by Ben Donovan of Brand Builder University
If you’re looking to strengthen the financial expertise in your business, you may be wondering what role a fractional CFO could play.
But what exactly does fractional CFO mean, what does one do, and just how much might they cost in comparison to a full-time CFO?
In this guide, we’ll cover all the questions you may have and discuss whether or not your business should consider hiring one.
What is a Fractional CFO?
A fractional CFO (Chief Financial Officer) is a professional who provides financial advice and guidance to businesses on a part-time or project basis.
This means that they are not a full-time employee of the company like a traditional CFO, but rather are hired on a fractional basis.
They differ from an interim CFO in that a fractional CFO would normally be part of a medium-long term strategy. An interim CFO on the other hand would normally have a short-term contract of three to six months.
What Does a Fractional CFO Do?
Fractional CFO services typically include the same services as a full-time CFO, but on a smaller scale. Most of them will carry out a wide range of tasks to help companies achieve their overarching goals, but there are some specific areas of strength this role can bring.
1. Troubleshooting Specific Problems
A fractional CFO is often called upon in the face of specific financial challenges. Companies will look to hire a Chief Financial Officer with specialist skills in an area in order to help navigate choppy waters and bring ongoing stability.
Whether a company is facing cash flow issues, mounting debt, or a decline in revenues, a fractional CFO can come in and work with an existing team to find solutions for the most urgent challenges.
2. Creating Healthy Financial Infrastructure
Once short-term challenges are overcome, a fractional CFO will often work on creating the infrastructure needed to ensure the long-term success of the company.
This would normally include work such as preparing financial statements, creating realistic financial forecasts, structuring streamlined budgets, and working with department heads to ensure financial goals are met.
3. Aligning Finances Around Goals
Any successful business will be consistently working toward a clear set of goals. A fractional CFO can help bring alignment around both the financial strategy and the growth targets of the business.
Many of them will make one of their first objectives to bring the financial side of the business into clear view so the wider company can be working towards a clear target.
4. Facilitating Fast Growth
As a company’s health improves as a result of the fractional CFO’s financial guidance, thoughts will naturally turn to accelerating growth. Here the focus can be streamlining financial tasks and raising capital through borrowing or equity funding to fuel ongoing growth.
Fractional CFO services will also include various other fundraising activities and a strong focus on investor relations.
What Are the Benefits of Using a Fractional CFO?
There are several benefits that come with using an outsourced CFO when compared with a traditional CFO’s role.
1. Cost-Effective
One of the main advantages is that you only pay for the services you need when you need them. This can be a more cost-effective option for businesses than hiring a full-time CFO.
2. Increased Expertise
The financial analysis that an experienced CFO can provide is second to none. Whilst a full-time CFO may be out of reach financially for many companies, a fractional CFO can bring specific expertise to important projects without breaking the wage structure.
Whether that expertise is in rapid growth structures, improving omni-channel marketing efficiency, or potential funding opportunities, it will often be invaluable to a growing business.
3. Fresh Perspective
Another benefit is that they can bring a fresh perspective to your business. They can offer new ideas and solutions that you may not have thought of before.
An experienced fractional CFO will be well versed with the unique dynamics of multiple companies in a range of fields of business and can often bring new ideas that an existing business owner or finance team would not otherwise consider.
What Are the Drawbacks of Using a Fractional CFO?
Along with many positives, hiring fractional CFOs also has some downsides when compared to hiring a full-time CFO.
1. Commitment Gap
Any fractional or interim CFO may be seen to have a different commitment level than an existing team. Tensions may arise in board meetings if senior team members with long-term commitment and equity in the business feel a part-time CFO is not acting with the same long-term motivation.
It’s important in this scenario to recognize this tension and ensure they handle this expectation well. A business owner would be wise to find an incentive structure for a part-time CFO that is aligned with those of the full-time team in order to create good team synergy.
2. Costly For Small Companies
Whilst hiring a fractional CFO saves a business the high cost of a full-time CFO, it still may be out of reach for a small business early on its journey. Creating a solid financial strategy is important for any business, and that includes keeping wages within a healthy range.
How Much Does a Fractional CFO Cost?
The cost of a fractional CFO role will vary depending on the services the business needs and how many hours you need them for. Typically, businesses can expect to pay a monthly retainer of anywhere from $500 to $5,000 per month or the equivalent on an hourly basis.
If employing the services of a fractional CFO business that finds and vets fractional CFOs, you can expect to pay slightly more for the extra work they will be carrying out on your behalf.
Are There Any Other Options Than Using a Fractional CFO?
There’s no denying it; even fractional CFO’s are simply out of reach for some small businesses. Mid-sized companies may also wonder if there is a better, more budget-effective option.
If you find yourself in this position, the best option may be to explore accounting services that can help with financial reporting and even financial planning.
By employing the services of financial professionals who are committed to carrying out high-quality work for your business you can get the financial forecast information you need to make smart business decisions without the potential financial challenges of fractional CFO services.
When the time comes that your business needs high-end CFO tasks like equity funding, then the option to look at a part-time CFO or full-time CFO position will be there. Until then, a professional bookkeeping service can usually provide the accurate financial analysis you need to keep both the cash flow and balance sheet strong.
Is a Fractional CFO Worth It?
There is no one-size-fits-all answer to this question. The decision of whether or not to hire a fractional CFO depends on the specific needs of your business. If you’re unsure if it is right for you, it’s always a good idea to consult with a financial advisor.
Many companies offer guidance and support on the issue to help you determine if it is the right step for you.
Generally speaking, businesses that are growing quickly or are in the early stages of development with healthy funding may benefit from using them to help achieve growth.
However, many small businesses – particularly growing eCommerce businesses – would be far more suited to employing the services of a highly skilled team of bookkeepers to help implement systems and improve financial operations.
