Fractional Leadership Glossary

1–9

13-Week Cash Flow Forecast

A week-by-week projection of cash inflows and outflows over the next 91 days — close enough to be actionable, far enough to see problems coming. Unlike a monthly P&L, this model shows exactly when money hits your bank account and when bills come due, so you can spot a potential shortfall three or four weeks before it happens rather than the day it does. It is typically the first deliverable a fractional CFO builds on a new engagement; see also our 72-Hour Cash Flow service.

A

AR Aging

A report showing how long customer invoices have been outstanding, grouped into age buckets — typically 0–30 days, 31–60 days, 61–90 days, and 90+ days. A large 90+ day bucket is a direct cash flow warning: customers are either paying slowly or not paying at all, and the longer an invoice ages, the less likely it is to be collected in full. A fractional CFO reviews AR aging in the first week of any new engagement.

Accrual Accounting

A method of recording revenue when it is earned and expenses when they are incurred — regardless of when cash actually changes hands. If you invoice a client in December but don't collect until February, accrual accounting records the revenue in December. This gives a more accurate picture of business performance than cash-basis accounting, and most lenders and buyers require GAAP-compliant (accrual) financials before they will evaluate a business seriously.

ARR (Annual Recurring Revenue)

The annualized value of your recurring subscription or contract revenue. A business with 50 clients each paying $2,000 per month on annual contracts has $1.2M in ARR. For SaaS and subscription businesses, ARR is the primary top-line metric because it represents predictable, committed revenue — the kind buyers and investors price at a premium multiple compared to one-time or project revenue.

B

Burn Rate

The rate at which a company spends cash each month, especially before reaching profitability or during a high-growth investment phase. A company with $600,000 in the bank and a $75,000 monthly burn rate has roughly 8 months of runway. Understanding burn rate is foundational to any fundraising, hiring, or capex decision — see also Runway.

Bookkeeper

The person or service responsible for recording day-to-day financial transactions — invoices, expenses, payroll entries, bank reconciliations. A bookkeeper maintains the records; a controller ensures accuracy; a CFO interprets them strategically. Many $5M–$50M businesses pay CFO rates for what is actually bookkeeping work, or vice versa — getting that distinction right matters significantly for both cost and output quality.

Bridge Loan

Short-term financing used to cover a gap between an immediate funding need and a longer-term capital solution — for example, borrowing for 90 days to cover operations while a bank loan is being underwritten. Bridge loans typically carry higher interest rates and shorter terms than permanent financing. In M&A contexts, bridge financing can fund a deal close while longer-term debt is structured post-acquisition.

C

CAC (Customer Acquisition Cost)

The total sales and marketing spend required to win one new customer. If you spend $50,000 per month on sales and marketing and close 25 new customers, your CAC is $2,000. CAC by itself is less meaningful than CAC relative to LTV — a healthy business typically has an LTV:CAC ratio of at least 3:1, meaning each customer returns at least three times what it cost to acquire them.

Cash Conversion Cycle

The number of days between paying for inventory or labor and collecting cash from a customer. A business that pays suppliers in 30 days, holds inventory for 20 days, and collects receivables in 45 days has a cash conversion cycle of 35 days. Shortening this cycle — through faster collections, better payment terms, or inventory management — directly improves cash flow without requiring additional revenue.

Churn

The rate at which customers stop doing business with a company, expressed as a percentage of customers or revenue lost per period. A SaaS business with 200 clients that loses 4 per month has a 2% monthly churn rate — which compounds to roughly 22% annual churn, meaning it must replace nearly a quarter of its base each year just to stay flat. Revenue churn (the dollar value of lost contracts) is often more important than logo churn because losing a large customer has an outsized financial impact.

Controller

The finance executive responsible for accurate financial reporting, the monthly close process, accounts payable and receivable oversight, and accounting compliance. A controller looks backward — ensuring the books reflect what happened. A CFO looks forward — using what the controller produces to make decisions about what to do next. Many growing businesses need both, though a strong fractional CFO can guide a less experienced controller effectively.

CPA (Certified Public Accountant)

A licensed accounting professional who has passed the four-part Uniform CPA Examination, completed required education and experience hours, and maintains a state license subject to annual continuing education requirements. In Texas, the State Board of Public Accountancy oversees CPA licensure and can revoke it for professional misconduct — creating a meaningful accountability layer. Not all fractional CFOs are CPAs, and the distinction matters for work involving tax strategy, lender relationships, and financial statement preparation.

Covenant (Loan Covenant)

A condition in a loan agreement that requires the borrower to maintain certain financial ratios or operational standards — for example, maintaining a minimum DSCR of 1.25x or keeping total debt below 3x EBITDA. Violating a covenant can trigger a default, giving the lender the right to demand immediate repayment or renegotiate terms. A fractional CFO tracks covenant compliance as a core ongoing responsibility on any debt-carrying engagement.

D

DSCR (Debt Service Coverage Ratio)

Net operating income divided by total annual debt service obligations (principal + interest). A DSCR of 1.25x means the business generates $1.25 for every $1.00 owed on debt — the minimum most commercial lenders require. A DSCR below 1.0x means the business cannot cover its debt payments from operating income alone, which is a serious lender concern. Understanding your DSCR before approaching a bank is foundational to any debt conversation.

Due Diligence

The formal investigation a buyer, investor, or lender conducts before finalizing a transaction — reviewing financial statements, contracts, tax returns, operations, and legal matters. Financial due diligence typically focuses on verifying the accuracy of reported earnings and identifying any risks or liabilities not visible in the financials. A business that has maintained clean, accrual-based books with a fractional CFO moves through diligence significantly faster — and with fewer surprises — than one that has not.

E

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization — the most widely used proxy for operating cash profitability in business valuation and lending. A business with $5M in revenue and $700,000 in EBITDA has a 14% EBITDA margin. Buyers typically apply a multiple to EBITDA to set enterprise value — for example, 5x EBITDA on $700,000 implies a $3.5M valuation. See also Exit Multiple and Quality of Earnings.

EOS (Entrepreneurial Operating System)

A complete business operating framework created by Gino Wickman and described in Traction — used by tens of thousands of privately held businesses. EOS gives companies a set of practical tools: Rocks for quarterly priorities, Scorecards for weekly metrics, L10 meetings for team accountability, and the Visionary/Integrator distinction for leadership clarity. A fractional CFO who is also a certified EOS Integrator can run your financial function inside your existing EOS cadence rather than parallel to it.

Exit Multiple

The ratio of a business's sale price to a financial metric — most commonly EBITDA or SDE. A business sold for $4M with $800,000 in EBITDA was sold at a 5x EBITDA multiple. Exit multiples vary significantly by industry, growth rate, revenue quality, and business size — a $1M EBITDA trades business might trade at 3–4x while a $1M EBITDA SaaS business might command 6–10x. Understanding your likely exit multiple before you engage an exit planning process helps you set realistic expectations and identify where to invest to move the number.

F

Fractional CFO

A part-time, experienced chief financial officer who provides strategic financial leadership — cash flow management, banking relationships, KPI reporting, lender negotiations, and exit preparation — to businesses that do not need or cannot justify a full-time CFO hire. The fractional model typically costs $5,000–$10,000 per month versus $250,000–$450,000 in total annual compensation for a full-time hire. At Local Fractional, the fractional CFO is a CPA-credentialed partner doing the work directly — not a junior associate.

Fractional CMO

A part-time chief marketing officer who leads brand strategy, demand generation, positioning, and marketing team management on a flexible retainer basis. Like the fractional CFO model, the fractional CMO gives businesses access to senior marketing leadership without the cost of a full-time hire ($180,000–$300,000+ total comp in Dallas). At Local Fractional, Taber Wetz leads CMO engagements — often in parallel with a CFO engagement for businesses that need both functions aligned.

Free Cash Flow (FCF)

Operating cash flow minus capital expenditures — the actual cash a business generates after funding its own maintenance and growth. A company can be profitable on its income statement and still have negative free cash flow if it is investing heavily in equipment, real estate, or technology. FCF is the truest measure of a business's ability to service debt, pay distributions, or fund acquisitions.

G

Gross Margin

Revenue minus cost of goods sold (COGS), expressed as a percentage of revenue. A business with $10M in revenue and $6M in direct costs has a 40% gross margin. Gross margin is the clearest indicator of pricing power and operational efficiency at the production level — before overhead (SG&A) is considered. Businesses with high gross margins (60%+) have far more flexibility to invest in growth, absorb overhead, and weather downturns than businesses with thin margins (20% or below).

GAAP (Generally Accepted Accounting Principles)

The standardized set of accounting rules and procedures used to prepare financial statements in the United States, established by the Financial Accounting Standards Board (FASB). GAAP compliance means revenue is recognized consistently, expenses are matched to the periods they relate to, and the balance sheet accurately reflects assets and liabilities. Most lenders and all serious buyers require GAAP-compliant financials before evaluating a business — which means accrual-based books, not cash-basis QuickBooks reports.

I

Integrator

In EOS, the Integrator is the person who executes the Visionary's ideas, manages the leadership team, resolves cross-functional issues, and keeps the business running with consistency. The Visionary creates the big ideas; the Integrator makes them real. Many founders are strong Visionaries who lack an effective Integrator — which is often the root cause of organizational chaos in growth-stage companies. Chris Gauvin is a certified EOS Integrator and incorporates this function into fractional CFO engagements where relevant.

K

KPI (Key Performance Indicator)

A quantified metric that tracks progress toward a specific business objective. Revenue, gross margin, EBITDA, cash balance, DSO (days sales outstanding), and customer count are common KPIs — but a useful KPI dashboard is specific to the business and its current priorities, not a generic list. A fractional CFO builds a KPI dashboard that an owner can actually run decisions off of, not just a report that gets filed.

L

LTV (Lifetime Value)

The total revenue a business expects to earn from a single customer over the entire duration of the relationship. A client who pays $2,000 per month and stays for an average of 36 months has an LTV of $72,000. LTV is most meaningful in relation to CAC — if it costs $5,000 to acquire a customer with $72,000 in LTV, the unit economics are highly favorable. If it costs $40,000 to acquire that same customer, the business has a structural problem regardless of revenue growth.

Liquidity

A business's ability to meet its short-term financial obligations using available cash or assets that can quickly be converted to cash. A business with strong liquidity has enough cash (or accessible credit) to pay vendors, employees, and lenders on time even during slow revenue periods. Liquidity problems — not profitability problems — are the most common reason businesses fail. The 13-week cash flow forecast is the primary tool for managing liquidity proactively.

M

Margin Tax (Texas Franchise Tax)

Texas's primary business tax, calculated on "taxable margin" rather than net income — meaning the tax can apply even in years when the business is marginally profitable or break-even. In 2026, the tax applies to most Texas businesses with annual revenue above $2.47M. The rate varies by industry and entity structure (typically 0.375% or 0.75% of taxable margin after deductions). Many out-of-state or generalist CFOs miss this or miscalculate it; a Texas-based fractional CFO builds it into annual planning by default.

MRR (Monthly Recurring Revenue)

The predictable, contracted revenue a subscription or retainer business generates each month. MRR is the monthly equivalent of ARR — multiply MRR by 12 to get ARR. Tracking MRR growth, expansion MRR (upgrades), contraction MRR (downgrades), and churned MRR gives a clear picture of a subscription business's health that a standard P&L cannot provide.

N

Net Income vs. Cash Flow

Net income is accounting profit — revenue minus all expenses as recorded on the P&L. Cash flow is actual money moving in and out of the bank account. A business can show strong net income and simultaneously be cash-poor if, for example, it is growing fast and extending payment terms to customers (high AR) while paying suppliers quickly. This disconnect — profitable on paper, cash-stressed in practice — is one of the most common and most dangerous financial blind spots in growing businesses.

NDA (Non-Disclosure Agreement)

A legal agreement requiring parties to keep shared information confidential. In M&A and business sale contexts, NDAs are signed before any financial information is shared with prospective buyers, partners, or lenders. A standard NDA does not protect against all risks — it establishes legal recourse if information is misused, not physical prevention. Every fractional CFO engagement should begin with a properly executed NDA and engagement letter.

O

Operating Leverage

The degree to which a business can increase revenue without proportionally increasing costs. A software company has high operating leverage — adding a new customer costs almost nothing incrementally, so most of the additional revenue flows directly to profit. A trades company has lower operating leverage — each additional job requires additional labor and materials. High operating leverage is attractive to buyers and investors because it means growth directly expands margins.

Owner Earnings

A metric introduced by Warren Buffett: net income plus depreciation and amortization, minus the capital expenditures required to maintain the business's competitive position. Owner earnings represent the actual cash available to the owner after sustaining the business — which is often significantly different from reported net income. A capital-intensive business (heavy equipment, real estate, fleet vehicles) may show strong net income but low owner earnings after accounting for ongoing capex requirements. See also SDE.

P

P&L (Profit and Loss Statement)

Also called the income statement — the financial report showing revenue, cost of goods sold, gross profit, operating expenses, and net income over a period (month, quarter, or year). The P&L answers the question "did the business make money?" but does not answer "does the business have cash?" — which is why a P&L must always be read alongside the balance sheet and cash flow statement to get a complete financial picture.

Payback Period

The time required to recover the cost of an investment from the cash flows it generates. If hiring a salesperson costs $80,000 per year and they generate $240,000 in new annual gross profit, the payback period is roughly 4 months. Payback period is a quick filter for capital allocation decisions — it does not account for the time value of money (unlike IRR or NPV), but it is intuitive and easy to apply in operational contexts.

PE Roll-Up

A private equity strategy where a firm acquires multiple businesses in the same industry, consolidates them under a shared management structure, and exits at a higher valuation multiple than the individual businesses commanded. PE roll-ups are extremely active in DFW industries — HVAC, plumbing, roofing, pest control, and professional services have all seen significant PE roll-up activity in recent years. Owners in these industries are frequently approached as acquisition targets; understanding your likely role (full exit vs. partial rollover) and valuation expectations matters before any conversation begins.

Q

Quality of Earnings (QoE)

An analysis — typically prepared by a CPA firm — that examines whether a business's reported earnings accurately reflect true, recurring, normalized operating performance. A QoE adjusts for one-time items, owner perks, related-party transactions, accounting irregularities, and revenue recognition issues to produce an "adjusted EBITDA" that a buyer or lender can rely on. Most transactions above $5M in enterprise value involve a buyer-side QoE; sellers who prepare their own QoE proactively are in a much stronger negotiating position. See exit planning services for context.

R

Rocks (EOS)

In EOS, Rocks are the 3–7 most important priorities for the company or an individual for the current quarter — the things that, if completed, will move the business forward most significantly. The term comes from the concept of filling a jar: put the rocks (big priorities) in first, and the pebbles and sand (smaller tasks) fill in around them. Rocks are set at the beginning of each quarter, reviewed weekly in the L10 meeting, and scored on-track or off-track at the end of the quarter.

Runway

The number of months a business can continue operating at its current burn rate before exhausting its cash or credit. A company with $900,000 in cash and a $100,000 monthly burn has 9 months of runway. Runway is the most important number in any business that has not yet reached sustainable profitability — and the first thing any investor, lender, or new CFO asks about. For profitable businesses, tracking runway against a line of credit drawdown is equally important.

Retainer

A fixed monthly fee paid for ongoing access to a professional's services, regardless of the specific number of hours worked in a given month. In fractional executive engagements, a flat retainer is structurally superior to hourly billing because it aligns incentives (the advisor benefits from being efficient, not from running up hours) and removes the client's reluctance to call with questions. A typical fractional CFO retainer in Dallas ranges from $5,000 to $10,000 per month depending on business size and scope.

S

SDE (Seller's Discretionary Earnings)

EBITDA plus the owner's total compensation (salary, benefits, and personal expenses run through the business) — representing the total economic benefit a full-time owner-operator derives from the business. SDE is the most commonly used valuation metric for businesses under $5M in revenue where the owner works in the business. A business generating $500,000 in SDE at a 3x multiple commands a $1.5M sale price. Businesses above $5M in EBITDA are more often valued on EBITDA multiple rather than SDE.

Scorecard (EOS)

In EOS, the Scorecard is a weekly one-page report showing 5–15 key metrics with owners and numeric targets, used by the leadership team to identify issues before they become problems. A good Scorecard is forward-looking (leading indicators like pipeline and calls made, not just trailing revenue) and reviewed every week in the L10 meeting. Many businesses confuse a monthly financial dashboard with a Scorecard — the Scorecard is designed for weekly leadership accountability, not monthly financial review.

SG&A (Selling, General & Administrative)

The overhead costs not directly tied to producing a product or service — including management salaries, office rent, marketing, insurance, professional fees, and administrative staff. SG&A is the line between gross profit and EBITDA on the income statement. High SG&A relative to gross profit compresses EBITDA margins and reduces valuation multiples. Buyers typically scrutinize SG&A for excess owner compensation, related-party rents, and discretionary expenses that can be normalized in a QoE.

T

Term Sheet

A non-binding document outlining the key terms of a proposed transaction — purchase price, structure, earnout provisions, representations and warranties, exclusivity period, and closing conditions. A term sheet in a business sale is the foundation for the definitive purchase agreement; in a debt transaction, it outlines the loan amount, rate, term, covenants, and collateral requirements. Understanding every line of a term sheet before signing is where a fractional CFO with transaction experience earns their retainer back multiple times over.

Traction

In the context of EOS, Traction refers to the ability of a business to execute on its vision consistently and with accountability — the opposite of an organization that sets goals but never completes them. Gino Wickman's book Traction introduced EOS to the entrepreneurial market. More broadly, "traction" in a startup or growth company refers to evidence that the business model is working: growing revenue, increasing customers, improving unit economics.

U

Unit Economics

The revenue and costs associated with a single unit of a business model — per customer, per order, per location, per transaction, or per job. Good unit economics mean that each incremental unit of the business generates more value than it costs to produce. Poor unit economics mean the business loses money on each unit and is hoping to make it up in volume — which, as the saying goes, never works. A fractional CFO builds unit economics models to identify the contribution margin at the transaction level before making expansion or investment decisions.

V

Visionary

In EOS, the Visionary is typically the founder or CEO — the person who generates big ideas, builds external relationships, drives culture, and sees around corners. The Visionary's counterpart is the Integrator, who makes the ideas executable. Most business scaling problems in the $5M–$50M range stem from a strong Visionary operating without an effective Integrator to translate vision into consistent operations.

Valuation

The process of determining what a business is worth — expressed as an enterprise value or equity value. For privately held SMBs, valuation is most commonly based on a multiple of EBITDA or SDE, adjusted for the quality and sustainability of earnings, growth trajectory, customer concentration, and market conditions. A business worth 4x EBITDA today might be worth 6x after two years of clean financials, documented processes, and reduced owner dependence — which is exactly the work that exit planning is designed to do.

W

Working Capital

Current assets minus current liabilities — the liquid resources available to fund day-to-day operations. A business with $500,000 in current assets (cash, AR, inventory) and $300,000 in current liabilities (AP, accrued expenses, short-term debt) has $200,000 in working capital. Working capital needs grow with revenue — a business that doubles revenue typically needs significantly more working capital to fund the larger AR balance and inventory — which is why fast-growing, profitable businesses can still face cash crunches. See also Cash Conversion Cycle.

Working Capital Peg

In M&A transactions, a negotiated target level of working capital that the seller is expected to deliver at closing. If the business closes with more working capital than the peg, the seller receives additional consideration; if less, the seller owes an adjustment. Working capital peg negotiations are a frequent source of post-close disputes — and a fractional CFO with deal experience can model this analysis and protect the seller's interests during negotiation.