a more proactive approach. At that point, a fractional FD gives you access to senior financial input without employing a full-time finance director.
At Sysum Howard Duggan, we work alongside you to bring greater clarity to your financial position and support better-informed decisions about the future of your business through our fractional FD service. If you want a clearer view of your future cash position, support with planning for growth, or more structure around your financial decision-making, get in touch for a no-obligation conversation about our fractional FD service.