A fractional CFO is one of the pillars of a company, and hiring one will be one of the most strategic moves you can make for your startup.
What are the reasons for hiring such a professional? Here’s a comprehensive guide to help you understand the basics of a fractional Chief Financial Officer and how much these services cost.
Keep reading until the end as we share tips for finding and integrating this important portfolio into your business.
What is a Fractional CFO?
A fractional CFO, also known as a virtual or part-time CFO, is a professional who practices financial management and strategic planning on behalf of your business. An experienced CFO with years of experience are invaluable for the success of start-ups and small businesses that want expand. Here is a list of further activities undertaken by a CFO:
Monthly budget vs. actual analysis
Annual budgeting
Forecasting cash, expenses and profit, and revenue
Analyzing customer acquisition costs and values
Performing due diligence and valuation on business acquisitions
Maintaining relationships with investors, lenders, and banks
Providing proper cash flow management
Developing fundraising strategies
He or she is a part-time CFO who works for more than one start-up or business at the same time.
Fractional Chief Financial Officers (CFOs) are the most senior finance positions in an organization and are often considered a trusted advisors to the CEO. They are fully qualified and often work on a retainer or a part-time basis.
Fractional CFO vs. Full-Time CFO
While both a fractional CFO and a full-time CFO possess extensive knowledge and experience gained from corporate backgrounds, the two are not the same.
A fractional CFO works less than the full-time CFO for your business. As an outsourced expert, he or she is more of a consultant than a hands-on manager.
But just because they don’t spend much time at your business doesn’t mean they are not working for you. In fact, they are more likely to have a wealth of expertise and experience working with different companies that can benefit your business.
Source: Canva/ Getty Images
Why is a Fractional CFO Important?
Whether fractional or full-time, the role of a CFO is complex, and they can help scale a business and ensure its profitable growth.
Fractional CFOs are often brought into a company to help achieve a certain goal, including preparing for an acquisition or merger or raising capital. In fact, most fractional CFOs help raise hundreds of millions of equity funding and debt for multiple companies.
They can sit in board meetings, get a company’s books in order, oversee due diligence, and analyze term sheets and contracts.
Related: Virtual CFO Cost Analysis: Dallas
Reasons to Hire a Fractional CFO
Precise Accounting Management
A fractional CFO can ensure your business’ accounting foundation by providing updated and accurate data, allowing you to understand your market position while capitalizing on opportunities and mitigating risks.
They can also ensure your monthly reports follow GAAP rules, as the analysis used in producing them is based on error-free and precise financials.
Avoid Costly Mistakes
By basing your key business decisions on accurate and relevant financial information, you can reduce the risk of loss and avoid costly mistakes.
Key decisions include expansion or downsizing, financing the business, producing a new product, capital investments, making or buying decisions, and entering a new market.
Scalability
By hiring a fractional CFO, you can scale up or down your budget as necessary. It’s not like hiring a full-time employee that requires you to follow the standard hire and fire procedures or face legal consequences if you don't.
With a fractional CFO, you can simply raise or cut their hours as needed.
Increased On-Site Support
A fractional CFO comes in to help your startup with its immediate needs. They can work with the day-to-day financial operations of your business, allowing you to concentrate more on the task at hand.
They don’t work with you full-time but simply offer advice and expertise as needed so you can make sound financial decisions. This type of support is useful if your current accounting or financial team cannot provide the guidance you need.
Improved Control of Company Assets
Another reason to hire a fractional CFO is they can help you have appropriate financial controls that consequently lead to other benefits, such as reduced risk of fraud and improved control of your company assets.
Foster Growth
Personalized analysis gives your management team the confidence to make the right decisions to foster growth, maximize profitability, and increase market share.
This is especially important when preparing the company for sale, seeking outside investment, and debt funding.
Does Your Company Need a Fractional CFO?
Whether your company needs a fractional CFO depends on your company’s size, life cycle (launch, growth, success, maturity, and decline), and goals you want to achieve.
If your business has aggressive growth goals but isn’t yet ready for a full-time in-house Chief Financial Officer, you can benefit from hiring a fractional CFO.
You may need to hire a fractional CFO if this sounds like your business:
- You believe strategic partnerships and alliances could play a significant role in your business, yet you need guidance on implementing and evaluating these opportunities.
- You’re ready for an infusion of capital but need help preparing for investors’ due diligence (analyzing and mitigating risk from an investment decision) and deciding how much to raise.
- You want to make important decisions about moving your business ahead based on data-driven insights rather than gut instincts.
- You don’t have the expertise or in-house skills to build a solid financial system to help you mitigate risk and monitor performance.
- You need assistance tackling a specific issue, including cash flow problems, cutting expenses, or difficulty sustaining profit margins.
Source: Canva/ Getty Images Pro
How to Find the Right Fractional CFO for Your Business
If you’ve already decided to pursue fractional CFO services, here are tips to guide you in your search for the right CFO for your business:
1. Determine Your Business Needs
Your first step is to know precisely the services you’ll need. From negotiating debt to raising capital, a fractional CFO is equipped with expertise to handle different financial needs.
What services you choose may depend on your industry, plans for future growth, and the size of your business.
Take time to review your business status. Are you just getting started or already exploring a new market? Knowing where you stand can help you easily and adequately address your business needs.
Evaluate your team's responsibilities, too. Consider meeting your current accounting and finance team and discussing responsibilities and roles. These members can offer their expertise and experiences to help you find the right fractional CFO service for your business.
Moreover, assess your long-term goals. Before hiring a fractional CFO, short- and long-term business goals should be part of your discussion. In doing so, the right fit can easily assist with planning to realize your business objectives.
2. Look to Your Network
Another best way to find the right fractional CFO is through networking and referrals. You can look to your network to offer you recommendations and insights.
Even remote and in-person networking events can connect you to a fractional CFO. You may even have the opportunity to inquire about service options, pricing, and experience.
3. Search the Internet
You can also use the Internet to search for fractional CFO companies. See client ratings and what past clients said about their service.
4. Request a Professional Consultation
After refining your search, you may find a few potential fractional CFOs. For the final step, ask for a consultation before you sign the contract.
This step involves more than just discussing the terms and conditions of the work. It likewise serves as your final audit, providing you with a clearer insight into what a fractional CFO can offer.
Source: Canva/ Getty Images Signature
What Kind of Questions Can Be Asked to a Fractional CFO?
Q&As are a great way to gain insights into how they work. Here are some questions you can ask a fractional CFO. These cover marketing, strategies, risk management, budgeting and forecasting, and financial reporting.
What new accounting and tax issues will we face if our business expands into a new geographical market?
How do we ensure our business capitalizes on the right growth opportunities?
Is our business agile enough to capitalize on a solid financial base and act fast in the face of risk or opportunity?
At what point in our business development should we explore another round of funding?
Is our existing capital being used effectively?
Can we switch tax partners mid-season? If so, how can we do it to better capitalize on prospects for savings and growth?
Should we consider forming a joint venture or a strategic partnership to enter new markets or accelerate our growth?
How Much Do Fractional CFO Services Cost?
There’s no one-size-fits-all answer to this. Fractional CFO services typically cost $150 to $500 per hour. Still, some factors affect the overall cost, such as the following:
Business Size
Larger businesses usually have a higher cost because they require more work.
Potential Effect of the Financial Strategy
Helping raise capital, assessing your expansion cost, and studying your gross margins are only some things a CFO can do. And these things can make you break your business.
This is why a fractional CFO will give more attention and work that affects the overall cost of the service.
Team Behind CFO
The service of a fractional CFO with a team to delegate the task is more likely less expensive than a CFO who works solo.
Services You Select
Some businesses already have an accountant or bookkeeper, and they help lower the CFO service cost because the fractional CFO can focus more on forecasting and strategy.
Complexity of the Balance Sheet
Multiple bank accounts, deferred revenue, and inventory, can add bookkeeping work, ultimately increasing costs.
But don’t worry too much about the cost because a good fractional CFO business won’t overburden your business with a service you don’t need.
Here are the two main ways to pay a fractional CFO:
Hourly rate - This is the most common way a fractional CFO charges their services. They usually record their work hours and invoice their clients each pre-defined period. Highly skilled professionals charge around $300 per hour.
Monthly payment - This payment method offers a more consistent and predictable cost. It works by determining the number of hours of services and assistance they work for a company, ranging from $1,000 to tens of thousands of dollars.
Consider also the additional costs of travel. Make sure to discuss these things upfront before hiring the fractional CFO to avoid any surprises.
Related: How Much Does an Accountant Cost in Dallas?
People Also Ask: FAQs About Fractional CFOs
What does a fractional CFO do for a company?
A fractional CFO most commonly partners with businesses to achieve growth, overcome financial challenges, raise capital, navigate an audit, optimize strategy, develop sound financial projections, and introduce key financial tasks supporting the company’s growth.
How do interim CFO services differ from fractional CFO services?
Fractional CFO and Interim CFO services are not the same. The latter specialize in certain areas of financial and business management and are involved deeply in operational matters.
On the other hand, the former typically works more at a strategic level but with high-level financial guidance.
Is a fractional CFO worth it?
Yes, a fractional CFO is worth it, especially as his or her work is important to running any business. The most noticeable advantage of hiring one is cost savings, but you still get quality work when you hire a full-time CFO.
Fractional CFO: Your Roadmap to Financial Success
To summarize, hiring a fractional CFO surely gives your business expert support while staying cost-effective and efficient.
The right fractional CFO for your business can help you build a financial foundation to grow your company more confidently and quickly than without their financial expertise.