Yorkshire has seen thousands of SMEs emerge in the years since the pandemic, with total figures now surpassing 2019 levels. While this is excellent news for the local economy, as these businesses enter their second stage of growth, they encounter a common issue.
As they scale, their operations become more complicated. They hire new staff, open themselves to new markets, and pursue external fundraising, all of which require smart financial planning at a time when they are not able to hire a dedicated accounts team. The concept of fractional leadership has grown exponentially in the UK, with the number of LinkedIn profiles mentioning flexible CFO, CTO and CMO positions increasing nearly 500% between 2022 and 2024.
This emerging market offers ambitious SMEs a competitive edge through financial insight and cash flow management that they otherwise would not have access to.
How SMEs start, and how they grow
The initial forming of an SME involves decisions on company structure, size, start-up costs, and how performance will be tracked and measured. Accounting processes during this time are relatively simple, tied to tax reporting, bookkeeping, and payroll, but over time, as more people join the company and business expands, leaders begin asking more complex questions.
They must consider their recruitment strategy, consider the benefits of debt vs equity, and begin tracking a growing list of KPIs to ensure their day-to-day performance reflects their financial health. At this stage, adding an accountant to the team might not be the best solution, as these questions are closely tied to operations. Ambitious SMEs instead contract fractional CFOs, who offer the financial leadership they need to navigate growth in an uncertain economic landscape.
What are fractional CFOs, and what do they do?
Fractional CFOs bring multi-disciplinary financial expertise to companies on a contractual basis. SMEs might seek them out when they are undergoing some kind of structural transformation, thinking of expanding, or beginning a new project, to ensure their decisions are made with long-term viability in mind.
SMEs traditionally rely on the insight of their founder/leader, but between running the business day to day and trying to guide its overall trajectory, they can quickly become overwhelmed and reach the limit of what they can achieve alone. When making these big decisions, they can overlook key indicators and fail to maintain standard document trails, which can harm the company’s value by making it harder for investors or buyers to assess its worth.
CFOs bring actionable financial analysis to the table and work with leaders to make sure everything is clear and understandable. They use methods like forecasting and scenario planning, which involve projecting future earnings and adjusting models to account for different variables, to outline the implications of a strategic decision well in advance.
This information can then be used to optimise cash flow by identifying procedural inefficiencies that might not be clear from standard reporting. Firms such as Accounts and Legal, a North West-based firm, combine accounting services and legal functions, offering clients an integrated service that also demonstrates the growing trend of SMEs outsourcing essential operations.
Why the fractional model is growing
Though SMEs are thriving in terms of sheer numbers, a South Yorkshire Quarterly Economic Survey found that business confidence reached a three-year low. Much of this uncertainty is tied to rising labour and taxation costs, combined with growing regulatory frameworks that are difficult to prepare for.
An analysis by the York and North Yorkshire Combined Authority shows that the region continues to experience a significant number of vacancies tied to skill shortages. Around 41% of professional positions are seen as difficult to fill, due to candidates lacking the required qualifications and experience.
The British Chamber of Commerce also note that increased employer National Insurance contributions may play a role in the country-wide recruitment drought. This comes at a time when employment rights are changing, and more businesses are drawn into the Make Tax Digital service year on year.
Combined, these factors represent a great deal of instability for Yorkshire SMEs. They are struggling to hire relevant experts internally, both due to the rising cost of talent and because the applicant pool at large lacks sufficient skills. Fractional CFOs are a practical solution to these stacking economic concerns, offering flexible advice and practical services without the time and resource investments required to build a dedicated accounts team from the ground up.
A different model for a new stage of growth
Not every SME will require an outsourced finance team. Depending on the size and industry of the business, one financial manager or accountant can stay on top of compliance and payroll. Ambitious SMEs are those looking for more, who are planning to expand, attract new customers, and scale quickly.
For them, the appeal of the fractional model is clear. They receive CFO-level support as and when they need it, allowing them to grow with confidence and navigate a changing economic landscape without running into the roadblocks they would otherwise face.
