You will need a complete reformat and re-install to use SFS unfortunately. Best to LHA your drive's contents, copy the LHA file to a CF card in the PCMCIA slot, reformat the internal drive to SFS, then extract your old system back on there.
I have several Mac hardfiles that I use, I swap them around on FAT-formatted SD and CF cards, read through a PCMCIA card reader just fine! In faact it's quite fast this way, so there's no need to copy the hardfile to your internal drive.
Just make sure you AddBuffers, by typing in a CLI or Execute Command prompt:
AddBuffers CF0: 1000
Should be enough to make it nice and quick to access.