Fractional Business Glossary

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13-Week Cash Flow Model

A week-by-week projection of your cash inflows and outflows over the next quarter. Unlike a monthly P&L, this model shows you exactly when money hits your bank account and when bills come due, so you can spot potential shortfalls weeks before they become emergencies. It is one of the most important tools a fractional CFO builds for a business owner who wants to stop guessing about cash.

A

Accounts Receivable (AR)

The money your customers owe you for work you have already completed or products you have already delivered. If your AR is growing faster than your revenue, it usually means customers are paying you slower, which puts direct pressure on your cash flow. Tracking AR aging (how long invoices have been outstanding) is one of the first things a fractional CFO looks at.

Add-On Acquisition

A smaller company purchased by a private equity-backed platform company to expand geography, add capabilities, or increase revenue. If you own a trades or services business, you may be approached as an add-on target. The valuation and deal terms differ significantly from a standalone sale, so understanding the dynamics matters. See also: Platform Acquisition and PE Roll-Up.

ARR (Annual Recurring Revenue)

The annualized value of your recurring subscription or contract revenue. If you charge $10,000 per month on annual contracts, your ARR is $120,000. For SaaS and subscription-based businesses, ARR is the single most important top-line metric because it shows predictable, repeatable revenue -- the kind buyers and investors pay a premium for.

B

Burn Rate

How fast your company spends cash each month, especially when you are not yet profitable or are investing heavily in growth. If you have $500,000 in the bank and you are burning $50,000 per month, you have roughly 10 months of runway. Understanding your burn rate is essential for making hiring, investment, and fundraising decisions before it becomes an emergency.

Buy-Side Advisory

Professional guidance for someone looking to acquire a business. A buy-side advisor helps you identify targets, evaluate whether the financials hold up, negotiate deal terms, and navigate due diligence. If you are considering acquiring a small business, having someone in your corner who has done it before can save you from overpaying or buying a problem.

C

Cash Conversion Cycle

The number of days it takes for a dollar you spend on inventory or labor to come back to you as collected revenue. A shorter cycle means you get paid faster relative to when you pay your bills. For trades businesses especially, long cash conversion cycles (waiting 60-90 days for payment after completing a job) are one of the biggest hidden drains on growth.

Cash Flow Forecast

A forward-looking projection of when cash will come in and when it will go out. This is different from a P&L, which tells you about profit. You can be profitable on paper and still run out of cash if your timing is off. A good forecast gives you the confidence to invest, hire, or hold back -- and it is one of the core deliverables of a fractional CFO engagement.

Churn Rate

The percentage of customers (or revenue) you lose in a given period. If you start the month with 100 customers and lose 5, your monthly churn rate is 5%. High churn means you are constantly refilling a leaky bucket. For SaaS and subscription businesses, reducing churn is often more impactful than acquiring new customers because the economics compound over time.

COGS (Cost of Goods Sold)

The direct costs tied to delivering your product or service -- materials, labor, subcontractors, or hosting costs for a SaaS product. COGS does not include overhead like rent or admin salaries. Understanding your COGS accurately is the foundation for knowing your true gross margin, which is one of the first things an acquirer or lender will scrutinize.

D

Due Diligence

The deep-dive investigation a buyer (or their advisors) performs before completing an acquisition. They will examine your financials, contracts, customer concentration, legal exposure, tax history, and operational processes. If you are selling, sloppy books or missing documentation can kill a deal or cost you hundreds of thousands in purchase price adjustments. Exit planning is largely about making sure you survive this process.

E

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization. This is the metric most buyers and investors use to value your company. Think of it as a normalized measure of your operating profitability, stripped of financing and accounting decisions. When someone says a business sold for "5x EBITDA," they mean the buyer paid five times this number. Getting your EBITDA right (and adjusted properly) is one of the highest-leverage things you can do before a sale.

EOS (Entrepreneurial Operating System)

A structured framework for running a business built around six key components: vision, people, data, issues, process, and traction. Many of the companies we work with run on EOS or a similar operating system. It provides the discipline and meeting rhythms that make it possible to execute strategy consistently -- and it pairs especially well with fractional executives who plug into an existing leadership structure.

Exit Planning

The process of preparing your business (and yourself) for an eventual sale, merger, or transition. Good exit planning starts years before you actually sell. It involves cleaning up financials, reducing owner dependence, building repeatable processes, and positioning the company to command the highest possible valuation. Waiting until you get an offer to start planning almost always leaves money on the table.

F

FP&A (Financial Planning & Analysis)

The function responsible for budgeting, forecasting, and analyzing a company's financial performance. FP&A is what turns raw accounting data into decision-making intelligence. Instead of just knowing what happened last month, FP&A tells you what is likely to happen next month and what levers you can pull. Most companies under $20M in revenue do not have a dedicated FP&A person, which is exactly where a fractional CFO fills the gap.

Fractional CFO

A senior-level Chief Financial Officer who works with your company on a part-time or contract basis rather than as a full-time employee. You get strategic financial leadership -- cash flow management, forecasting, KPI dashboards, bank and investor relations, and exit readiness -- without the $250K+ salary and benefits of a full-time hire. A fractional CFO is typically engaged for 10-20 hours per month and works alongside your existing bookkeeper or controller.

Fractional CMO

A senior-level Chief Marketing Officer engaged on a part-time basis to lead your marketing strategy, manage vendors, and align marketing spend with revenue goals. Instead of hiring a $200K+ full-time executive or relying on a junior marketing manager, a fractional CMO brings executive-level thinking to your brand, demand generation, and sales alignment -- typically for a fraction of the cost.

Fractional Executive

A C-suite or VP-level leader who serves multiple companies simultaneously on a part-time basis. The model works because most growth-stage businesses need executive thinking but do not have enough work (or budget) to justify a full-time hire. Fractional executives bring decades of experience, plug into your leadership team, and focus on outcomes rather than hours logged.

Fractional Executive Team

When a business engages multiple fractional leaders (such as a CFO and CMO) who work together as a coordinated unit. The advantage over hiring individual freelancers is that a fractional team shares context, aligns on strategy, and can move faster because they are already accustomed to working together. At Local Fractional, our CFO and CMO work as an integrated pair so that financial strategy and go-to-market strategy stay in sync.

G

Gross Margin

Revenue minus cost of goods sold, expressed as a percentage. If you generate $1M in revenue and your COGS is $600K, your gross margin is 40%. This number tells you how much of every dollar is available to cover overhead, pay yourself, and generate profit. Low or declining gross margins usually signal pricing problems, scope creep, or rising input costs -- all things that need to be addressed before they erode your business value.

K

KPI (Key Performance Indicator)

A specific, measurable metric that tells you whether your business is on track. Revenue is a KPI. So is close rate, average job ticket, customer acquisition cost, or employee utilization. The key word is "key" -- most businesses track too many things or the wrong things. A good fractional executive helps you identify the 5-8 numbers that actually drive your business and builds a dashboard so your leadership team can make decisions in real time.

L

Letter of Intent (LOI)

A non-binding (usually) document that outlines the key terms of a proposed acquisition -- purchase price, deal structure, earnout provisions, and major conditions. Getting an LOI feels exciting, but it is the starting line of a deal, not the finish line. Once you sign an LOI, the buyer typically gets an exclusivity period to conduct due diligence, during which you cannot negotiate with other parties.

LTV:CAC Ratio

The ratio of a customer's lifetime value (how much total revenue they generate) to your customer acquisition cost (how much you spent to win them). A ratio of 3:1 or higher is generally healthy -- meaning for every dollar you spend on sales and marketing, you get at least three dollars back over the life of the customer. If this ratio is below 1:1, you are losing money on every customer you acquire.

M

MRR (Monthly Recurring Revenue)

The predictable revenue your business earns every month from subscriptions or ongoing contracts. MRR is the monthly version of ARR. Tracking changes in MRR (new, expansion, contraction, and churn) gives you a clear picture of whether your business is growing, plateauing, or shrinking -- before the P&L tells you months later.

N

Net Revenue Retention (NRR)

A measure of how much revenue you keep and grow from your existing customer base, after accounting for upgrades, downgrades, and cancellations. An NRR above 100% means your existing customers are spending more over time, even before you add new ones. This is one of the strongest signals of product-market fit and business health, and investors pay close attention to it.

P

PE Roll-Up

A private equity strategy where a firm acquires multiple smaller companies in the same industry, combines them under one platform, and sells the combined entity at a higher valuation multiple. Roll-ups are very common in HVAC, plumbing, electrical, and other trades. If you are a business owner in one of these industries, understanding the roll-up landscape helps you know what buyers are looking for and what your business might be worth.

Platform Acquisition

The initial, larger company a private equity firm acquires as the foundation of a roll-up strategy. The platform company typically has strong management, established processes, and enough scale to absorb add-on acquisitions. Platform deals generally command higher valuation multiples than add-ons because the buyer is paying for infrastructure, not just revenue.

Q

Quality of Earnings (QoE)

An independent financial analysis (usually performed during due diligence) that verifies whether a company's reported earnings are real, repeatable, and sustainable. It goes deeper than a standard audit -- looking for one-time revenue spikes, aggressive accounting, owner add-backs that do not hold up, and other adjustments. If you are selling your business, the QoE report is where deals get renegotiated or fall apart. Being prepared for it is critical.

R

Revenue Recognition (ASC 606)

The accounting standard that governs when you can officially count revenue on your books. Under ASC 606, you recognize revenue when you satisfy a performance obligation -- not necessarily when you send an invoice or receive payment. This matters because recognizing revenue too early (or too late) can distort your financials, create tax issues, and raise red flags during due diligence.

Rule of 40

A benchmark used to evaluate SaaS and subscription businesses. Add your revenue growth rate (as a percentage) to your profit margin (as a percentage). If the sum is 40 or higher, the business is generally considered healthy. A company growing at 30% with a 15% margin scores 45 and passes the test. The Rule of 40 is a quick way for investors and buyers to assess whether a company is balancing growth and profitability effectively.

S

Sell-Side Advisory

Professional guidance for a business owner who is selling their company. A sell-side advisor helps you prepare your financials, position your business attractively, identify and qualify potential buyers, negotiate deal terms, and manage the process through closing. The goal is to maximize your sale price and minimize surprises. Local Fractional's exit planning service includes sell-side advisory for owners in the trades and growth industries.

T

Trade Spend

The money a consumer packaged goods (CPG) company spends to get their products onto retail shelves and in front of consumers. This includes slotting fees, promotional allowances, co-op advertising, and in-store displays. Trade spend can eat 15-30% of gross revenue for CPG brands. If it is not tracked and managed carefully, it becomes one of the biggest hidden drains on profitability.

W

Working Capital

Current assets minus current liabilities -- in plain terms, the cash and near-cash resources available to fund your day-to-day operations. Positive working capital means you can pay your bills, make payroll, and fund growth without borrowing. During an acquisition, working capital targets are negotiated as part of the deal, and misunderstandings about what counts (and what does not) are one of the most common sources of post-closing disputes.

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