How Fractional CFOs Help Emerging Brands Navigate Growth: An Interview with Cathy Cheng

Early-stage brands face a ton of challenges as they plan to scale their business and expand into new channels. Managing finances, securing funding, and optimizing cash flow are critical to success, but many founders lack the expertise to navigate these complex issues on their own. To better understand how brands can tackle these financial hurdles, we spoke with Cathy Cheng, a fractional CFO who specializes in the CPG space.

Q: Can you tell us a bit about your background and the types of clients you typically work with?

A: I work with VC-backed early-stage consumer startups, providing services ranging from high-level CFO responsibilities like budgeting, forecasting, and fundraising to more tactical accounting and bookkeeping support. My clients are mostly concentrated on the East Coast, which aligns well with my background in auditing manufacturing companies in the region. I'm very familiar with inventory management, cost of goods sold, and supply chain issues – all critical areas for CPG brands.

Q: What are some of the unique financial challenges CPG startups face, particularly as they expand into retail channels?

A: CPG companies deal with much longer cash conversion cycles than other business models, which can create significant working capital challenges. There are long lead times associated with purchasing inventory, often from overseas suppliers, and then additional delays as products sit in warehouses before being shipped to retailers. On top of that, large retailers like Walmart have lengthy payment terms, which further extends the time between initial cash outlay and receiving payment.

For example, if a brand gets a large purchase order from a retailer like Target, they may need significant capital to fulfill that order on a tight timeline – we're talking hundreds of thousands or even millions of dollars. Traditional financing options often can't accommodate that level of need on the required timeframe, which puts brands in a real bind. This makes access to the right financing options absolutely critical.

Q: How do you help your clients manage their cash flow and secure the funding they need to grow?

A: A big part of my role is helping founders evaluate different lending options and negotiate with lenders to get the best possible terms. There are a lot of nuances when it comes to inventory financing, purchase order financing, and other solutions – I help my clients cut through the complexity and model out the impact of different options on their unit economics and profitability.

That's why I was really impressed with Lunr Capital when I was introduced to Erin and the team. They have a genuine understanding of the CPG business model and the unique challenges these brands face. With their team's background in retail buying, they're able to provide invaluable insights and guidance to help brands navigate the complexities of retail. That level of industry-specific expertise really sets them apart from other lenders in the space.

They're able to provide a level of flexibility and tailoring in their financing solutions that I haven't seen from most lenders in this space. They're really trying to solve brands' problems and set them up for long-term success, which is refreshing.

Q: What advice do you typically give to CPG founders as they're preparing to scale up and expand into retail?

A: One of the first things I ask founders is, "Where do you want this business to be in 5 years? What's your ultimate exit strategy?" Because that has a huge impact on how you need to be thinking about growth and profitability at each stage.

Using that long-term goal as an anchor point, we then work backward to set revenue and profitability targets for each year. It's all about making sure the near-term plan is aligned with the big-picture vision.

I also encourage founders to consider the trade-offs between growth and ownership. You can build a $100M brand but only own 10% of it, or you can run a smaller, highly profitable business and retain full ownership. There's no right answer, but it's a key strategic decision every founder needs to make.

Throughout the scaling process, it's crucial to never underestimate the importance of cash flow management. I've seen so many brands get into trouble because they assume the challenges they faced early on will ease up once they hit a certain revenue threshold. But the reality is that those cash flow complexities persist until you make the conscious decision to slow growth. Having the right financial plans and partnerships in place is critical at every stage.

As the CPG landscape becomes increasingly competitive, having a strong financial foundation and the right growth partners is more critical than ever. Fractional CFOs like Cathy Cheng play an invaluable role in helping brands optimize their cash flow, navigate the challenges of scaling up, and unlock the working capital they need to fuel sustainable growth. 

By providing strategic guidance, tactical support, and deep domain expertise, fractional CFOs act as trusted advisors to founders and an extension of the core management team, helping brands develop robust financial plans, model out different growth scenarios, and connect with lending partners like Lunr Capital who understand the unique dynamics of the CPG industry. With the right financial strategies and partnerships in place, brands can confidently pursue their growth objectives and thrive in an increasingly competitive market.