Your income statement says the business had a good month. Your bank balance makes you hesitate before approving the next hire.
Both can be telling the truth.
A chief financial officer, or CFO, connects financial information with business decisions. A fractional CFO performs that role on a part-time or contracted basis. Understanding the role begins with the questions the business needs to answer.
Start with the decision you need to make
Can you afford an expansion? Which services earn their place in the business? What happens to cash if sales grow faster than customers pay? An acquisition raises another question: What would the combined business need to operate well?
These questions call for financial analysis connected to daily operations. A useful conversation explores what needs to happen for a plan to succeed, what could change, and how we would respond.
An accountant, controller, or bookkeeper may already provide some of this analysis. These roles overlap, and accountants can offer forward-looking advice. The useful distinction is which questions are being answered and which remain unclear.
Understand why profit and cash differ
Under accrual accounting, earning revenue and receiving payment can happen at different times. Expenses and their payments can also fall in different periods. The SEC’s guide to financial statements explains why profit and cash movement answer different questions.
Consider a simplified, hypothetical accounting example: a service business earns $100,000 and incurs $70,000 in expenses during a month. It reports $30,000 of profit. But if it collects only $40,000 of that revenue and pays all $70,000 of those expenses, cash falls by $30,000. Customers still owe $60,000 of that month’s revenue. Assume no other receipts, payments, taxes, or noncash charges.
We can examine that gap through questions about deposits, billing milestones, collection practices, and financing. Would faster growth widen the gap before improving the bank balance? Profit alone cannot settle a cash decision.
Build a forecast you can use
A useful forecast connects money to activity: projects completed, customers retained, invoices collected, or inventory purchased. It also makes its assumptions visible. If the forecast assumes customers pay in 30 days while your records show 55, you need to know before relying on it.
A forecast supports planning; actual results can differ. Its assumptions should be understandable to the people using it, with room to question how the numbers were developed.
Ask to see a realistic case and a less favorable one. What if sales arrive later? What if a customer delays payment? When would you need to act?
Then compare the forecast with actual results and update the assumptions. We learn more when we discuss why results differed from the plan and what that means for the next decision.
Agree on who will keep the information current and how often you will review it together.
Make the numbers understandable
Financial clarity also matters before a sale. A buyer needs to understand how earnings were calculated and which costs will remain under new ownership.
Seller’s discretionary earnings, or SDE, includes adjustments for one owner’s compensation and other specified items. EBITDA means earnings before interest, taxes, depreciation, and amortization. The International Business Brokers Association’s glossary explains these measures and their adjustments.
SDE does not establish bookkeeping quality, and EBITDA does not establish that statements have been audited. Neither measure, by itself, shows cash available after debt payments, capital spending, and working-capital needs. Proposed adjustments need documentation and a defensible reason; a buyer may view them differently.
The job title matters less than the information available for a decision. Can we explain the current cash position, the assumptions behind a forecast, and the reasons earnings have changed?
Those questions lead to another: What can we afford to do next, and what would change that answer?
This article is for general education and does not provide individualized investment, tax, or legal advice.