“I am definitely starting to see more people with an FP&A background becoming fractional CFOs.”
Michael King, founder of The CFO Accelerator, coaches hundreds of fractional CFOs and accountants in building “6 and 7-figure advisory firms”.
King arrives on the bustling fractional CFO scene at a time when demand for part-time finance chiefs working for several companies is higher than ever. In King’s words in the next decade a small business having a fractional CFO will be just as common as bringing in a bookkeeper as hiring fractional CFOs becomes the “cost of doing business” at small and medium-sized enterprises. And according to King, those with an FP&A background have a significant advantage.
“FP&A really gets people ready for those CFO technical skills. So when I think about FP&A, I’m thinking about things like forecast projections, budgets and models, and data management, alongside communications across functional divisions within a business.And that’s a huge part of what a fractional CFO has to understand”.
Covered in this episode
- King’s path from being a navy nuclear engineer to a fractional CFO leader
- The essential skills you need to be a fractional CFO
- When should an SMB choose a fractional CFO
- Why budgeting and forecasting are “everything”
- The key to using the fractional CFO position to connect the strategic goals of a business
- Why people in finance must learn to love sales
- When to move away from a fractional CFO and appoint a full time finance chief
- Why cash flow is always “the first” and most important metric for any fractional CFO service
- Why you only need a small number of clients to “make a killing” as a fractional CFO
- How the Fractional CFO space will explode in the next decade “regardless of the economic picture”
- Fractional CFOs need to be “operating as far away from the decimal as possible” to be successful
- The process of adopting kids as the thing few people know about Michael
Watch the full show on YouTube
Read the full transcript and blog
Follow Michael King on LinkedIn
Follow Paul Barnhurst on LinkedIn
Episode links
The CFO Accelerator podcast with Michael King
The CFO Report (Youtube channel)
The The 5-Minute Fractional CFO Newsletter
Paul Barnhurst:
Hello everyone. Welcome to FP&A Today. I am your host, Paul Barnhurst, aka the FP&A Guy, and you are listening to FP&A Today. FP&A Today is brought to you by Datarails, the financial planning and analysis platform for Excel users. Every week we welcome a leader from the world of financial planning and analysis and discuss some of the biggest stories and challenges in the world of FP&A. We’ll provide you with actual advice about financial planning and analysis. This is going to be your go-to resource for everything FP&A. I’m thrilled to welcome today’s guest on the show, Michael King. Michael, welcome to the show.
Michael King:
Glad to be here. Thanks for having me.
Paul Barnhurst:
Yeah, no, thank you for making some time for us. So let me just go ahead and tell you a little bit about Michael. Michael comes to us from the Dallas Fort Worth area. He stuttered at Auburn and Old Dominion University. He started out his career working for the Navy. He was a nuclear engineer on submarines and currently today he runs his own fractional CFO firm and he also helps others start and grow their own fractional CFO businesses. So Michael, could you start by just giving us a little, telling us a little bit about yourself and your background?
Michael King:
Yeah, like you said, I started on submarines for 11 years and oversaw the operation of nuclear power plants. And then from there I made the obvious career transition into plywood manufacturing and spent a couple years in plywood manufacturing and then decided to go to business school and learn a little bit more about business. I realized I didn’t want to be in engineering any longer and worked for a SaaS company for a number of years after that and then started my own fractional CFO firm seven years ago this month, which is pretty exciting. And I’ve been doing that, like I said, for about seven years. And then a year and a half ago I decided to help other people in the industry start scale and optimize their fractional CFO firms as well. So there’s the elevator version of my background.
Paul Barnhurst:
Thank you. And I appreciate that. So I am curious, how did plywood manufacturing, how did that become the first transition?
Michael King:
Well, there was a, interestingly in Virginia where I left the naval Service right down the road was a plywood mill. And they happened to be hiring an engineer that needed a background in thermodynamics. And I happened to be an engineer with a background in thermodynamics and the pay was right. And so there’s not a lot of thermodynamics jobs in that area outside of the military. So that was a great place for me to start.
Paul Barnhurst:
So obviously like you said, it was the right transition. Just doesn’t sound like it when you hear nuclear power, plant engineer, plywood manufacturing.
Michael King:
Turns out thermodynamics are thermodynamics regardless of what the heat source is, the properties, the heat transfer the same everywhere.
Paul Barnhurst:
And that makes a lot of sense when you explain it that way. I just wouldn’t have thought about it. So thank you. That’s helpful. Of course, then you went back to school and you worked for a SaaS company, and I’m assuming you did finance there with the SaaS company. Is that?
Michael King:
Close. was actually in business analytics, which tied a lot with finance. But I think there’s an interesting story here on how I went from plywood back to business school that I think your listeners might be intrigued by.
Paul Barnhurst:
Sure, we’d love to hear that.
Michael King:
Yeah, because there’s a lot of my why in what I do now based on an experience I had one day at the plywood mill. So I started there as an engineer, like I said, but through a random turn of events, I found myself running the plywood mill about a year after I got there. And so in that role I had P&L accountability for a $90 million a year P&L, and that was great. But based on my background in engineering and military service, I wasn’t really sure what P&L stood for, much less how to be accountable for it. And so in the role I had a controller and some staff accountants that reported to me. And every couple of weeks these ladies would bring me a stack of reports and I said, Hey, just leave those in my inbox. I’ll take a look after lunch.
And they would leave the office and I would start frantically googling what are these reports telling me and what is IRR? And these kinds of, I no idea what these acronyms even mean, but is you might imagine you’re not going to Google your way into a 90 million a year P&L. So after a few weeks in the role, I got up the courage, I went to the controller’s office who had this mom kind of feel to me, she was about my mom’s age and just a sweet southern lady. And I said, miss Denise, can you help me understand what these reports are telling me? And she looks at me and she says, bless your little heart, sit down. And so I sit down in her office and the experience was a little bit, if you’ve ever gone to a sports enthusiast around a sport, you don’t know anything about maybe lacrosse or rugby.
And you ask this enthusiast like, Hey, how does rugby work? And they get really excited and they start talking loud and they start talking fast, but they’re using rugby words to explain other rugby words and your head’s just spinning and you’re like, look, I just want to know how do they score? And that’s what my experience was like that day in the controller’s office. She’s using finance terms to explain other finance terms. And I eventually just said, hey timeout, I appreciate it, but this is what I need. I need to understand how to use the information in these reports to make smarter decisions in the business tomorrow. And she paused for a second and she looked at me and she said, well sweetie, that’s your job, not mine. And I was like, but she wasn’t wrong. She wasn’t wrong. That was my job. But I didn’t have the tools in my toolbox to know how to do that.
And so that was where I said, look, I really like this business thing a whole lot more than I like the engineering thing. And I decided to go get an MBA. And that was really the driver. As I said, I want to understand the mechanics of how these financial reports are generated so that I can use them as a tool to make more informed decisions in the business. But what ended up happening is I get to business school first day in graduate, I don’t remember if it was finance or accounting, graduate level finance or accounting. And I’m sitting there, there’s a PhD up there. And he was doing the same thing that Ms. Denise had done. He’s using the terms to explain other terms. All through business school. I really struggled with this disconnect that I felt was there in really turning the data in the reports into actionable information that a business owner could understand and leverage and use to make smarter decisions in the business.
And so I finished business school and I did go to that SaaS company for a number of years and I learned a ton about SaaS, but I realized that my passion was really around that, how do we help business owners understand their numbers so that they can make better decisions? And seven years ago when I started this, fractional CFOs weren’t really a thing. I mean, you heard about them a little bit in the SaaS world, but outside of the SaaS world, you really didn’t hear about it much. It didn’t really exist. And so I was more of a consultant back then, but really focusing on helping small business owners really kind of understand what’s going on. And over the years it’s kind of morphed and branded itself into this fractional CFO thing. But that’s kind of how I got in the game and that’s why I’m in the game and that’s why I’m passionate about it because I felt that gap. And when you think of the fact that 50% of small businesses don’t make it five years, 80% don’t make it to the tenure mark when you dive into the data, the vast majority aren’t failing because of a bad product or a bad service. Most of them are failing because they make bad financial decisions. And I said, this is my thing. This is my calling. I’m going to help business owners avoid that fate of failing due to bad financial decisions
Paul Barnhurst:
That that’s a great place to be. And I can tell you have a passion for it. And I love your story because I can picture the controller there, a little lady just talking to you in finance terms and you’re like, plain English please. And it’s obvious, it’s not like you weren’t intelligence, just an area you hadn’t learned. I mean, nuclear engineering has its own words and acronyms and things that you have to learn. And I’ve typically found some of the best finance people I work with come from an engineering background. Cause it gives you a very solid analytical background to transfer into finance. So I’ve always really enjoyed working with people that started as engineers and made that switch to FP&A. I’ve had a handful over my career. That’s a great story there. I appreciate that. So maybe just stepping back for a minute, going back to working for the Navy, how did your experience working for the Navy being in the military prepare you for where you’re at today? Maybe talk a little bit about some of the lessons that you took from that experience.
Michael King:
Yeah, that’s a great question. The type of submarine I was on, I’ll give you a quick military strategy lesson here. The type of submarine I was on, always at least one on either coast of the United States that’s deployed 365 days a year, 24 hours a day. And this type of submarine is literally waiting for World War III to start. We carry an arsenal of nuclear weapons, we’re waiting for the bad guys to do something stupid so that we can respond in mutually absurd destruction and all that kind of stuff. But because of the just absolute requirement for those submarines to be deployed at all times, there’s no excuses when it’s your turn for the submarine to get underway. There’s no , hey, we weren’t able to get underway because of this. Or the reactor plant’s not ready because of that. There’s no excuses. And so it really fosters this can-do.
You’ve got to just adapt, improvise, and overcome. You got to figure it out. You got to get this submarine underway. And I think that has been an absolute vital tool for me as a business owner and somebody that works with other business owners is as the CEO of your own firm or of a business, you’ve got to deliver the service. You know, can’t let these excuses creep in. And a lot of times they’re what I call artificial hurdles. We make excuses for things when the reality is it could have happened. So that has served me really well as a business owner and somebody that works with other firm owners is just this mindset that we’re going to get it done, we’re going to get that submarine underway, whatever it takes.
Paul Barnhurst:
That, that’s a great takeaway from that because like you said, you can’t have an excuse. So sorry, this isn’t working. We’ll deploy tomorrow, now you’re going today. Figure it out. Be prepared. Right, absolutely. And I can totally see how that with small businesses of like, okay, what are our options? How do we get it done? Let’s just figure out the path forward because there’s pretty much always a way to do it. Now there’s a question of whether the cost and other things make sense, especially in the business world, but there’s almost always a way to do it. Absolutely. So it makes a lot of sense. Absolutely. So maybe can, you talked a little bit about CFO, you mentioned how early on they use the term, you’re viewed more as a consultant. So can maybe describe to our audience what is a fractional CFO and what are the typical roles and responsibilities they have?
Michael King:
Sure. So I’ll love to, I like explaining this with a compare and a contrast. Ok, so let’s take, everybody kind of knows. Think of like an accountant, a bookkeeper, a tax preparer is our, for first point of reference, they’ve spent their entire careers learning how to report on what happened in the past. And that is an absolutely essential deliverable that small businesses, mid-size, large, everyone needs it, right? We’ve got to understand for compliance purposes and reporting and all these things, what happened in the past. The reality though is that business owners C-Suite, again, this publicly traded company, privately held small, large business, the stakeholders, the shareholders are normally more focused on what’s going to happen in the future, their goals, their dreams, their aspirations. Those things all live in the future. The CFO’s job, and I’ll speak just from the fractional CFO’s perspective, your job is to bridge where the finances are at today and connect them with that forward looking perspective that the business owners have. Your job is to take their goals, whatever they are, and put the numbers behind them to determine if their strategies and tactics are going to produce the profitabilities, the cash flows, etcetera, that those business owners and shareholders need to be successful to hit their goals.
Paul Barnhurst:
That makes sense. I think that was really well described. I like how the forward looking and the backward looking. I’ve heard different ways of describing it, but I really like how you brought that together. So let’s say somebody needs a fractional CFO. What does that company look like? What’s the ideal candidate for looking to get a fractional CFO?
Michael King:
Sure. The quick answer is it depends, but I think the most important characteristic, that’s a common thread. I’ve been doing this a long time now. I’ve coached hundreds of firm owners. Now, the common thread that I see across businesses, regardless of industry or size, is that they’ve got this growth mindset. They’re looking to grow, they’re looking to evolve. They’ve got big goals because your job is, like I said, as the fractional CFO, is to help them figure out what’s coming and how to navigate to those things. So if a business is content with where they are, and that’s okay, your theories or philosophies on that might vary, but if they’re just kind of happy with the status quo, they’re not looking to change anything, then I would argue that a fractional CFO’s value is going to be limited in those cases. Now you can get into size of companies and industries and all of that I think is kind of a matter of opinion. When it makes sense to hire a fractional CFO, as an example, a SaaS company that’s pre-revenue and looking to raise capital, they need a fractional CFO, a lot earlier than, say, a brick and mortar company or a manufacturing company, as an example, a controller, accountants, they would typically come in prior to the fractional. So a lot of it just really depends on the industry and where they’re at and what they’re trying to do. But that common thread is growth. They’re looking to grow, they’re looking to do new things and bigger things.
Paul Barnhurst:
Thanks for that explanation. And that makes sense to me. The whole idea of growing is a good way to look at it, right? If a company, the founder’s done well, he is happy with the money. He doesn’t look to grow at all. It’s a business that he’s just comfortable with, why spend the money?
Michael King:
What are you going to advise him on?
Paul Barnhurst:
Yeah, your P&L looks the same. It did last month.
That’ll be $500 please or whatever. It’s, it’s hard to bring them value and you want to make sure you’re able to bring value. So that makes a lot of sense to me.
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So next thing I wanted to ask about a little bit, you recently, I think it was a year and a half ago now, you mentioned, but you created a program to help train and prepare other people to start a fractional CFO service. So could you talk about what led you to do that? How did that come about?
Michael King:
Sure. I go and speak at different events and all the things, and as I’m talking about my firm and the things that we’ve done over the years, I would inevitably get one or two accountants that were in the audience or someone in the financial field that says, ‘Hey, I’d love to hear how did you build your firm? Or what were the tricks? Do you do any coaching?’ Do you work with people on how you did it? And I, no, no, no, no. I’m focused right here on this thing. That’s not what we do. And about a year and a half ago I recognized I kind of worked myself out of a job. I had built a team around me and the team was executing really well within my firm. And a bored entrepreneur is a very dangerous entrepreneur. And I’m sitting around and this lady, Shannon Weinstein, who’s the CPA that I had met at an event three or four years prior when I was talking, she DMed me again and she said, Hey, I want to bug you again.
Have you thought about helping firm owners offer advisory services? And I said, you know what? I’m actually kind of bored right now. And I said, I think there’s a need for it. I think there’s, the industry’s growing and I see it around me. And I said, let’s do it. And so I started about a year and a half ago with the CFO Accelerator. Our mission is just to help accountants and fractional CFOs start scale and optimize their advisory services so that they can go out and have more impacts with the small businesses and medium sized businesses that they serve.
Paul Barnhurst:
So what are the offerings you have with the program? What’s included in the program? Maybe a little bit about what that looks like.
Michael King:
So I’ve got a podcast in a YouTube channel called the CFO Accelerator, or actually it’s called the CFO Report that’s absolutely free. I’ve got a weekly newsletter that I put out called the five Minute Fractional CFO. That’s just every Friday I deliver a tip that you can read in five minutes that’ll help you start scale or optimize your services. And that, like I said, that’s free as well. And then I’ve got a program called the Inner Circle, and that’s a community of people that are offering advisory services that get together in Slack. And once a month I go live and I teach on something that I’m seeing in the industry, a best practice, a process, a procedure, just something that I think would add value and help people with their firms. I go live for a month and I teach on something that’s relevant to the industry, and then the next day I go live for an hour and I just take questions.
So that’s like our community’s opportunity to come in and pick my brain and my team’s brain. So that’s called the inner circle. Then I’ve also got a course called the CFO Academy, which are the seven playbooks that I use to run my firm. We really pulled the curtains and we shared literally all of our processes and procedures from how we think about CFO services to our packages and pricing, sales onboarding, financial analysis, report, deliver, all the things. It’s literally how we run our business. And then I also have a program, a live conference. It’s the first one to the best of my knowledge ever called the CFO Accelerator Live. And that’s going to be here in Dallas, May 16th through 18th. It’s going to be three days of me on stage, pouring out the seven frameworks that I’ve, seven frameworks I’ve never shared before on how to start scale and optimize your firm. And we’re going to focus on CFO technical skills, CFO leadership skills and CFO firm building skills. So those are the ways that people work with me.
Paul Barnhurst:
Great. Thank you for sharing. Sounds like the really good robust program you got going there. So speaking of kind of CFO work, how does FP&A fit into all this with the fractional CFO? How much of the work you’re doing is FP&A related?
Michael King:
I think FP&A is really important for fractional CFOs, right? Because I was talking about a minute ago at the event, there’s the CFO technical skills and then there’s CFO leadership skills. FP&A really gets people ready for those CFO technical skills. So when I think about FP&A, I’m thinking about things like forecast projections, budgets and models, data management. I’m thinking about reporting and how we display that, whether it’s pitch decks or KPIs and dashboards. But I also think communications across functional divisions within a business. So when I think of FP&A, those are kind of the four main buckets I’m thinking about. And that’s a huge part of what a fractional CFO has to understand because the reality is most, I would say the vast majority of small businesses and a lot of even medium sized businesses, they don’t have that FP&A function internally.
And so as a fractional CFO, you can really step into that role. Now, where the gap is on that CFO leadership side, you’ve got to learn as someone that understands FP&A how to convert or translate the things that you’re seeing in the models, in the projections, in the reports, you’ve got to connect that with the shareholders of the stakeholders goals and aspirations, what they’re trying to do. And that’s where that leadership part really starts to come in is the collaboration with the CEO, CMO, CRO, et cetera, and connecting those two. So I think FP&A is an awesome place to start if you want to move into a career as a fractional CFO.
Paul Barnhurst:
And do you see a lot of people nowadays making that transition from being in an FP&A role to being a fractional CFO? Or what do you typically see?
Michael King:
More and more. There’s a lot of folks that come from the accounting side that have moved into it, but we’re definitely starting to see more people that are coming from that, the management accounting side, if you will. Yeah, sure. Starting to see more of that, the FP&A background. And they’re doing really well with it because they understand that a lot of times in that FP&A role, especially if you’ve worked in corporate, you understand how that collaboration has to work from operations to finance. And that’s such an important skill to have as a financial leader.
Paul Barnhurst:
I agree. And the way I like to think of it is FP&A really has a 360 view, and they’re one of the few people in the organization that has that, especially if you’re in a smaller org where you’re doing fp a for the entire company, you really get to see all the inner workings where very few people get that cfo, F O does c E O to a certain extent, but even C E O sees it all, but not at the detail and the way fp and a sees it. So you can really understand the collaboration and the partnering. It can bring insights that you don’t get from other areas of the business.
Speaker 4:
I couldn’t agree more. Yeah, it’s almost like a cheat, you know, almost have this unfair advantage with that 360 view, because especially when you have an understanding of operations, when you really understand how operational tactics impact cash flows and profitability, maybe even into taxes, you know, can really start to make smarter strategic decisions when you understand the implications of the tactical decisions. And like you said, very, very few other people have one foot in both of those doors. So yeah,
Paul Barnhurst:
A hundred percent agree. And I’ve mentioned this to people who work in finance. I’ve always been a big believer, go have at least one role in the business beyond FP&A. I started working procurement and then I went back to school and before I did FP&A I did a role where I was kind of a business analyst, did a lot of report writing development, some data stuff, and it served me extremely well when I switched in the business and then I worked for one company where they had me do a lot of operation stuff. Like I developed sales commission plans, even though I wasn FP&A, I got involved in a lot of pricing decisions and discussions and getting to see how it all really fits together was invaluable versus, okay, I just spent my day in a spreadsheet, you know, don’t learn how the business works in Excel. Yes, you understand a lot of numbers and how things hang together, but without that getting out and talking that collaboration, you’re missing a crucial part.
Michael King:
This may be an unpopular opinion, I don’t know, but I’ll throw it out there. I think that folks that excel in FP&A, I think that if they’re interested, they’re actually set up uniquely as a COO, sometimes more than a c o because of that understanding of the finance and the operational piece. So if you really get into those roles, like you talked about Paul, where you’re dipping and dabbling with operations, it can make a lot of sense to transition from an FP&A level, like a manager or director into a VP of ops or a COO role, because again, you’ve got that understanding of both worlds and very few people and operations have the understanding of the finance side. So that could be a career path as well.
Paul Barnhurst:
That’s a good point, and I hadn’t thought of it directly that way, but I mean you see more and more, especially small to mid-size companies, where you see the CFO and COO being the same hat. And I’ve seen a number of people I know where, hey, they’re the, they’re CFO, but they’re also the COO O because they understand the operations side. And when you understand the operations, you understand the finances behind it, it makes it easier to drive those decisions to the bottom line to where they make an actual difference to the EBITDA or the revenue. Whereas sometimes when you have someone who’s disconnected from the finance, they may make a good operational decision, but not realize the negative impact it can sometimes have on the financials because of the cost element that they’re not as close to it.
Michael King:
It. Again, it’s almost unfair. So you can really go whichever direction you want, CFO or COO,
Paul Barnhurst:
Or you know, can do some do and just start your own business. That’s what I decided to do
Michael King:
That too. That too.
Paul Barnhurst:
So we talk about FP&A work with small businesses. How important is budgeting and forecasting and what does it typically look like when you come into these companies?
Michael King:
Look, budgeting and forecasting is everything, especially in the fractional CFO role or even an FP&A role in a small business because the budgeting and the forecasting gives that owner and the shareholders, the decision makers, that grounded view into the future where they can say, look, we wanted to make these hiring decisions, we wanted to make these CapEx decisions or OPEX decisions, and it feels like a good move. The market’s primed, or whatever the case is, it feels great. But until you as the FP&A expert can come in and put numbers behind that to say, okay, this is great market opportunity, but let’s look at it from a cash flow perspective. Are we putting the business in undue risk from a cash flow perspective if we march on this right now? And if the answer is we can’t do it now, let me help you figure out when the right time might be.
Just as an example. And I think that so few small to medium sized businesses have that opportunity, that skillset set on their team to be able to put some real numbers, some real tangible. Hey, this is what profitability look, this is what gross margins and net margins and cash flows look like. Maybe even if you feel comfortable, what are the tax implications? Very few of them have that insight. And so it ends up being a gut decision on whether and they not do it, and the way I like to explain it is, business owners, without the forecast and projections, they’ll tend to do one of two things. They’re either going to cross their fingers and close their eyes and pray that that decision works out for ’em or they don’t do anything. And both of those can be equally damning to a business or harmful to a business.
So yeah, the forecast and the projections are everything. Now let me say this, forecast and projections that are not tied to the business’s goals fall on deaf ears more times than not. And I think that’s where a lot of folks get disconnected or where they end up feeling unheard is they’re putting this great information into the forecast and projections, but they’re not telling the story clearly enough around what they’re seeing and saying in those models are connected to the goals. You’ve really got to get good at connecting the forecast, the projections, the budgets, the models you’ve got to get, become excellent as a storyteller in showing the decision makers what you’re seeing in your opinions and your advice connects to the larger goals of the company. That’s where people will hit a glass ceiling. A lot of times in the financial, as a finance professional is where the stakeholders don’t feel like you’re connected with the strategic goals of the company. So yeah, they’re vitally important. I cannot stress enough how important they are Paul, but equally important, you’ve got to be able to turn that information into a story connected to the strategic goals.
Paul Barnhurst:
Thank you for that explanation, and I agree they’re vitally important. There’s two things that really took away there that you mentioned is one, you got to be able to tell the story, take the numbers and craft that story that gets it back to the strategy. And the second is the importance of understanding strategy. Strategy displays itself in the P&L. If you have a good strategy, you should be seeing above average returns is the idea because it gives you a competitive advantage. You can see what’s going on. One of the very first articles I wrote almost seven years ago now when I first went down this journey that ended up leading to my business was, I think I called it something like the hidden skill or the underutilized skill of FP&A. I referred to it as strategy in the importance of understanding strategic frameworks and bringing that, bridging that gap between the numbers and the strategy side of things. Because you’re right, without that component you and without the story, you become known as the numbers jockey. Ok, you’re great with the numbers and oh yeah, he can look at a whiz and he can give us insights, but can he take the next level and help us make better decisions with that and explain why they’re better decisions and they fit what we want to do.
Michael King:
When I look across, like I said, I’ve coached hundreds of firm owners now, there’s this mindset that people that have a finance background aren’t good at sales. And what I’ll argue is you, you’ve got to be good at sales because in finance, whether you’re an internal stakeholder as a director of FP&A or you’re a firm owner, you have to be good at selling ideas and selling action. And it’s, it’s no different than selling your service as a firm owner. You’ve got to learn how to sell your ideas and sell the action that they need to take. So if I had to leave your listeners with one piece of advice is invest in books or courses or watch YouTube videos on how to tell stories. And there’s some great folks on LinkedIn that talk about how to tell story with data. I don’t even shine a light to those guys because they’re amazing. But what we tend to do a lot of times is we invest on those technical skills, and I would say make sure that you’re putting as much effort into investing in those soft skills, those storytelling skills, those leadership skills as particularly around data and how to turn data into a story that’s going to be the difference, if I had to guess in you getting stuck and hitting that glass ceiling or your career going off into the C-suite or as a firm owner, etc
Paul Barnhurst:
Yeah, one of the best books I read, I remember I wanted to get closer to our sales team and understand sales, and this was, I’m on maybe about three, four years ago now, and I asked our head of sales, I’m like, can you give me a recommendation for a book? And he recommended Spin Selling, which is a really good book around strategy of selling the difference between small and large. And you’ll learned a ton from that. And then I totally agree, learning about stories, there’s so many great books, Stories that Stick Effective Storytelling by Brent Dykes, I got to meet him about a month ago. He lives here. And so we had lunch and talked about it and yeah, I couldn’t agree more. Just understanding how to sell and tell that story. It’s helped me a lot now that I run my own business because I do the selling, I do the marketing, I do all those things that I used to make fun of and to those people, as in finance in particular, it’s like, why can’t you keep your CRM up to date or do your data?
And I posted the other day going, I have to apologize to all those salespeople. I realized all my data was still in emails and I hadn’t built a CRM. And one of my old CMOs goes, well, how’s it feel to be on the other side? And I just laugh, I get it now you can leave me alone. So definitely that’s a great point there. I really appreciate that. Sure. So next question here, when do you think is the right time for a business to bring somebody in-house to go away from having fractional services and say, look, we’re just going to do it all. How do you typically think about and advise a business on that?
Michael King:
Sure. So I’ll tell you the way I tell our fractional CFO clients because they get that a lot. When does it make sense to not use a fractional CFO? When should we bring it in house and is somebody that’s been doing this seven years? What you end up seeing is the business, the demands of the business don’t make sense for the fractional provider any longer because they just have so many dynamics and so many things going on inside the business that they really just need somebody dedicated like that 40 hours a week. Now the challenge is there are some models where you could get to, we’ve got clients that are in the $20 plus million range that aren’t ready for a full-time CFO yet, but since we’ve been working with them, have hired a full-time controller, they’ve got an accounting manager, and then they’ve got AP payroll folks, they’ve built all that out.
And so next, we’ll, it’ll be time for them to hire afull-time C F O. But I think the trick is you’ve just got to have that intellectual honesty to say, are we able to provide them the level of service and value that they need as a fractional, or would it make more sense for them to hire somebody? And I think that if you have the heart of service and you have a heart of providing value, it should be easy, an easy answer for you. But that said, we’vegot $20 million plus $20 million plus clients that are using fractional, but we’ve had $8 million revenue clients that needed it full-time, right? So it really just kind of depends, but communicate, and again, just kind of be honest you, you’ll be able to feel when it’s the right time.
Paul Barnhurst:
I really, like I said, you feel when your right time, the complexity of the business where they’re planning on going, their technology, so many different things. I’ll play a role in can I provide the service that I’d want myself in a fractional role? And I think if the answer is no, it’s time to tell ’em that they should consider moving on, so to speak,
Michael King:
Hundred percent. And our goal for our clients is to graduate them to a full-time CFO one day.
Speaker 3:
Our clients, that means they’re a bigger, bigger company.
Michael King:
They’re winning, they’re winning. And so that’s always our goal is to graduate our clients to a full-time CFO.
Paul Barnhurst:
Yeah, no, that’s a great goal to have. It’s kind always weird. We think, yeah, my goal is to get rid of my clients, but you get more and that’s how you build a reputation and provide value. So it makes sense. Makes total sense. So when you’re onboarding a new client, what is the first data you like to analyze to better understand the business? What’s the metrics you like to see?
Michael King:
It’s one. It’s always one. This one thing is always where we start. I mean, it’s baked into our onboarding process. At my firm, always start with cash flow forecasting and understanding their cash position. It doesn’t matter what we find out during the sales process and what the business owner says. We always start with getting our heads wrapped around cash flow, cash flow management, and what the ins and outs of cash flows. Because it’s the heart of everything, like the cash flows or the alpha in the omega for a business, it all starts and stops with flow. You, I tell people like, you don’t pay payroll with profit, you don’t make payroll with gross profit margins. You pay payroll with cash. So the first thing that we always dive into is really understanding where they are from a cash flow position, understanding their runway, understanding.
Are there any lookouts or potholes coming up, any danger zones, so to speak, that they need to be aware of? And a lot of times the business owners have a false sense of security around their cash position. I’ll give you an example where we saw this really running rampant was right after covid, the PPP money’s flowing in. EIDLs are flowing in and everybody looks, honestly, they look at their bank account balance to get, how do I feel about my cash position? But you start putting together a cash flow forecast, you’re looking at the statement of cash flows. And what you start to understand is a lot of those business had a false businesses had a false sense of security because they’re actually upside down. If you look at their statement of cash flows, the cash from operations, you start looking at the cash flows, it’s actually going down.
So even though they felt good about where their cash position was, that’s not always the case. So we always, always start with a deep dive into cash positions. And to do that, it really requires a bit of diligence. We’re looking at major contracts with vendors, we’re looking at major contracts with their clients, we’re looking at loan documentation and amortization tape. We’re looking at all of these things in addition to the historicals to really wrap our head around, is the cash position as healthy or unhealthy is the business owner thought when we first got started? I cannot overemphasize the importance of really doing your due diligence to understanding what that cash flow situation looks like sooner than later. It’s got to be the first thing.
Paul Barnhurst:
They always say, cash is king. And it really is true, especially in a small business. So many businesses show profit on paper, but go under because they don’t have cash. Nobody went under because they were profitable or not profitable in the P&L, they went under because they didn’t have cash to continue to fund the business.
Michael King:
No, no business ever went bankrupt that had cash. You don’t have any debt, you don’t have plenty of cash, you don’t go bankrupt. Absolutely impossible. I had a conversation a few years ago with a lady, she was a licensed CPA, she worked for a tech company as their CFO, they had an exit. She cashed out multiple high seven, low eight figures, so not an insignificant amount of cash. And she was doing some accounting work for a friend who happened to own a concrete company, a residential concrete company, and he doesn’t want it anymore. The balance sheet’s a little messy, cash flows aren’t that great. He kind of wants out. So she says, I’m going to buy this concrete company and I think I can blow it up because there’s no females in the space. I can really lean into that part of the branding.
So she picks up the business and just explodes it. So it went from like $400 or $500K a year in revenue, and within two or two and a half years, she had it up to $20 million. She went bankrupt because she didn’t take the time to understand the cash flow challenges of that industry. Because typically you’re paying your vendors weekly, you’re paying your labor weekly, but your AR terms sometimes are net 180 in that world. So she was actually crushed by her own success because she’s doing these jobs but not getting paid. Net 91 20, net 180. It’s ridiculous. So that’s why we always go in there and I would, everyone here, if you’re going in to an FP&A a role for a company or you’re doing a fractional thing, wrap your head around those cash flows because you never know what’s, what’s lurking in there and who’s overlooked it.
Paul Barnhurst:
You convinced me, I’ll do a cash flow forecast for my business. Now, pretty easy when you’re an individual one and you don’t have a lot of clients, but I totally, you do need it, you still need to understand it. I watch my cash closely. I totally a hundred percent agree with that. So what advice would you offer to someone who’s listening and they’re thinking about starting fractional CFO kind of advisory services practice? What advice would you give them?
Michael King:
Lean into that leadership piece, right? Really start thinking about how good are you at that piece of connecting what you’re seeing in the data and connecting it to the strategic objectives of the company. And ask yourself honestly, is that something I enjoy doing or do I prefer to just stick to the forecast and the projection, the models, the data management, that’s okay, but be honest with yourself. Do you get excited about connecting that stuff to strategy and helping convince CEOs what they need to do to take action? There’s no right or wrong answer, but that’s really what you’re signing up for as a fraction is that role. So I’d say the first thing is just ask yourself, where do I get my fulfillment? Where do I get my joy as a financial professional? And if that’s not your jam, that’s okay. The second thing that I would say is in business mission is everything.
But without money, we can’t sustain the mission. And that means you got to go out, you got to leave the cave, you got to kill something, you got to drag it home and cook it and eat. And so you’ve really got to be okay with the fact that you’re going to have to do the dirty S word sales if you want to be a fractional. Now here’s the good news. Most people in the fractional world, they suck at sales. Like I’m telling you, I coach hundreds of them. Most of them are really bad. So you don’t have to be good at sales to do a great job as a fractional. You’ve just got to be like, okay, you just like the minimum and you’ll do fine. The other thing that, the other encouraging thing I think here is, you know, can charge. We charged clients $6k, 7k, 8 K a month as a fractional CFO.
We’re not doing accounting, we’re not doing bookkeeping, we’re not doing taxes. This is strictly advisory work. So you don’t need 400 clients to make a killing as a fractional CFO. I mean, you can make multiple six figures as a solo firm owner. I mean you 2, 3, 400 grand, 500 grand as a solo firm owner if that’s what you want to do. And the cool part about it is I see some challenges coming in the accounting world and to an extent in the FP&A world. The cool part is more and more businesses are learning about the fractional CFO thing. They’re learning. The business owners today has different expectations than business owners did even 10 years ago, certainly 20, 30 years ago. They’re more forward looking. The average business owner is smarter and more informed today, and they’re recognizing that the reporting isn’t getting them where they need to go.
Let’s just keeping ’em out of trouble with the IRs. So they’re looking for more of that advisor to come alongside them and guide them and give them that strategic direction. And I think that in the next 10 or 15 years, fractional CFOs at a small business are going to be just as common as a bookkeeper. I think that it’s just going to become a thing that small business owners look at as a cost of doing business. You got to have them. So while there’s these downward pressures and these challenges that are facing some of the other roles, I only see upside for the fractional virtual CFO space. So if that’s something that’s of interest to you, then I would highly encourage you to look at it because I think it’s going to continue exploding over the next 10 years, regardless of what happens in the economy. I think as the economy continues to get more strained, people are going to be looking for that strategic help. A lot of people say like, oh, they’ll cut the cost. And I’m like, no, if you get cut as a fractional CFO in the bad times, you’re not doing your job. So I think there’s a ton of opportunity if that’s of interest to somebody in the FP&A world right now.
Paul Barnhurst:
Thank you for that answer and that that’s great to hear. It’s a lot how I feel about fp and a is we’re seeing that takeoff is a field becoming more and more important. Moving from that 10 years ago, 20, 30 years ago is definitely viewed as back office. And now a lot of people see it as a value creator. It’s more and more important. And early on they want to bring somebody in because good FP&Aimpacts the bottom line. A good fractional CFO doesn’t just manage your expenses, they help you grow, they help you make smart decisions. And so I agree with you that if you’re getting yourself fired in a bad time, it’s probably cause you weren’t doing a good job. Not that the economy went bad, so you were the first person they thought of letting go.
Michael King:
I tell folks in my coaching program all the time, if you’re having conversations with any level of regularity with your clients about cutting expenses, just go ahead and know that client’s probably not long for life, right? Because you can only survive so long on cutting expenses. And what I tell people, you’re operating too close to the decimal as a fractional CFO, if you’re talking about cutting expenses, you want to be operating as far away from the decimal as possible. You got to be thinking big strategy stuff, not tactical. Hey, you spent $892 on travel last month when you only budgeted for $600, what’s going on? That conversation’s not going to cut it as a fractional CFO.
Paul Barnhurst:
Great, great point. And I love that example. I hadn’t heard it put that way as far away from the decimal as you can be. Really good analogy there. So next question is, you talked about the great opportunity for fractional CFO and we talked a little bit about FP&A, but in your mind, what do you see as maybe the biggest opportunity and the biggest challenge going forward for FP&A professionals?
Speaker 4:
The biggest opportunity is I’ve been, I think I’ve been kind of talking about this whole time, the opportunity for you, whether you stay at a company or you go out on your own, is be that person that’s connecting all of the reports and the datas, the dashboards, the KPIs. Find ways to tell stories with it and to connect that those stories with people so that it drives action. If you can be that person in your company that’s able to do that, the sky’s the limit. The sky’s the limit. Because very few people, like you said earlier, Paul, very few people have that unfair advantage where they’re able to see the numbers and how it impacts operations. And when you get into those senior FP&A roles, you’ve got the ear of the senior leaders, if not the C-suite. And if you’re able to start communicating those kinds of things to them, then you’re going to become invaluable.
You’re going to be that person at the meetings, you’re not getting the reports from them, you’re at the meetings, you’re doing the presentations, talking to the leadership team. And that’s where you want to be from not just a job security perspective, but frankly from a fulfillment perspective, that’s what gets you out of bed, right? I got to seat at the table, I’m a contributor now what they’re showing me that what I’m doing is valuable. So I think that’s the upside. Learn how to bridge those gaps between what you’re reporting on and what the business is trying to do. And what’d you say? What are the downsides, right? Yeah, kind of what’s maybe the biggest challenge or risk moving forward?
I think there’s two things that I look at is a risk. One is in the tech and the automation. One is it, gosh, it’s just hard to stay current with all of it and to really keep up. And I think that if you want to survive and thrive, you got to stay on top of that stuff. So I think that lens to people earlier in their careers, and it’s a little harder for people that are further along in their careers, but if you want to stay relevant, if you want to stay someone that’s looked upon as a thought leader, you got to stay on top of that. And that’s not always the easiest thing to do. That can be challenging. You know, see things like chat, GPT, and now they’ve got an accounting version, I forget what it’s called, like chat CPA or something like that. It’s dog crap today.
But it’s not going to be crap in two years, right? It’s coming. So instead of being afraid of those or dismissive, the question we got to ask ourselves is how do we leverage that to level us up? How do we put that as a tool in our toolbox so that we can perform at a higher level? So I think the tack and the automation and those things, that’s a challenge. The other thing that I think can be hard is, again, that strategic thinking. How does the data impact strategy and direction? And when I think of that, I kind of break it into two areas, but my MBA concentration was in data analytics. So this is kind of near and dear, but I think it’s a challenge to think through the data analysis and interpretation for people. Because as we get more and more data, being able to analyze it and interpret it and understand what it’s telling us, that’s a challenge.
But I think also you’ve got to couple that with an understanding of the industry that whatever specific industry that you’re in, along with the operations of the company, you’re, and that can be a challenge, right? Because those are very distinct skillsets and they’re not a lot of overlap between them. So the ability to analyze all of this data, interpret it, what is it telling us? And then to couple that with you got to know the industry that you’re serving and you’ve got to know the organization that you’re serving and be able to marry all of that together. Very challenging. But the people that are going to succeed, they’re going to figure that out.
Paul Barnhurst:
Great point around marrying the data and bringing in the opportunity. And I also really liked what you said about technology like chat, GPT and learning to utilize that and other things that are coming because the reality is it’s out of the box. It’s not going back in. So embrace it or be left behind when it comes to technology. At least that’s the way I view it.
Michael King:
And it’s, it’s here. It’s not coming, it’s here. Start playing with it, start learning it, right? I mean, if you think this is two, three years away, you’re already a year or two behind.
Paul Barnhurst:
I would agree with you. I talk to vendors every week in this space and I’m seeing what they’re doing and it’s here. We’ll see a lot seen announcements and we’ll see a lot more over the next few months. Some exciting times. So now there’s a couple standard questions we’d like to ask everybody, a little bit more personal questions. So first one here is, what is something unique about you that you can tell us? Something we wouldn’t find online?
Michael King:
Something unique that you wouldn’t find online? Well, my wife and I are adopting right now, so we’re going through the congratulations process of adopting here at thanks in the state of Texas. We’re pretty excited about that. I don’t think I’ve ever talked about that online before. So that’s something that’s unique.
Paul Barnhurst:
Great. Well congratulations on that. I hope that all goes well. An exciting time for you.
Michael King:
So scary.
Paul Barnhurst:
Do you have kids now or would this be your first?
Michael King:
First No, no, we haven’t.
We’re going right into kiddos that are in c p s in the foster system and adopting those.
Paul Barnhurst:
Yeah, I knew a family. I was good friends with that. They ended up, they couldn’t, weren’t able to have children and probably about 40 at this point. And they went through c p s and they ended up with a foster family of five kids all at once. And they ended up adopting ’em a family. And I watched that change. I’m like, I can’t even imagine. So
Michael King:
My wife would sign up for that in a heartbeat. And I’m everything that I can do to limit it. Let’s just start with one or two. Two is the magic. No more than two. If she found five of them though, it, it’d be hard to keep her away.
Paul Barnhurst:
Well, good luck mean that’s great that you’re doing that. We need people that can help the children. They’re in those situations. So pray that all goes well for you and that that’s great. So next question we like to ask, and this is one of my favorite questions. I think it’s fun to see the different answers. What is your favorite Excel formula kind of feature function. What’s your favorite thing about Excel?
Michael King:
Look, I’m not an Excel guy.
Paul Barnhurst:
You’re not the first
Michael King:
I knew that question. I knew that question was coming. I’m not an, I’m not passionate about spreadsheets. And so for me, anything where I can easily identify trends and outliers as a guy, and it’s weird. I have master’s classes in data analytics. For me as a business owner or as a fractional CFO, I want to be able to spot trends and I want to be able to spot outliers, things that require attention quickly and easily. So for me, like conditional formatting and those kind of things that show heat maps or trend lines, those are my favorites because they’re the most impactful for me. Interesting. As a nuclear engineer and a CFO, I’m not a details guy who knew, I’m not a details guy. So I love to just be able to look at data sets really quickly and be able to pull out those things that I need to make decisions.
Paul Barnhurst:
That conditional formatting, heat maps, like you mentioned, trend lines, those type of things are great at quickly being able to say, okay, something’s amiss here. What happened in this month? And then get to the answer
Michael King:
And look those things. They enabled me to ask smarter questions. And so that’s what I’m looking for is how can I ask smarter questions based on this dataset?
Paul Barnhurst:
I like that. Smarter questions based on the dataset. Great way to look at it. So last question here and then we’ll give you a minute to tell people how they can learn more about you if they’re interested in connecting. What advice would you offer to someone starting their career in FP&A today?
What advice would I offer somebody starting their career today? Huge upside, like we talked about earlier, the skillsets that you’re learned to get into FP&A and the skillsets that you’re going to continue to develop in your career, they’re remarkable and they’re impactful. When I think of all the different roles in a company, whether you’re a business owner or you’re working in the company, there’s very few, and I would say I could put up a case that there’s none that can drive more impact, more change, more growth, more health in a business than somebody that’s in that like FP&A role or a strategic financial role. There’s very few decision makers, very few folks in a business that have the opportunity because of, like we talked about earlier, that unfair advantage that you have. And so if you’re somebody that’s, that gets really excited about having an impact and making a change, you are in the career that if you do it well, you can probably do that to an extent far beyond anybody else other than the CEO of the company.
So what would I tell you? If you’re doing it, I would say keep grinding, stay curious, keep learning. That curiosity. I can’t stress enough how important it is to be curious and to be hungry to learn from other people. Keep that hunger for curiosity and you can really have a massive impact, whether it’s on the business that you’re in or as a fractional, you can do that at a larger scale sometimes, but I think stay with it. It’s an amazing career to be in and you can really, really change for a lot of people. Let me give you a quick example of it. Because people are like, how do we do that? In an FP&A role is, let’s just say, let’s take the cash example and you’re looking for ways for businesses to increase cash flow. If you do your job as someone in FP&A or as a fractional CFO, whatever, and you’re able to free up cash flow, where do you think Christmas bonuses come from? Where do you think raises come from? Those bonuses, those raises, those additional hires, those are the things that pay mortgages, those are the things that pay hospital bills. Those are the things that fund retirements for people. You have the ability to let people have more money to be able to thrive more in their personal lives directly because of the work you do in FP&A. And I’m like, name one other role in a business that has the opportunity to impact real people in real families. I don’t think you can do it.
I really had hadn’t thought of that way of connecting it, but it makes sense. I really like that. So thank you for that answer. And totally agree. Staying curious is so important. So if anyone wants to get in touch with you or learn more, what’s the best way?
Michael King:
Well, I’m all over the LinkedIn, so you can just search for Michael King on LinkedIn. I’m the bald guy. My photos don’t have this handsome beard yet, but you can find me on LinkedIn or you can go to the CFO accelerator.com. And like I said, we’ve got our free newsletter, the podcast, the YouTube, you’ll find links to all of that stuff at thecfoaccelerator.com.
Paul Barnhurst:
All right, well thank you for your time today, Michael, and for sharing that information. We’ll put it in the show notes and you have a great day and thanks again for sharing some time with our audience.
Michael King:
It was an honor to be here and serve. Thanks for having me, Paul.
Paul Barnhurst:
Thanks.
