Is Fractional Finance the Future for Small Businesses ft. John Dalrymple

Speaker A: Welcome to the new F Word podcast where we cut the fluff on business finances and lift the lid on the new F word. The fractional finance revolution. It's a game changer for small businesses. I'm your host, Colin Hewitt, co founder of Float Cash Flow Management for Xero on QuickBooks. We believe that really understanding your business finances makes all the difference in the world and having a strategic partner like a fractional CFO is the key to unlocking that. So join us as we dive into personal stories and actionable insights from forward thinking finance leaders and and seasoned entrepreneurs to discover why fractional finance leaders have become an irreplaceable part of small business leadership. Well, John, it's great to chat, uh, to you today. Uh, how are you doing?

Speaker B: Yeah, good, thank you. How are you?

Speaker A: I'm very well, thanks for coming on the podcast.

Speaker B: Nice, thanks for having me.

Speaker A: So tell us a bit about Verac, like where are you based and how did it get started? Love to get the kind of backstory.

Speaker B: Yeah. So I've been working with Feroc really for just over a year, year and a bit now. It was founded by a guy called Scott Willis and um, he's very experienced in business development for the kind of startup space. And I know he had very similar roles, his employee roles, before he set up Ferroc and he spotted a gap in the market, the fractional world and the uh, fractional fd, fractional CFO world was growing and you know, he's a good seller and he wanted to be a part of it. So he's built up his business over the last 12, 18 months and as far as I'm aware, it's doing very well. I pick up a few clients with him over the course of my working week and they vary in size from, you know, 5 million turnover SaaS, businesses right down pre seed, no revenue scale ups and uh, it's a great model of it. I've really enjoyed working with Ferro. I really enjoyed the kind of clients and how it's been working.

Speaker A: What were you doing before you joined? Were we in that CFO role? Were you?

Speaker B: Yes, I've had various senior finance positions, head of finance, finance controller, CFO roles across a number of sectors. So oil and gas, financial services, SaaS. And you know what really appealed here was the variety of clients and being able to offer advice and get to know small SMEs on their journey. It goes back to when I trained in audit. No two weeks were the same, no two clients were the same. And while that career path wasn't for me. That whole getting into a business and helping them and helping grow was something that really appealed, particularly that kind of size of space case because, you know there's some 5 million pound turnover market. Depending on your ambitions, do you really need a full time cfo? Is it really good for the business? Is it good for the individual? The occasions I saw was probably not and that's why the fractional route made sense to me personally and it made sense to the clients I've been working with. So yeah, all in all it's been working pretty well.

Speaker A: Yeah, that makes sense. I know. Was there any part of you that was afraid to make the leap into that? Did you sort of think, gosh, this might not work out or I might not get as much work or.

Speaker B: I've been supplementing it with a personal perspective. I supplement it with a kind of main task for the week. The fractional work. I don't like go around about, I guess the job, so to speak. So while there's a risk, it mitigated that whether or not I look to do a full time fractional, more fractional in the future, that's probably one to be with. Mrs. His family life evolves. So it's something that, to be honest, it's on the agenda for the future. But I think there's. I still got a lot to learn, a lot to experience in all walks of life. I don't have a, uh, set career path personally and I think the fractional work and picking up clients in this space will help me move forward and navigate over the future.

Speaker A: Yeah, brilliant. That's a great attitude and just from your accent. Are you based in Scotland or are you living in Scotland?

Speaker B: Yeah, I was born in Dumbarton and spent all of my life really around Glasgow.

Speaker A: So yeah, there's definitely a Scottish thing and you know, we're based in Edinburgh. I don't know if you know that, but there seems to be an unproportional amount of people that come on Pakazana and you know, it's not intentional but it just seems to be there's something in the water here that is producing all these uh, F. CFOs.

Speaker B: I think from Fedox side, I am the only one off the border. Everyone else, it's all London based. So.

Speaker A: And do you have, do you choose like local, like would you be favored for working with clients that are in Scotland or does it just. It doesn't really matter.

Speaker B: Location doesn't, I don't know when the world's changed. Post Covid it's more about the uh, it's all online now, so it doesn't really make a big difference. There's one or two that like the face to face meetings which I've done. But most, most of the founders or Most of the CEOs I've been working with, they're just so busy that they want the flexibility, they want the ability to sometimes have a call at 2 in the afternoon. They want an ability to have the call at 8 at night depending on their family life and the stage of their business and what they're doing to connect, hustle their way to their own success. And that's benefit of all this allows me to work around my diary and to work through a diary and we all get what we need and what we want, which is good. I enjoy that.

Speaker A: Yeah, no, it makes sense. In um, terms of feroc, there seems to be, you know, looking at your website, it's a bit of, they're sort of saying it's a different kind of approach. How do you feel like it differs from what else is on the market?

Speaker B: Good question. I mean I think it's the fact that we're still very reasonable, of reasonable size and reasonably agile that uh, you know, all the comments through FEROC are not just a number. They did do matter. They matter to the CFOs, they matter to the FDS and they matter to Scott the founder, you know he's is very good at being, he gets that balance right between being hands on in terms of the relationship management but wise enough to allow the FDs and CFOs to, to do the thing and add their value. But I guess it's very hard to. It's a hard balance to get a master. I've seen other fractional providers where the non accountant in the relationship is a bit overbearing and they try to dominate the relationship to the point where there's, you're almost driving a wage between the business and the fractional FDR cfo and it creates tension, it creates unprofit, that trust and that uh, you know, that relationship flow that you want to kind of build quickly, it's harder to gel where I think Scott, his model gets that balance feral. Sorry. That balance has worked well and will continue to work well.

Speaker A: Yeah, yeah, that makes sense. Does most of your work then come via the referrals path? Does that seem to be how you've been growing as a group?

Speaker B: Yeah, I mean that's the usual. The various networks with lawyers, other accountants, those in the angel Investment, you know, PCPE space that's driving the referrals. I mean more often than not we're seeing that people are coming to us with problems in the story, problems in their model, problems in their business that need quickly addressed, which either they've had guidance or advice in the past that just doesn't quite work or quite make sense. You think if you're a founder and you set up your business, you've got your idea, you found uh, an accountant maybe in traditional sense, a traditional model of accountant, they've quite looked at your business, they've helped accomplish some very, very simple analysis, simple numbers. And they've left it up to you to build your deck and build your story. More often than not those outputs aren't um, at the standard or meet the requirements of these family offices, these angel investment groups, these VCs who are expecting and who get from your competition a degree of polish, a degree of complexity in your modeling and your story. And that's where the, that's where the gaps come in and that's where that fractional CFO rule, fractional FD role is going to help to fill. You're almost elevating these businesses up to the point to the standard they need to be to compete with others in your space, particularly with money. The competition for investment right now is probably the tightest it's been in the last five or six years. So you've got to, you've got to be on par with your competition at the very ah, minimum, a fairly minimum. So that's where we are trying to come in and help it. You know, as I said, you know, these businesses don't need, have tens of thousands senior finance professional to do the work. What they need is one to three days, four days a month, depending on the size of the business to get that insight and get that and drive that value the business needs.

Speaker A: Yeah, that's something that's been coming up a lot as we've been chatting it to uh, other CFOs is the importance of a team to allow the CFO not to have to do the bookkeeping for example, and some of the other financial controller roles. How have you guys structured that? Do you have a network of bookkeepers and controllers and different places or would you help people recruit for that or do you not get involved?

Speaker B: There is, there's a network of trusted bookkeeping, bookkeepers and fetch controllers that sit behind it. It's not personally something I've seen on the clients I've had. Normally they've had uh, their Own, they've dealt with that mechanism self. And as I said, as you've correctly said, sometimes the level of competency is not quite there, sometimes the level of output is not quite there, sometimes it's non existent. And look, you just got to work with what you've got. The last thing that the client wants to be doing is paying you, your dairy to do the work of a bookkeeper. Not that that's diminishing that role, far from it, it is more just they want to get the most out of your uh, title rate. And that doesn't involve doing the day to day, but then equally adding value to that process can be taking a little bit out of your working day, working time with them and coaching their team, their staff, whoever they're using and helping them bring it up level. Because ultimately you can't, as a CFO and fd, you can't do your role effectively if what's sitting behind you isn't up to par. Be it on what's it say? Basically keep on controlling facts much whatever bracket you want to put that in. So you shouldn't necessarily be afraid to have a look at uh, that because if you build a story and if you're building a model and if it's all based on bad information, bad quality input and I feel it's that old saying, isn't it? Rubbish in, rubbish out.

Speaker A: Yeah. And um, in terms of that building, building the story and communicating that, like how do you get the background, how do you get all the information you need? Like what, what do you used, what are your, you know, tools that you would use to, to bring that out? Is it a workshop, is it just a, you know, do you have a sort of framework that you use or how does that work?

Speaker B: It depends on the business. But what I would like, what I like to do is to be honest, spend as much time with the founders, the senior management team as possible. Normally the start of the storytelling journey will, depending on the size and complexity of the business, but it will require at least two or three sessions of introductory calls and learning about what makes them tick, what they're building, what their market is, what their competition is, what they see the journey as, how they feel they're differentiating from those in the market and it's about uh, challenging it and probing them based on the knowledge that you have or the experience you've got from other businesses you've seen them in. And normally then that will lead to a first cut of a model, a first cut of a deck and then that process Is then in terms of you do it two or three times if you have to. In the end, it's all about the. Is the end result polished enough? Can you stand back from that and think, I'm proud of that piece of work. Would I be able to pitch that piece of work to a cold investor, a cold angel group, a cold. Whatever you're trying to do, that's what you're wanting to achieve from a personal pride perspective. And that's ultimately what hiring is wanting to achieve. They want to know that they can do that. I've seen plenty of. I'm actually working with a founder at the moment and it's brilliant. He text me and it's the best thing that lights up my working week really, to be honest, because I met him not 10 months ago. He's setting up uh, a SaaS platform for the creative space. He came to me with to fed up. He came with, uh, incomplete debt, a financial model that didn't make sense. But he was down to earth, very nice, very personal guys that sometimes it's nice to work with these people. And this is one of those occasions. And he thought he was a bit willy. His model was a bit willy, but you can see the potential. And over in the first couple of months working with him, we scrapped it all and rebuilt the deck, rebuilt the model, rebuilt the story, worked on the pitch. It got him to the point where he's very comfortable and very relaxed in going out to networking events and pitching his business, knowing the basics, knowing the doesn't know. It's not about knowing every single pocket of your financial model, but it's about knowing that the high level and being able to articulate that very, very easily and confidently. And you know, he's got to that point. He's then spent the last six months developing his mvp and now over the last couple of weeks he's been texting me saying that he's found an investor that's wanted to take it forward and he's getting timesheets. So I really am pleased for him and it's been a great journey. I hope he gets over. I hope he gets out. We get it. I hope some of the later conversations. But in terms of watching that development and that progression of a business that, uh, started with very little. It started with an Equity story and taking it this far, the journey's not over. The story's not over. But it's brilliant. I've really enjoyed it.

Speaker A: Yeah, no, it's an awesome story. I think a lot of people wouldn't Maybe associate that that's where they would bring in a fractional CFO to help them get their story straight. They would have thought that that's maybe somebody who's an expert in pitching or something. But really you're saying that the story comes from a solid state of numbers that they can feel confident in and then you know, feel like this is the, this is. They're, they're not, they're coming in with a place of integrity feeling that they're, what they're actually saying has weight behind it and they believe it.

Speaker B: Exactly. I mean if I think it was the story when I first heard that and looking at the deck, you know, it was way this was pitched was almost back to front. Okay, so example, okay, we want to scale this business and in year three we want it to get to 10 million pound worth of turnover and that's great, that's the end goal. But the story was in the year three we will do 10 million pound turnover and we'll spend whatever it is, 2 million, 2 million pound of marketing activity and that'll drive me and then my profit is what it is. But actually that's the wrong way around. Revenue doesn't drive your marketing, it's your marketing, granular marketing activity that drives your revenue. So you've got to build the story and build the model in another way. You've got to say, okay, I'm going to spend however many hundreds of thousands on Google advertising, how many hundreds of thousands on influencers marketing, television, radio, it doesn't matter you. And these are the conversion rates from that activity that's going to get me these amount of custom, this amount of customers and I'm going to be able to charge however much a license, how much a user and that's going to drive in you. So it's actually pivoting the story round. And, and by having that story, as you said, you are then demonstrating competence and understanding and knowledge to the potential investors.

Speaker A: You know it goes so far to say that not every fractional CFO will think like that in terms of, you know, they will, they might not have that experience to sort of to be able to build a model up from marketing conversion rates. That, that sounds like something that you've got specific experience with.

Speaker B: True. Uh, potentially. I mean I think it's, everyone's got their own, their own own strengths. For me it was, you know, quite leak that getting into the nitty gritty drivers of a business, be it the fractional role, be an employed role, it doesn't matter, you know, the finance, the finance story. Finance isn't something that should just sit in a corner and be stand alone. Actually every department is driven off numbers in some way, shape or form. Even if it's just payroll costs, there's numbers everywhere. So actually and people get scared of numbers but it's only some scared numbers because they're overwhelmed by them. If you can distill down the performance of a business to something that's easily understood to make it a couple of KPIs two or three, it doesn't have to be 20 then actually being able to do that in a cross face departments has always been something I've really enjoyed and don't you know. Yeah. I've worked with large marketing budgets before and I just happen to know and understand uh, the complexities of doing that and how important that is to get your story straight. And don't be wrong. Not all the time did we get it right managing large marketing budgets. Far from it because it is so variable. But as a, as I said, uh, as a personal base of personal enjoyment in any role that is one of them is understanding what makes a business tick and how to make improvements along the process to ultimately improve and drive whatever you want to drive, be it bottom line performance, be it revenue, whatever matters to the owners, to shareholders, to the investments.

Speaker A: What about your approach to cash flow? Obviously something that we think a lot about. How do you find that you build that into the model and how does that effect, you know, how do you highlight that to the founders that you're working with?

Speaker B: That's a really good question because one of the key misconceptions I've found is people not understanding that the disconnect between profit and cash and how the uh, uh, accounting treatment can have a big impact on how you view the overall health of the business. Think about it can be as simple as okay, um, I spend 100,000 pound or one stock, okay, so 100,000 pound out the door on day one. But actually my P&L cost is only 10,000. And try to understand it. When you're forecasting your building you can't just look at your P and L and extrapolate that out because of these potential disconnect. The timing of, the timing of payroll, the timing of taxes and just trying to clearly articulate and explain in very simple terms the importance of it. Because as we all know, businesses don't go bust based on profitability bus based on cash and cash requirements. Yeah.

Speaker A: And have you seen how you find the market recently? Have you, have you Seen the impacts of the more difficult to raise capital companies needing to cut back. What's your view at the moment of how the market is definitely it's definitely

Speaker B: been tighter than it has been. I think it probably started and then 2022 really in terms of tightening the bill. That was the first time I noticed the VC and angel investment market really going for focus on the path to profitability rather than the kind of gross at all cost mentality that perhaps existed for that. And that pressure to be honest is remain the same. Rising interest rates, rising costs, investor caution. It's a perfect storm that means that everyone's now preserving as much cash as they possibly can. Pushing out spire payment terms just doing everything you possibly cutting gods that at all angles and like it creates pressure and creates opportunity. It's like everything you've got to be agile enough to adapt. And that's where going back to your earlier point if you understand what's driving the business, what's driving the cost, what's driving the cash both in and out across all departments across the business depending on the size the that will help you navigate the potentially the turbulent times. If you're lucky enough to be one of these businesses that throws cash off like there's no tomorrow then you're very lucky. But it's not something I've seen too often.

Speaker A: M. Yeah, I can't imagine. Yeah, brilliant. And final couple of questions. One would be if for somebody is listening to this and they're thinking about becoming, moving into that fractional CFO space what would you, what would you say to them? What would your advice be?

Speaker B: Say it's really enjoyable and rewarding experience. I think it opens your eyes to variety of different sectors and a variety of different types of individual that you maybe didn't experience before. And it's, it's, it's been, it's been really really rewarding personally and I've really enjoyed it.

Speaker A: And the last one is if you're speaking to founder down in the pub who was thinking about should I like I don't have a cfo what should I do? What would your advice be to them?

Speaker B: Depending on the size of the business of course but uh, uh I would recommend you know if it's a small SME then uh I would advocate during the fraction where at least to start at least as an opening move into that space if they decide that more they can always, you can always. You know it's easier to transition from having a fractional CFO to having a full time CFO then it's the opposite way around.

Speaker A: Brilliant. Well, thanks so much John. Look, all the best for what you guys are doing at feroc. And yeah, look forward to watching the journey.

Speaker B: Thank you very much. Appreciate that.

Speaker A: Thanks for tuning in to another episode of the new F Word. I hope you enjoyed it. Remember, expert financial advice shouldn't be limited to those with just big budgets. You can access the same level of advice for a fraction of the costs thanks to this fractional revolution. I believe that every growing business needs to know how much a game changer this can be. So if you love the episode, please consider subscribing to the show. It'll help us keep doing what we're passionate about. And feel free to share this episode with others who might find it useful. Finally, we'd love to hear your thoughts.

Speaker B: Thoughts.

Speaker A: Feel free to connect with us on LinkedIn. See you in the next one.