A fractional CFO provides part-time financial leadership to a company on a recurring basis while being a strategic partner to the CEO.
A fractional CFO provides part-time financial leadership to a company on a recurring basis while being a strategic partner to the CEO.
A CFO can engage with a business in various ways other than as a full-time hire. One of the most common ways of doing so is through fractional CFO services. These services can be an excellent way for companies to access a highly experienced executive, especially if they cannot afford to bring that person on full-time.
But what exactly is a fractional CFO, and how can they benefit you?
A fractional CFO provides part-time financial leadership to a company on a recurring basis. They typically work with several clients simultaneously and manage various financial functions, such as financial planning and analysis, budgeting, forecasting, and cash flow management. They can help businesses improve their financial operations, streamline processes, and make informed strategic decisions based on their expertise.
Fractional CFOs are ideal for companies that do not have the resources or the need for a full-time CFO. That being said, 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.
To understand the role and impact of a fractional CFO, it would be easier to explain what a CFO does in general.
In every company, a CFO is responsible for three core financial functions: controllership, treasury, and financial planning and analysis (FP&A):
Outside these core functions, the CFO may have several other functional reporting lines, including leading strategic transactions, information technology, enterprise optimization, and more. These additional responsibilities are subject to change based on the company's size, industry, culture, and other attributes.
The role of the CFO has changed dramatically over the last couple of decades, transitioning from a role solely focused on financial stewardship to initiating and leading growth as a partner to the CEO. All of the duties of the CFO are covered in McCracken's Ten Pillars of Finance, which serves as the framework for all of our leadership development solutions.
With this in mind, a fractional CFO does precisely what a CFO does but only part-time.
There are several scenarios where having a fractional CFO by your side can prove invaluable. Here are some:
Let’s go through each one.
Fractional CFOs are accounting experts who can help you review your current policies and procedures and recommend improvements where necessary. Financial reporting is the medium through which owners and stakeholders can monitor the business's financial health. Without adequate reporting in place, gaining a clear picture of the business is challenging.
Organizing your financial information in time for tax season can strain your existing internal staff significantly. A fractional CFO can help you streamline this process, saving your company precious hours. They can also help you create a strategy to minimize your tax liability and optimize your tax assets.
Key Performance Indicators (KPIs) are data points that quickly inform the performance of certain aspects of your business. A fractional CFO can help you establish relevant KPIs in different areas and create dashboards that allow you greater visibility into performance.
A fractional CFO can support your company through special projects or through occasional guidance on complex issues. Suppose you are facing a complex financial challenge and don't have the internal expertise to overcome it. In that case, a fractional CFO can be a sounding board by which you can identify the optimal solution for your business.
A fractional CFO can help a company raise capital in several ways. The source and type of capital raised will depend on the circumstances and the company's financial health. A CFO can help growth-stage companies raise additional rounds of capital from venture capital funds or lead a publicly traded company's efforts to sell debt instruments to investors.
The skillset needed from the CFO can change dramatically based on the company's needs. Some CFOs specialize in supporting venture financing, but they may be in over their heads working with a publicly traded enterprise to issue additional shares to the market.
Fractional CFOs are skilled in cash flow management, offering valuable insights to optimize your company's cash flow. They analyze your cash inflows and outflows, identify potential bottlenecks or inefficiencies, and develop strategies to enhance cash flow performance. By improving cash flow management, Fractional CFOs help enhance liquidity, manage working capital effectively, and provide the financial foundation for sustainable growth and resilience.
A CFO understands how to structure an effective finance team for the stage and goals of the organization. An outsourced CFO can help a company's leadership define the team structure and identify the right talent to fill the roles.
Another principal responsibility of the CFO is leadership development, providing adequate training opportunities to all finance team members. A study issued back in 2018, from the Chief Learning Officer Business Intelligence Board, reports that 95% of companies plan to maintain or increase their leadership development budget. This is no surprise, given the impact of learning and development on a company's bottom line.
Specialized outsourced CFOs can lead the effort to create a development framework for the entire finance team. The CFO may recommend a team-wide program and individual-focused development programs for higher-level roles. CFOs can also engage with companies as coaches, supporting a new CFO or one new to the industry.
A fractional CFO can help you prepare your company operationally and financially for when tough times come knocking on your door. They will help you get ready early on by anticipating worst-case scenarios and remaining vigilant. And once the writing is on the wall, the fractional CFO will help steer and navigate your company to the shores of safety. Even once the storm has passed, the fractional CFO will be integral to the post-mortem and to disseminating the most important learnings to the rest of the company.
Even though you might be clear on what a fractional CFO does, you still might have several more questions running through your head.
To help, here are some of the questions we get asked time and again.
Seeing as the average fractional CFO costs somewhere between $175/ hour to $350/ hour, you can expect to pay around $5,000 - $12,000 per month. This is assuming that your fractional CFO works 8 hours every week.
As a result, you can average the cost to around $8,000 per month.
One element that might affect a fractional CFO’s cost is the size of the hiring company. In small companies, hourly rates for a consulting CFO can be as low as $150. In large, public companies with complex finance environments, consulting CFOs will cost as much as $350 an hour and sometimes more.
In addition to their hourly wage, fractional CFOs might incur extra expenses, which are usually detailed in the agreement between your company and the fractional hire.
For instance, depending on the location of the fractional CFO, the company may need to reimburse them for their travel expenses. Outside of travel, there are not many additional expenses. In some scenarios, a company may incentivize the CFO based on the results of their engagement. For example, it is common for a CFO to secure a bonus for achieving a high sale price in a transaction.
Fractional CFOs work flexible hours based on the changing needs of the business they serve. This could be a few hours a month up to 10 or 20 hours a week.
Not every CFO needs to be a CPA, but every CFO should be well-versed in basic accounting skills and understand GAAP and all relevant tax laws. A CFO should be comfortable navigating spreadsheets, accounting software, and other standard business systems.
Many times, companies will look to hire CFOs who have previously worked in their industry. This reduces the learning curve and ensures that the CEO will have a strategic partner in a CFO who understands the business environment.
A CFO will not need to possess all the complex skills necessary to perform each role within their finance department, but they need to understand every component of the function's requirements. For example, a CFO may not be an expert in the latest business intelligence tools, but they need to understand what the tools are capable of and how to manage the analyst whose job it is to master the tools. A CFO will have the ability to see the bigger picture behind each work effort.
A CFO will also need soft skills to be a great leader and strategist. Great leaders do not all lead in the same ways, but a common theme is that great leaders have team members willing to follow them and perform their jobs effectively. These leaders are great communicators and are interested in recognizing and supporting the people around them. CFOs with an innovative and agile perspective often make for the best strategists thanks to their ability to identify opportunities and quickly act upon them.
A Fortune 500 CFO may not be the best fit in a startup environment. Similarly, a fractional CFO with a background in telecommunications is unlikely to have the expertise needed in a healthcare organization. A CPA can be a great credential to find in a CFO, but not every company will need a CFO with a heavy background in accounting. Circumstances vary for each company depending on the stage and needs of the organization.
A fractional CFO can work onsite or virtually, depending on the company's needs, and neither case is uncommon.
All stages of a business can benefit from the expertise of a CFO, but the stage of your business plays a part in determining what type of CFO you need. Hiring decisions here require you understand what a fractional CFO does as well as the needs of your unique circumstances.
Growth-stage companies may be looking to raise additional funds and need a CFO experienced in working with venture capital. Mid-size companies looking to take an acquisitive strategy will require a CFO with transaction experience who can identify great deals and secure the best purchase price. Large companies may need the help of a CFO for a special project where there is a lack of internal expertise, like guiding a sizeable digital transformation initiative.
A startup can benefit from the council of a seasoned industry CFO from day one. Still, realistically, the startup won't have demands on their finance and accounting function that warrant the involvement of a CFO until they've raised seed capital. Preparing for future funding rounds is just one of the many areas in which a fractional CFO can add value to a startup.
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.
And while different companies might have different needs and requirements when it comes to their financial leadership, the fact remains that almost every company could benefit from having an experienced veteran leading the office of the CFO, even if it’s for a couple of hours every week.
If you want to learn more or would like to explore how a fractional CFO can be a good leader to your company, reach out. We would love to provide you with a free consultation and help you assess your financial needs.
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