July 15, 2022
Read time: 3.5 minutes
If you serve as a fractional CFO long enough, you will have clients that face insolvency.
But there are usually warning signs in the numbers that business failure is coming.
As fractional CFOs, one of our jobs is to identify these signs.
Our other job is to have the difficult conversation with the client when we see these signs.
These conversations are uncomfortable. But having them will save your job (for obvious reasons) but they also build trust with the client. And when the client knows they can trust you to bring them bad news, they don't want to leave you.
Unfortunately, most fractional CFOs don't have these conversations because they don't know how.
It is your duty to tell your clients when their business is failing.
I see too many fractional CFOs avoiding these types of conversations.
- They don't know what to say.
- It makes them feel uncomfortable.
- They assume delivering bad news will get them fired.
I'm going to show you how to avoid these traps and follow a better framework.
Here's how, step by step:
Step 1: Set the right mindset.
Your approach to delivering existential bad news is everything.
I have found there are two essential mindsets required to be successful here:
👉 You can't navigate this conversation successfully without having some compassion. Keep in mind what you're telling them.
👉 Business owners are usually optimistic. Often to a fault. They think everything is going to work itself out. So if you dance around or gloss over what you're seeing, they will likely dismiss your warning. I have found this to be doubly true for creative entrepreneurs.
If you can strike the right balance of empathy and candor, you'll have their full attention.
Step 2: Use the numbers to show them why the situation is dire.
This is where you're going to want to sugar coat. But this is the exact point where you need to be direct.
If they're running out of cash, show them exactly how much runway they have. Let them know how much longer they can make payroll or keep the lights on.
Use specific days and dates to drive your point home.
👉 Do not say this:
"You're out of cash in about 5 months."
👉 Do say this:
"As you can see, if things continue on this path, Acme will be out of cash as soon as Monday, July 18."
Days and dates make it real.
Step 3: Use the numbers to help them find the path to success.
Your job here is NOT to tell the client exactly how to save their business.
But your job IS to show them what must be true in order for them to survive and thrive.
Model out scenarios showing how changes in critical KPIs alters destiny:
• Gross profit margins
• Cash conversion cycle
Then, task THEM to brainstorm how they can make one or more of those scenarios possible.
👉 Review the list with them.
👉 Agree on a realistic path forward.
👉 Set specific short-, medium-, and long-term action items.
At the end of the day, one of two scenarios will emerge:
1. The client will say "Let me figure out how to make this happen..."
2. The client will say "I can't do this because..."
As a fractional CFO, do not put the pressure on yourself to be the client's savior.
That's not your job and you'd likely fail if it was.
At the same time, you do have to be the firm voice of reason when times get tough.
Tell the story of where the business is headed.
And tell the story of how it can be avoided.
Your clients will respect you, trust you, and value you for being the reality check in their business.
That's all for this Friday. 3 steps to navigate difficult conversations with your clients.
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