Your Favorite Founder’s Favorite Fractional CFO On The Power Of Knowing Your Numbers

In a tough funding environment, having a firm grasp on finances can be a superpower. Fractional finance firm Crew Finance works with brands, including a slew of beauty brands such as California Naturals, Standard Procedure, The Outset, Nopalera, Salt & Stone and Jupiter, to wield it to improve their chances of success.

Ross Goodhart, co-founder and co-CEO of scalp and hair brand Jupiter, says, “They’ve helped us build out a more user-friendly financial model for budgeting and projections, streamlined our bill pay functions and helped us evaluate and negotiate various debt financing options, this is all within the context of them fundamentally and uniquely understanding fast-growing businesses of our size, type and nature.” Nopalera CEO and founder Sandra Velasquez turns to Marie Charlet, the VP of finance at Crew Finance who formerly held finance positions at Dae, Peace Out Skincare and Sephora, to run her body care, haircare and fragrance brand’s financial modeling and manage cash flow. Velasquez says, “It’s a crucial part of of the business.”

David Whitcroft started Crew Finance last year to serve consumer brands after nearly two decades of supporting them in financial and operational roles. “It’s a massive challenge for an early-stage brand to receive high quality financial statements. We are talking about timely, dependable, accurate GAAP accrual financials,” he says. “If you’re only doing accounting to file tax returns, you’re missing a hugely valuable dataset. We are seeing beauty brands that don’t know their margins because they haven’t prepared financial statements.”

Beauty Independent chatted with Whitcroft about the responsibilities of Crew Finance’s crew, which stands at 55 people, the cost of debt for emerging consumer startups, challenges they face at retail, when they should tap fractional financial services and move to full-time financial management, and what venture capitalists get wrong about investing in brands today.

How did Crew Finance come to be?

I started my career trying to not be an accountant and ended up working as an accountant in apparel businesses. Ten years ago, I came to the U.S. with an Aussie apparel brand. What I used to tell people is that, if you find someone who has survived apparel, they can do anything. I went from the brand to the investor side at a private equity group trying to find what was investible for them. That was a great experience because I went from working on one business to asking questions of hundreds of founders.

I was doing fractional CFO work after that as an independent consultant. The dirty secret of consulting is you end up doing a lot of free hours for people because a part-time person can’t fix all the challenges, and it’s hard to charge clients an hourly rate to do the whole spectrum of work they need. When I went to the first fractional firm I worked at, it was a game changer because they had a high bar for the quality of work, and there were 450 controllers there, a team of six model builders and a whole separate HR team. The unlock for me was you need a critical mass to spread out the work.

Has your specialization in consumer brands been important?

I had overseen a couple of hundred consumer brands, with beauty being one of the core legs. Beauty, apparel, and food and bev made up three quarters of my client base. Then, that company [Full Stack Finance] got acquired. There are specific needs of each category, and you have to understand the working capital needs of high-growth consumer businesses. You can be profitable and still run out of money as your inventory needs go up.

We have a beauty client doing a national retail launch next year, and we have to pay for that inventory next month to launch them in February or March. On paper, that’s a huge sale and will be profitable. However, the cash need is now, and the money won’t come back until halfway through next year. The working capital cycle for most consumer brands is critical, and the other things they have in common at a CFO level is board reporting, corporate governance and strategy. The life of the CFO is about managing those deliverables.

Early-stage brands have limited resources to build their teams. We don’t say hire financial services in-house. Having a great marketing or product development team keeps the lights on. Leverage smart contractors to build the rest. We have four core services they need—accounting and financial reporting, financial planning and analysis, CFO support and HR—and we tailor the engagements to suit the stage they are at.

How is fractional support evolving?

My hope is that technology becomes a tool for us to provide more value without adding more time. If you have fractional support or contracting support, ultimately you are paying for time, and our hope with evolution is we get to a place where the data and insights become more valuable and the time taken to generate them goes down, and it becomes a multiplier for what we can achieve.

I’ve been doing this for five years, which included COVID and included a massive peak in venture capital investing and exits, and the demand for our services has remained strong throughout, and part of that is, in a bullish market, it’s important to raise money and build businesses, and therefore there is a need for more support. Our growth was limited then, though, because we had to compete harder for talent with startups that raised rounds of funding.

When the market and funding cools, we are able to attract the talent more easily and startups are less likely to be moving our services in-house, but it becomes critical to have this function because cash flow is a lot more important if you don’t have complete confidence that you can raise equity forever. We have also seen huge shakeouts in the debt markets, and there are debt providers that have closed shop. When that happens and there is a shift toward profitability, our services become critical again. With the cyclical nature of it, having services under one roof has resonated with clients.

At what stage do you think a brand should be adding services like yours?

Whether it’s us or any other provider, what I say is it’s never too early for your accounting to be correct. There’s a technical element to it that’s hard to judge if you’re not an accountant and managing P&L. The analogy I give is, if someone asked me to run a hospital, would I know which doctor to hire? That’s not my technical expertise. Using a firm that can provide the technical expertise of accounting as early as you can I think is a great step.

What do your services cost?

We customize engagements and tailor them to each stage of business. I would say be wary of anyone who offers one price. We also don’t charge hourly because we want to look like an employee cost. We give a fixed fee for the output, but what I like to tell clients is that, if we are the cheapest quote, we’ve made a mistake because firms that compete on price have to find shortcuts somewhere. For the same reason that there are different price points in Sephora, there are different price points for accounting services and quality tends to be one of the reasons for that.

What’s the state of funding for consumer brands today?

it continues to be a tale of two cities. Either you are a market darling and investors are clamoring to invest or a business has challenges that require a lot of work to solve. We certainly see less active VC funds than we did three or four years ago, and they have a higher bar for writing checks.

Do you see any sign of the picture you’re drawing changing?

No. My guess is we are going to see a lot more consolidations, whether it’s from aggregators or strategics.

When you talk with VC funds, what do you believe they’re getting wrong?

They are all running their own book of business and have what’s most important to them and their fund. We agree that it’s probably healthy for the industry that there is a focus on a pathway to profitability, though we don’t always get truthful feedback on why investors pass on businesses.

Sometimes their expectations don’t align with what is possible. We get a lot of inquiries about, do you have any high-growth, scaling, profitable startups? You can’t have all three of those things or it’s incredibly rare to have all those things—and being profitable reduces the need for equity. So, those things are in tension. The tighter your lens is as an investor, the more likely you might be to find a diamond in the rough, but there are still a lot of great companies out there that are growing despite not being able to raise money.

Retailers and big beauty companies like Ulta Beauty and Coty are noticing softening consumer demand in beauty. What’s your sense of the consumer caution?

Consumer demand is cyclical, and this tends to impact larger companies more than startups. The retailers and multinationals will see the impact on their revenue because of the law of large numbers. They are more sensitive to cyclicality.

A startup can still grow 200% or 300% in a downward market because there is so much room for them to grow into, not to dimmish the consumer element because it does cost more to market and gain share in a shrinking market. However, that shouldn’t be a barrier to startups growing or new companies being formed.

What are your brand clients using for inventory financing?

There are different options at different sizes of the business. Early on, we don’t see great options for debt, and there are debt providers active at that stage that are not good partners. That means either debt is very expensive, unreliable or not a fit for growing beauty brands because of their size.

When you are early on, you are not getting terms from your supplier. You have to pay for inventory upfront. Once a brand is established, they have access to asset-based lending and that tends to be a good structure for funding inventory needs. Without calling out any specific lenders, there are ones that we trust and work with, and a fractional CFO can be helpful with knowing your lender is going to pick up the phone. We are doing a debt deal every month for different clients.

What is the range of the cost of debt?

Some lenders actively obfuscate the cost of capital and unfortunately this isn’t talked about enough. There are usury laws that govern the maximum interest rate that can be charged, and merchant cash advance lenders structure debt with a fee instead of an interest rate. However, that fee has a much higher cost of capital than an interest rate.

So, if you have lender offering you an 8% fee, it might cost you 50% APR. if you are working with a non-bank lender and your real cost of capital is in the range of 15% now, that’s probably where the market is if you are an early-stage consumer brand. If you are paying less than that, either you have been lied to or you have an incredibly good deal.

This year, we’ve seen a number of retailers not pay brands or pay late.

We are seeing a real bifurcation in the market, and some retailers that 10 to 20 years ago were cornerstones of commerce are now on shaky ground. If you are not getting paid, you are in a very difficult position if you rely on that money because, if you cut off the customer, you lose the sales, but you need to protect yourself from being in a deep hole. I think too often early-stage businesses are taken advantage of by larger partners.

We frequently hear brands complain about chargebacks from retailers. Can they fight them?

We think that retailers use chargebacks as a profit center. The high number of erroneous chargebacks cannot be accidental. It would be shocking if a retail business running well would make a mistake say half of the time accidentally. Unfortunately, brands have little power to push back on RTVs [return to vendor]. They don’t have tools to challenge chargebacks or demands for marketing contributions, discounts or testers.

The retailers are incentivized to shift as much risk and cost back to the brands, but we have seen that kill companies. We have partners that we work with and tools that we work with to dispute chargebacks. Again, if your accounting is not reporting the real cost, and you don’t have a budget in place for that, you don’t have the tools to fight back.

If you are a brand, how should you think about giving a retailer exclusivity?

If you believe exclusivity is more like a marriage than it is a restriction and it’s beneficial to both parties, then it’s worth considering. However, if it is just really to limit your ability to sell to the customers, that’s a one-way street, and it only benefits the retailer that has power. As we see with chargebacks and marketing spend, these aren’t two-way relationships because the brands don’t have the power, and they can restrict your ability to succeed.

When should brands migrate finance in-house?

In our experience, we think that brands migrating to in-house finance is a sign of success. That’s something we want for our clients. However, we think you don’t need your first financing and accounting hire until $15 million in revenue. We think you can build a financing and accounting function from the middle out. I recommend staring with a director of finance or controller as the first finance and accounting hire.

With a good foundation on the first hire, we can taper our support, and then the brand can add more hires after that. The reason you can’t replace a fractional team with five skillsets is that no one person can do that. It’s much cheaper for us to support across four to five different levels than it is to have four to five people working less than 40 hours a week.

What are you watching as we look toward 2025?

I’m watching for new ways of speaking to the customer. Marketing has become more expensive and harder every year for the last 10 years, and we are well past the halcyon days of being able to rely on paid performance marketing alone, so we are interested in, can our clients find ways to build awareness that’s not dependent on huge paid marketing spend? We’ve seen the pendulum start swinging back to brand investment, we have seen authentic founder stories really resonate, and we have seen newer channels like TikTok.

This may not be helpful to anyone as advice, but creating demand for a product is the result of many different things. It’s about everything working in harmony, and sometimes if what you are doing isn’t working, you have to try something else. A lot of the reason brands keep spending on Meta is they don’t know what else to do. If you turn it off, the business dies, but, if you leave it on, the business dies slower.