the fractional CFO
Your Company's Key to Accelerated Growth
Founders and experienced CEOs face many challenges when managing their financials and leveraging their data for long-term planning. For leaders to effectively position themselves for profitability, they need a strategic financial expert to make sense of the numbers and partner with them in developing a blueprint for growth.
The Fractional CFO is a relatively new position in the C-Suite, but it’s proving invaluable to companies across the board. But first, let’s step back and define the role of a CFO at large.
A company’s Chief Financial Officer (CFO) serves as the CEO’s trusted advisor, leading the business’s corporate finance division and overseeing a range of matters, including:
Essentially, CFOs are responsible for the financial health of the business. In many ways, CFOs are the heartbeat of the companies they serve.
Full-time CFOs do not come cheap – a jarring realization that many CEOs run into when they realize their need for comprehensive financial support. An experienced CFO typically costs anywhere between $300,000 and $500,000 per year once you’ve factored in benefits, bonuses, and other components of employee compensation. Due to the staggering costs of hiring a full-time CFO, thinking they can’t afford the support.
What Do Fractional CFOs Do?
Keeping businesses afloat and overcoming financial challenges through strategic analysis, fractional CFOs set the framework for optimal growth and take action towards it – similarly to their full-time CFO counterparts, but working in a dynamic, entrepreneurial model.
Unlike traditional CFOs, fractional CFOs work on a part-time, contractual basis. They typically work with several companies at any given time while still being an involved and integral strategic partner as your business pursues its strategic growth goals.
Let’s dive deeper into what fractional CFOs do and how fractional CFOs add value to your business.
Manage Financial Challenges
While many businesses can get by with their finances being handled by a payroll company or CPA, bringing a fractional CFO on board can help your company take the next step and navigate the complexities of your business’s financial life, both today and as you look to the future.
Of the many financial challenges fractional CFOs can address, fractional CFO services are typically focused on providing the following strategic financial guidance for the company:
Partner With CEOs In Pursuit of Profitability
Growth is the linchpin for any company’s continued success, and growth looks different for every business! This is why partnering with an A-level financial strategist is key to hitting your company’s unique growth goals.
But while every business has a different road ahead – whether moving into vertical integration, pivoting to a new business model, entering a new market, or bringing in new equity partners – one thing holds true: your success depends on a comprehensive financial strategy.
Partnering with a company’s executive team, the fractional CFO works with leadership to identify organizational growth goals, and weave all of the complex financial characteristics of the business together with the CEO’s vision, to create an actionable strategic plan.
While unique in their fractional capacity, fractional CFOs are highly invested in the ins and outs of the companies they work with. Beyond overarching financial strategy alone, fractional CFOs can also step in and train staff on new systems and methodologies, bring a profitability perspective to the hiring process, and much more.
Fractional CFOs are highly data-driven, extracting useful information from what the leadership team may see as “just numbers” and using that information in forecasting growth. Experts in giving meaning to a company’s numbers, fractional CFOs can also develop financial forecasts for a company’s future in the:
With this information in hand, the CEO can lead the company with more informed financial decision-making and a sharper eye for accurately anticipating potential challenges.
Improve Dynamics Between Companies and Investors
When a company is looking to raise capital or bring investors on board, it must present well-organized and complete financial statements. A fractional CFO can develop these documents for a company and work with the executive team on a larger scale to ensure that the company is in the excellent standing necessary to acquire funding.
Daily Tasks of a Fractional CFO
While fractional CFO manages all of the above challenges, they also have an important role in the daily operations of your business. The degree of each of these activities may vary depending on the size of the company and the agreements made between the fractional CFO and the company, but with ultimate responsibility for the entire umbrella of the brand’s financial activities, here are some areas a fractional CFO may oversee or advise on:
Your Fractional CFO is a Game Changer for Growth
Needing a CFO is a good problem, as it indicates your brand’s growth trajectory. Once you need a fractional CFO to move your company’s financial growth strategy forward, you’ll soon realize the importance of this investment and that as you scale, you can’t afford to continue without someone in this position.
When you bring a fractional CFO on board, they will work with you to assess your needs and identify how much time must be allotted to manage the company’s finance and accounting and engage in strategic planning. From there, a fractional CFO will typically tailor a plan to meet your specific goals.
Most fractional contracts are structured at an hourly rate for a predetermined period. These contracts typically run for one or two years, sometimes with the company’s goal to hire its own CFO after that contract period. The average contract for a fractional CFO is between $5,000 and $7,000 per month—a far cry from the quarter of a million-plus you’d pay for a full-time hire.
Here are some of the primary factors contributing to fractional CFO billing rates:
Business size: a larger business has more layers and drives more hours of work, which may increase the upfront cost of working with a fractional CFO
Complexity of business structure: If you are running a financially complex business, managing that information to the highest benefit of the company increases the hours a fractional CFO spends with your company. Some examples of business complexities include inventory management, deferred revenue on the books, multiple bank accounts, etc.
Scope of work: Perhaps the single biggest factor in determining the cost of a fractional CFO is the scope, which also drives how the work is segmented. If you start from scratch with getting your finances in order and begin to scale up, plan on more hours for several weeks or months. A fractional CFO’s job is a lot like painting a house—the prep work is interminable, but once the real work begins, it goes quickly. Once the work is done, the painter only needs to come back for touch-ups. This is a bit simplistic, but over time, a fractional CFO may only need to spend a few hours every month with your company if everything is running smoothly.
Key Differences Between Interim CFOs and Fractional CFOs
Some CEOs wonder if an interim CFO is better than a fractional CFO. There are differences between the two, and only you can determine which one best meets your needs.
An interim CFO is just that—a CFO who fills in a staffing gap while you are in the hiring process for a new, full-time CFO. An interim is typically hired for a three-month contract, although they may stay on for six months in some instances. Interim CFOs seldom implement any new strategies or systems. Rather they simply provide financial oversight until a permanent replacement comes on board. Unlike a fractional CFO, an interim does not work with any other clients while they are under contract with your company.
Typically, interim CFOs only work with established companies with a pre-existing CFO position. Some CEOs hire a fractional CFO for a special project. Some companies that fit this model will also bring a secondary CFO in temporarily during a merger or acquisition or for a new systems integration.
On the other hand, a fractional CFO works for your company on a part-time basis. They put in the agreed-upon hours every week on your behalf and are free to provide CFO services to other companies. Although a fractional CFO has many responsibilities, once they have a grasp of the business and the financials, they can accomplish their tasks in a few hours per week. Thus, the fractional business model is often a better solution for a startup or small company.
Startups and mid-market privately held companies ($50m) can benefit immensely from a fractional CFO’s expertise and fresh perspective. Smart financial management is a critical component for future growth. With a strategic perspective paired with an eye for transforming numbers into opportunities, a fractional CFO offers l the advantages of a traditional CFO at a fraction of the cost.