Strengthening Your Business Operating Fabric

June 29, 2023 Mimi Torrignton

executive team discussing the best ways to start strengthening a business

As a vigilant business owner, your constant pursuit revolves around enhancing your company's performance and profitability. While you diligently attend to marketing, sales, and operations, one crucial aspect deserving undivided attention is finance. Effective financial management is a pivotal element for the sustained success of any business. In this context, we delve into the significance of making finance part of the businesses' operating fabric, and other tips for strengthening your business with Dan DeGolier.

Dan is an accomplished financial leader with a wealth of expertise spanning over three decades. He possesses a deep-rooted enthusiasm for collaborating with entrepreneurs and high-growth enterprises, aiding them in comprehending their financial landscape, optimizing cash flows, and securing the necessary capital to unlock their ultimate potential. In 2011, Dan established Ascent CFO Solutions, an innovative platform that offers fast-growing companies the opportunity to engage with an experienced Chief Financial Officer on a part-time and flexible basis.

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Welcome back to CFO Weekly, where we’re talking with financial leaders about how to build efficiency in their teams, create time for strategy, and ultimately get results. With your host, Megan Weis, let’s jump right in.

Megan - 00:00:18: Today my guest is Dan DeGolier, founder and fractional CFO of Ascent CFO. Helping entrepreneurs upward to help them understand their finances and cash flows and obtain the capital needed to grow is what Dan is passionate about. working alongside leaders of companies to help them reach their highest potential is the reason he founded Ascent CFO Solutions almost 10 years ago. With nearly 30 years of experience, he has operated as a CPA with a global accounting firm, a full-time CFO with multiple private companies, and now is a fractional CFO and founder. His fractional CFO experience includes partnering with companies in many industries, including technology and SaaS, manufacturing, e-commerce, professional services, financial services, construction, and real estate. His education includes a BS in accounting from Colorado State University, and when not working with clients, he can be found riding his mountain bike, skiing, hiking, and spending time with his wife and three daughters. Dan, thank you very much for being my guest on today’s episode of CFO Weekly.

Dan - 00:01:39: It’s my pleasure, Megan. Thanks for having me.

Megan - 00:01:41: Yeah, today we’re going to be talking about what it means to make finance part of the business’ operating fabric and getting some tips on how to make that happen. And I’m looking forward to learning from you. So let’s jump right in.

Dan - 00:01:54: Fantastic.

Megan - 00:01:55: First and as always, let’s start with you, your career journey, and how it is that you got to where you are today.

Dan - 00:02:01: Okay, great. Yeah. So I started my career in public accounting, CPA, doing audit work, and some tax, which was a great extension of my education, but I didn’t really want to spend my entire career as an auditor. I was really focused on helping companies with growth and helping companies scale and disrupt markets, things like that. So I moved pretty quickly into the controller and BPA finance and CFO roles. Mostly focused on early-stage and venture-backed technology companies. And then fast forward a few years and I took a, I had taken a role with a publicly traded Australian company for a while, it’s a great experience. But then I kind of came back to an early-stage sort of model and I took a job as a full-time CFO for an early-stage company. and that was kind of my light-bulb moment. I realized that this company did not need a full-time CFO. They needed my skillset. They needed somebody to help them raise capital, and get better reporting. understand their KPIs better. and have real visibility into the forecast model. But it was early stage enough, it wasn’t really a full-time role. So I thought it would be pretty interesting to work with multiple companies simultaneously. And so that’s when I started working as a fractional CFO. Started out as a single shingle, just ran a firm. I worked with four or five different tech companies at a time. And then. I’m about 2015 or so timeframe I realized there were more opportunities than I could handle myself. And it seemed like a pretty good model. So I. rebranded the firm as Ascent CFO Solutions, and hired another CFO to join the team. And now my role is really around growing the firm and finding great people to work with who have a consultant mindset and then finding great companies for them to work with directly.

Megan - 00:03:46: So, I’m just curious, as an early-stage company, how do I know, A, when to bring in a Fractional CFO, and B, when it’s time to switch over to that full-time CFO?

Dan - 00:03:56: I would say typically when a company starts to, they’ve gone beyond their minimally viable product, their MVP, they’re starting to scale. They’ve reached a point when they realize they’ve got real revenue and they can. start scaling the business and they want to have visibility into fundraising if they’re taking that approach or they need just better information about how they’re going to scale and visibility into their future. I think that’s the right time to bring in consider a fractional CFO. As far as full-time, it depends. It really depends on the level of transaction volume and transaction complexity. We work with companies that are up to $50 or $60 million in revenue and fractional still works because of their business model with a full accounting team built out, that fractional CFO can provide just that oversight, that strategic level layer of support with working with the C suite to give them that level of financial literacy.

Megan - 00:04:49: And today we’re talking about making finance a part of the operating fabric. So first of all, what does that mean exactly?

Dan - 00:04:58: I think it means having discipline. I think that there’s a component of, again, I’m going to, I can’t emphasize enough the importance of understanding the cash flows in any business, whether it’s a venture-backed company that’s burning cash, and especially in this environment needs to preserve cash, or whether it’s a bootstrapped, maybe family-owned company that still needs to focus on their cash and understand what their capital requirements are. So I think the, it’s just critical to having the visibility into the business and the finance office, finance and accounting tends to be the place. They’re the scorekeepers, right? They keep the, they know it’s a numbers business, businesses are driven by numbers and having that, that is part of the fabric of the growth is of the growth and the strategy is critical.

Megan - 00:05:47: And how does Ascent CFO Solutions help businesses to accomplish this?

Dan - 00:05:52: Well, we really work closely with the leadership teams and integrate ourselves as part of the team. We’re not just outside consultants who parachute in once in a while. We are all about a really close working relationship where we are integrated with the company and become part of their C-suites. It might, we’re part-time generally, so it’s somewhere between usually a day or two a week. But we really integrate ourselves as part of that, part of that team. We help guide the strategy, raise capital, and collaborate on the vision. And that’s the strategic side. And then we also have controllers, accounting managers, financial analysts, and senior accountants who support the execution side of it as well.

Megan - 00:06:32: And I’m just curious, who’s your ideal client? Is there a specific industry you focus on or the size of the company?

Dan - 00:06:39: I would say my background being in tech for a long time, we focused primarily on software and tech and VC-backed companies, but we’re more broad-based than that now. We’re pretty agnostic across a lot of industries. Generally, we’re targeting companies, you know, I say between $2 million and $50 million in revenue, but. Honestly, what’s more important is it’s a company that’s reaching a new milestone and they’ve outgrown the way they’ve done things historically. So they’re starting, they’ve raised additional capital or starting to scale the business and they need that new level of guidance and support when it comes to executing on that new normal, that new situation that they found themselves in. Again, maybe they’re looking to raise around, they’ve maybe really identified product-market fit and now it’s time to scale the business that tends to be the ideal situation where we come in and support them with that new normal, that new situation that they find themselves in and employees for scale.

Megan - 00:07:32: And you recently commented about the value proposition of being a fractional CFO in Fortune magazine. So what’s your opinion on the recent trend of CFOs adjusting their company’s burn profile to make cash available?

Dan - 00:07:46: Good question. I love that question. So I think we have to realize that we’re really in a new environment than what we’ve seen over the last few years. All the VCs I’ve spoken with recently validated what we’re reading in the press, that fewer companies are being funded, rounds are taking longer, due diligence has gone back to a more normal level, and where a lot more diligence is being done. Valuations are coming back to something that’s more sustainable in the long term. So I think companies need to understand how to survive without an expectation that the next round will be easy and right around the corner. And so it’s a new kind of discipline, I think. That being said, some of the best companies that are achieving their forecasts are hitting their milestones and are still getting funding. So the funding is out there. It’s just, there’s more discipline around it and funding is taking longer.

Megan - 00:08:35: And how do you think this trend will impact the overall financial landscape and the way businesses operate moving forward?

Dan - 00:08:43: Yeah, so. I think we might be in a sort of a normal cycle where it’s a short-term decline and you know, short-term recession, but it could be more likely that we need to buckle up for the long term and get used to this new reality that we’re in and be more disciplined as company leaders to preserve cash and be responsible with the spending and extending your company’s runway.

Megan - 00:09:07: And what are some tips for extending cash? And just what are some tips for doing that? Being smarter with the way you spend your cash.

Dan - 00:09:18: Yeah, I mean, it’s not the happiest answer, right? For a lot of early-stage companies, your largest expense is people, and for many companies, the largest expense is people. So in some cases, our clients have had to make hard decisions to do a reduction in force or a RIF. We’ve seen salary freezes to help weather the storm. And then I guess. The other thing that comes to mind is in this sort of post-COVID shutdown, some companies have decided not to renew their leases or sign up for a smaller space since they have now understood that they can be virtual or hybrid and don’t necessarily have everyone in the office five days a week. So I think payroll and occupancy are probably the biggest costs for which companies are able to make adjustments.

Megan - 00:09:57: And you recently wrote an article about preparing your business for success in 2023. So can you walk us through the process that Ascent CFO Solutions uses to help businesses with their financial forecasting?

Dan - 00:10:12: Yeah, sure. So cash is king. It’s, I know I’m emphasizing cash a lot, but CEOs and other leaders need to really understand their cashflow cycles and get real clarity on what’s driving their ability to maximize cash flow. We’re helping companies, for example, deploying a solution that we call Insights by Ascent CFO, where we give companies really robust visual tools to understand their cash flows, forward-looking forecasts, and pipeline across their entire business. We’re giving them some sort of visualization tools to understand that. But again, just understanding those cash flows, your cash flow cycles, and your future cash flows and what could go wrong and what could go better than expected is important.

Megan - 00:10:56: And I mean, we lived through COVID and now the recession. It seems like change is constant. So how do you recommend a company forecast when it’s so difficult to see what the future holds?

Dan - 00:11:12: Yeah. Great question. We’ve always been a fan of the rolling financial model forecast. There are some resources on our website about that, where a budget, some companies still use budgets and budgets still have their place. But we find a rolling forecast to be more valuable because things can change and being able to run multiple sensitivity analyses and have an upside and a downside version of that. So if things do change and whether it’s an overall economy shift or whether it’s a global pandemic or it’s just your own particular business is seeing changes, being able to be very agile and adjust that model, that rolling forecast financial model to be able to show a different scenario. Show salaries are going to be higher, revenue is going to be down, and maybe revenue is scaling faster than you expected. So now you need to add the piece to support that. You still want to understand your cash flows under whatever scenario things are going, whatever adjustments are there. So being very agile, and being able to make adjustments with a really robust financial model is what we consider to be a key part of that.

Megan - 00:12:11: And for listeners who want to access those tools, is the website ascentcfosolutions.com?

Dan - 00:12:18: AscentCFO.com.

Megan - 00:12:20: Okay. And what advice would you give to businesses that are just starting out implementing financial forecasting?

Dan - 00:12:27: First of all, understand your business. Be very thoughtful. Know the market size, know your go-to-market strategy, and understand what your conversion rates are. Really have a good handle on understanding your key metrics, and then you can start to incorporate all that knowledge and data into your cash flow cycles in the future of what your cash flow looks like.

Megan - 00:12:47: And as a fractional CFO, you get an opportunity to understand lots of different businesses. So where do you start when you get a new client? How is it that you go about understanding their business?

Dan - 00:13:01: That’s great. I think the first thing we oftentimes do is we will do a discrete assessment phase. We’ll spend 20 or 40 hours going really deep with the client. We’re going to understand their cap table, their vendor and customer contracts, if they have their employment contracts, and all of the historical financials. We’re going to understand their gross margins by product line, by business unit. We’re going to get our heads around that. And then if they’re forecasting today, we’re going to spend a lot of time drilling into their current forecasting tools. And after that assessment phase, and because we can be objective, we’re coming in with a job to do and get our arms around that business. And then we can come up with an ongoing solution where our general model is long-term but part-time. We’ve worked with some companies for several years, five, six years. And so we can adapt with them as up and down. If they’re raising capital, we’re going to spend more hours. If they’re planning for an exit, we’re going to spend more hours. If things are just kind of humming along nicely, we can spend fewer hours. But the initial onboarding, the assessment phase is critical. And then we can kind of come into a good cadence with the teammates to support them.

Megan - 00:14:04: And what are you seeing as some of the emerging trends in financial forecasting for one, but also in the role of fractional CFO? How has that evolved over the last 10 years?

Dan - 00:14:17: Yeah, I would say 10 years ago, if I told somebody I was a fractional CFO, they would look at me blankly. Or now it’s not common that I have to explain what it is. And it’s not just technology firms anymore either, right? AI lot of companies across all kinds of industries understand the value of doing of buying by the hour and rather than a good CFO might command a 200 or 250K base salary, you can get that as qualified of a person on your team for a couple of days a week and that person is still going to be challenged. I find that people... What’s really interesting when it comes to recruiting. is that we can find teammates who are really excited about doing just that strategic work. They like working with small, growing, mid-sized companies that are scaling. But if you’re in that full-time chair, you’re not going to necessarily have the same kind of challenge every single day. But if you’re working with two or three different companies, you’ve got to focus on the CFO level work, the strategic work, the fundraising, the FP&A side of things. You’ve got to work on the extra fun stuff. So I think it really helps with recruiting in that people who recognize and have the right mindset and understand what it means to support multiple clients and have multiple bosses, right? You’ve got to be really clear with your communication. You have to be able to set expectations very clearly and not over-commit. And those types of things, I think that’s a trend we’ve seen lately. I think specifically to financial forecasting, there are a lot of good modern data visualization tools out there. We still use Excel in some cases, but we’re more and more seeing companies that want to be able to pull real-time data from across their whole business, not just their accounting system. They want to be able to pull from their CRM system. They want to be able to get some good pipeline data and understand how things are trending there. They want to connect to their HR systems and be able to have all that sub sort of on a real-time basis. So using, we’re calling it Insights by Ascent CFO, that’s the tool that we’re using. It’s a solution that we’re using multiple technology tools. We haven’t written the code, we’re using popular things out there that are the underlying software, but we’re using our knowledge of the company and our expertise with working with other companies to be able to give them really good, insightful insights into their business, into their whole business. And I think that’s a real trend we’re seeing. It also makes that easier to share with your leadership team and your board and your investors. And I think that all leaders need to start getting more comfortable with new technologies that are out there.

Megan - 00:16:47: And maybe you already answered this in whole or in part, but like, was it just that 10 years ago, fractional CFOs didn’t exist? And if so, like what’s changed about the business landscape that’s seen basically the explosion of the fractional CFO in the last decade?

Dan - 00:17:05: Yeah, I wouldn’t say that. They did exist. There were some firms out there that they didn’t call it fractional, but they did a kind of consulting, the finance consulting side. I think companies have just realized that it’s a more efficient way. You can get really qualified people on your team at the right level. So in our case, we’re coming in with often, many times we’re coming in with three people on an engagement. We’ll have a CFO, a controller, and a senior accountant. So the CFO is really just focusing on the strategy and the FP&A, working closely with the C suite. The controller is handling the publishing and the financials, reviewing the work, variance analysis, and all of those traditional controller duties. And then the senior accountant is handling the transactional level stuff. And so between all three of those teammates, you’re still paying probably less than you would for a high-level CFO. And that CFO doesn’t want to be running payroll and paying bills, right? That CFO, a really qualified CFO wants to be focusing on the strategic side. So I think companies have just become aware of the fact that there are, this is a good solution for them, that if they’re a $40 million company, that you can outsource your entire stack in a more cost-efficient manner than if you were to try to fill a bunch of roles on a full-time basis.

Megan - 00:18:18: And what advice do you have for CFOs who are listening today and are considering the fractional CFO route? What do you have to have a passion for? What are the challenges you have to look out for?

Dan - 00:18:30: I’m glad you asked that. I think the most important thing around that is the importance of communication. communication is really critical. Being a Fractional CFO is much more than being just a technically qualified CFO. When you work with multiple companies at a time. As I mentioned earlier. It’s not just—you’ve got multiple bosses. You’ve got different requirements, different clients are going to ask for different things and on different timelines. And so when you’re working with multiple companies, it’s about having a consultant mindset, clearly setting expectations, not over-committing, be honest with yourself and the clients about what you can deliver and when so that you are underpromising and over-delivering. That’s just, it’s really critical. If you’re not communicating well and being clear about your own capacity, then it can be problematic because you’re going to disappoint clients if you’re not meeting the timelines that you set. I kind of touched on that earlier, but I would emphasize that I think it’s appealing to CFOs who are craving more flexibility and variety in their work. They like the idea of working for more than one company, being strategic, doing that higher level work that is that you’re adding a lot more value and not doing as much of the day-to-day tasks. I think that’s really appealing to CFOs who want to sort of, I think I was quoted in an article a little while ago about pulling it supercharging your career a little bit because you’re getting it, you might, you’ll get exposure to different companies, different industries, different management teams, different work styles, different challenges. It’ll be, maybe you’re helping to do a financial model for a SaaS company one day, and the next day you’re negotiating a debt agreement for a manufacturing company. And the next day you’re working with a professional services company on a pricing strategy. So you get a lot of variety, a lot of flexibility, and that works for some people, it’s not everyone’s DNA. Some people prefer they want to have one team they work with every day. They want to go to the same office or the same Zoom calls every day. and just drive growth in one company. For CFOs who are looking for that flexibility variety, I think fractional is a really good approach.

Megan - 00:20:29: Yeah, I’m sure that can’t be easy to balance priorities. And when you have lots of different clients pulling you in different directions, keep it all straight. How do you stay organized?

Dan - 00:20:40: Yeah, it’s definitely a different kind of mindset. It requires somebody who’s highly organized. You’ve got to be a great communicator. You’ve got to have whatever works for you as far as tools to keep you organized. We have some CFOs will block out half a day and they’re only going to work on one client. They’re going to. sort of mute emails that come elsewhere. You need to be responsive at the same time, so if a client does have something highly urgent You’ve got to set an expectation with that client. Okay. If it can’t wait until the end of the day or till tomorrow, then text me. Otherwise, I’ll get back to your email tomorrow. There’s a very much of a sort of cadence around communication with each client and identifying each client’s style.

Megan - 00:21:19: Thanks for sharing that. That’s great advice. And last question, as a finance leader and entrepreneur, what is it that keeps you motivated? What gets you out of bed every morning?

Dan - 00:21:29: I think the very rapidly evolving technologies that we’re seeing with AI, I’m trying to consume anything I can find around that. I mean, it’s, you can’t... It’s in all the headlines, everything, you know, how AI is going to change the workforce, how it’s changing our jobs in finance and accounting. That’s the thing that is really getting me excited every day is like, how do we leverage that? How do we, how do companies take advantage of this really revolutionary situation? I was listening to a podcast the other day and they’re saying this could be 10x, what Web 1.0 was as far as just the amount of innovation that is, that we have the potential to do and. returns that companies might receive as a result of AI. So that’s really what’s probably my biggest influence or what’s really capturing my attention a lot lately.

Megan - 00:22:21: Do you think there’ll ever be a day when, as finance professionals or accountants were replaced by AI?

Dan - 00:22:29: I don’t think so. I think there’ll be tools to make things more efficient, but at the end of the day, there’s still strategic creativity. I think it’s still going to be required for companies to grow and dominate their markets. I think that there could be certainly some great efficiencies gained when it comes to everything from accounting but also in forecasting I think there’ll be some, we’ll start to see some things emerge where forecasting can be done more efficiently by pulling market data of other companies, understanding market sizing. I think there are some things that can be done to make it more efficient, but I don’t think robots are going to take our jobs.

Megan - 00:23:08: Great answer. Dan, thank you so much for being my guest today.

Dan - 00:23:12: Thank you, Megan. That was really fun. I enjoyed talking to you.

Megan - 00:23:15: Yeah, I’ve enjoyed speaking with you as well. And thank you for finding the time to be here with us today to share your experience and knowledge. And to all of our listeners, please tune in next week. And until then, take care.

Dan - 00:23:27: Thanks so much, Megan.

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In this episode, we discuss:

  • When should you bring in a fractional CFO, and when it's time to switch over to that full-time?

  • How to make finance a part of the businesses' operating fabric

  • How does Ascent CFO Solutions help businesses integrate finance into their operating fabric?

  • Innovative cash strategies for sustained growth

  • How can a business forecast when it's so difficult to see what the future holds?

Key Takeaways:

The Role of Fractional CFOs in Scaling Companies

Quote the role of cfos when strengthening a business

When a company surpasses its minimally viable product (MVP) and enters the scaling phase, it signifies a crucial turning point. At this stage, they have achieved tangible revenue and are eager to expand their business, seeking visibility in fundraising or obtaining better insights for future growth. This is the opportune moment to consider bringing in a fractional CFO. Whether they require a full-time CFO depends on the level of transaction volume and complexity.

“A fractional CFO can provide just that oversight, that strategic level layer of support working with the C-suite to give them that level of financial literacy.” DeGolier said. - 03:46 - 04:49

How to Use Finance When Strengthening Your Business

Quote Dan DeGolier Ascent CFO Solutions

Having discipline and understanding of cash flows are essential in business, regardless of whether the company is venture-backed and needs to preserve cash or a bootstrapped family-owned business that must also focus on capital requirements. Visibility into the business, particularly in the finance office, is crucial. Finance and accounting services are the scorekeepers, recognizing that numbers drive the business. Integrating finance into the fabric of growth and strategy is critical for success.

“Cash is king. CEOs and other leaders need to understand their cash flow cycles and get real clarity on what's driving their ability to maximize cash flow.” DeGolier said. - 04:49 - 05:47

Innovative Cash Strategies for Strengthening Your Business

Quote innovative cash strategies for growth

In the current landscape, CFOs are adapting their company's expenditure patterns to ensure sufficient cash flow. Recent trends indicate a shift from the funding environment of the past few years. The media reports fewer companies receiving funding, with longer rounds and increased diligence becoming the norm. Valuations are now aligning with sustainable long-term growth.

Companies must adjust their mindset, no longer relying on easy and immediate funding in subsequent rounds. This new reality demands a heightened sense of discipline. Nonetheless, companies that consistently meet their goals and achieve projected milestones still have access to funding. Although funding is available, the process requires more rigorous scrutiny and may take longer to secure.

“Companies need to understand how to survive without the expectation that the next round will be easy and right around the corner.” DeGolier said. - 07:32 - 08:35

The Value of Rolling Forecasts in Dynamic Financial Planning

Quote the value of rolling forecasts when strengthening your business

While budgets still hold relevance for certain individuals and companies, a rolling forecast offers greater value due to its adaptability in the face of changing circumstances. This flexibility enables the execution of multiple sensitivity analyses, resulting in the creation of both optimistic and pessimistic versions of the forecast. Whether influenced by macroeconomic shifts, a global pandemic, or specific business alterations, the ability to swiftly modify the rolling forecast financial model becomes crucial.

Such adjustments might involve projecting higher salaries but lower revenue or unexpected rapid revenue growth. However, it remains essential to incorporate cash flow analysis into these scenarios, ensuring a comprehensive understanding of financial dynamics amidst any adjustments. Ultimately, the agility to make changes using a robust financial model constitutes a key component of this approach.

“We find a rolling forecast to be more valuable because things can change, and being able to run multiple sensitivity analyses and have an upside and a downside version of that.” DeGolier said. - 10:56 - 12:11

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