Understand the key differences between engaging an interim CFO and a fractional CFO to support your finance function.
Understand the key differences between engaging an interim CFO and a fractional CFO to support your finance function.
A CFO can engage with a business in various ways other than as a full-time hire. Understanding the capacity at which you need a CFO will help you know the optimal investment in finance leadership. Two of the most common ways to engage a CFO are through interim CFO and fractional CFO services. Both allow you access to executive leadership in finance without committing to a full-time hire, but critical differences exist between them.
In this article, we'll explore the differences between interim CFO and fractional CFO services, including their engagement terms, pricing models and fee structures, skill sets and qualifications, and when it's appropriate to use each type of service. By the end of this post, you'll clearly understand the differences between interim CFO and fractional CFO services and which one might be the right fit for your business.
An interim CFO is a highly experienced financial executive hired temporarily to provide financial leadership to a company during a transition period or to fill a leadership gap. Interim CFOs are typically engaged in situations where a company is undergoing significant change, such as a merger or acquisition, a restructuring, or the departure of a key executive.
Interim CFOs hit the ground running to stabilize financial operations while working closely with the company's executive team to develop longer-term strategies.
A key advantage of hiring an interim CFO is their fresh perspective and an unbiased view of the company's financial operations. They are not tied to any stakeholder group and can provide objective guidance based on their extensive experience in the field.
Interim CFOs help companies avoid the costs and time associated with a permanent hire. They are typically engaged for a few months to over a year and can provide financial expertise and support without requiring a long-term commitment.
Overall, interim CFOs provide valuable financial leadership to companies during times of change or transition and can help ensure that a company's financial operations remain strong during these challenging periods.
A fractional CFO provides part-time financial leadership to a company on a recurring basis. Fractional CFOs typically work with several clients simultaneously and manage various financial functions, such as financial planning and analysis, budgeting, forecasting, and cash flow management.
Fractional CFOs can provide valuable financial expertise to companies that do not have the resources or need for a full-time CFO. They can help businesses improve their financial operations, streamline processes, and make informed strategic decisions based on their expertise.
Fractional CFOs are typically engaged on a retainer or monthly basis and are paid a fixed fee. This fee can be customized to fit the specific needs and budget of the business.
Overall, fractional CFOs can provide a cost-effective way for businesses to access financial leadership on an ongoing basis. They can help companies improve their financial operations and make informed decisions without being engaged full-time.
Below are the key differences between an interim and fractional CFO. It is important to note that all the below is subject to change based on the needs of the company as well as the interest of the CFO. Not all consulting CFOs are interested in fractional work, and some CFOs may require a certain minimum of hours for fractional services. There are not many hard and fast rules, and most items must be addressed before the outset of the engagement.
It is more common for an interim CFO to receive a commitment from the company on the minimum amount of time they will be engaged. An interim CFO may want to know they have two to three months of full-time work guaranteed before moving to a month-to-month arrangement. Fractional CFOs are almost always month-to-month from the start of the engagement.
When a company hires an interim CFO, typically, a set end date is in mind. The engagement may last a few months or more than a year but will vary based on circumstances. Interim CFOs are expected to be flexible in their availability, as predicting a specific engagement end date is often difficult. Fractional CFOs, on the other hand, are more often engaged in an open-ended arrangement while the company grows.
While circumstances vary, interim CFOs typically work full-time hours as the seated CFO. Fractional CFOs perform a negotiated number of hours, typically below 20 per week. It is not uncommon for fractional CFOs to ramp up their work effort during busy times for a company, potentially working close to full-time for a week or so.
Interim CFOs are typically paid a monthly rate for their services, and fractional CFOs are usually engaged hourly with a minimum number of hours as a retainer. As mentioned above, these terms are negotiable like everything else.
Interim CFOs most often fill the role of the company's CFO on a full-time basis. This means they will be responsible for the operations of the finance function and expected to contribute to strategic discussions with the company's leadership team.
The duties of a fractional CFO vary greatly. A company often hires a fractional CFO to tell them what they don't know and uncover internal and external opportunities to improve their finance function and grow the company. A fractional CFO can, however, be hired to manage a specific set of duties or act as the company's CFO when there is not a full-time amount of CFO-level work to be done. Fractional CFOs can fill a dual role, supporting the company functionally where needed and providing guidance or coaching to an executive finance leader like the Controller or VP of Finance.
Both interim CFOs and fractional CFOs can work virtually, but it is more common for interim CFOs to be in-person.
Not all CFOs come from accounting backgrounds, and it is important to know how your company's needs align with a CFO's experience. Both interim and fractional CFOs have careers of demonstrated finance expertise and proven leadership. A CFO qualified for fractional CFO work is just as qualified for interim CFO work. The true qualifiers are more company specific as they relate to the CFO's background. E.g., whether or not the CFO has experience with public companies, working with private equity, or leading M&A efforts.
You might need to reach out to an interim CFOs when your business is undergoing significant change, such as a merger or acquisition, or when a key executive departs. In this scenario, the company needs a finance leader to support the company full-time through the transition. On the other hand, Fractional CFOs are engaged when the company needs to access executive leadership in finance, but the need does not require full-time involvement.
Hopefully, these insights have helped you understand some options when engaging a CFO.
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