What is a fractional CFO & how to find One?

Smaller businesses often push aside big-picture and strategic financial concerns as they launch and ramp up operations. Most founders and owners, while focusing on the basics of profit and loss, roughly outlined balance sheets, and similar essentials, neglect the complex financial framework that is crucial for evolving a company into a sustainable and mature entity – especially if aiming for a liquidity event, seeking external funding, or prepping for a rapid growth phase.

Across the board, businesses require a detailed budget, strict modeling and forecasting, and thorough financial reviews. However, many lack either the financial resources or the desire to hire a full-time CFO. For those searching for a cost-effective solution, the market abounds with outsourced CFOs who can provide the vital support needed to advance their businesses today.

What is a Fractional CFO, and What Can They Do for My Company?

 Though most C-Suite roles – Chief Executive Office, Operating Office, Marketing Office – are self-evident, the Chief Financial Officer’s role isn’t as cut-and-dry as the others. Though a CFO’s primary role involves overseeing financial functions within a business, they touch far more of a company’s holistic value chain than the name implies. For example, a CFO’s input might drive marketing campaign spending or streamline manufacturing through capital expenditure recommendations – roles you’d largely expect to fall solely within the CMO or COO offices. 

To that end, a fractional CFO’s role is as diverse as a full-time exec’s but even more so. Generally, your fractional CFO’s assistance is as broad or narrow as your specific circumstances demand. That’s ultimately the appeal of a fractional CFO; the role can be as simple as putting together a pro forma financial statement quarterly or as complex as leading the charge to right-size your entire accounting operation. 

Still, you can generally expect a fractional CFO to excel in these broad business areas: 

Holistic Financial Assessment

 The first thing a fractional Chief Financial Officer worth their salt will do is take a survey and assess how your existing financial functions operate. At a minimum, hiring a fractional CFO to audit your existing systems is well worth the cost, even if you elect to stop the business relationship afterward.

Beyond an initial review, your fractional CFO will review outcomes periodically (usually on a quarterly basis). This helps ensure your business stays on the right track and that you identify potential problems and pitfalls before they arise.

Budgets, Forecasts, and Financial Models

Managing a business budget is far tougher than a household cash-in/cash-out worksheet – you have to expand your scope to include non-cash transactions like depreciation, accurately predict potential shortfalls and come up with funding solutions, manage capital expenditure needed to grow, and more. Newer (and even more experienced) business owners often struggle with the depths of budgeting required to run a business, and doing so generally detracts from an owner or founder’s central mission – making money.

A fractional Chief Financial Officer can step in to fill the gap, helping to orient or review your budget while accurately modeling future cash flow, potential expenses, pro forma income statements, and more – all of which are critical to guide your business journey while also being required documents if you’re seeking third-party funding like a banking loan, equity issue, or private credit solution.

Bookkeeping and Payroll

Even if the first two fractional CFO core competencies aren’t enough to sway you, chances are your bookkeeping and payroll systems could use some help. Even as automated and AI-driven bookkeeping solutions abound, having a seasoned professional available to call and manage your accounting team can mean the difference between smooth sailing and a brutal audit – and even fines, lawsuits, and legal charges. The bottom line is that unless your other senior staff have a background as CPAs, a fractional CFO can help keep you out of hot water when it comes to bookkeeping and payroll. 

When Does a Company Need a Fractional CFO?

The most straightforward answer to “Does my business need a fractional CFO?” is yes. If it’s something on your mind, or you’re even remotely entertaining the possibility of onboarding a fractional CFO, then chances are you’re identifying problems and inefficiencies within your business that a fractional CFO could help solve. As a general rule of thumb, though, if your business is larger than five people OR you’re running any of these financial functions, a fractional CFO can be an invaluable asset: 

• Government-mandated financial statement reporting.
• Complex accounts payable and receivable functions, including early discount management, bookkeeping automation integration, etc.
• Seeking external funding.
• Generate more than $100,000 annually in revenue.
• Considering a merger or business acquisition.
• Buying a pricy piece of property or equipment.
• Managing complex international and cross-border transactions.
• Many, many more – if it isn’t something that someone with a basic business background can execute flawlessly, a fractional CFO is worth their weight in gold. 

Of course, it goes without saying that if you’re running your full financial operations off of Excel and a handful of banker boxes stuffed with documents, finding a fractional CFO to at least get your house in order is mandatory! The same holds true if you’re stagnant or trying to expand. Far too often, financial functions hold us back from our true business potential, and the ROI on hiring a fractional CFO can be astronomical when you measure it against growth and business gains.

How is the CFO’s Role Fractionable?

In a nutshell, digitization enables fractionalization of a CFO’s responsibilities. Let’s face it – many small businesses can’t afford, nor do they need, a full-time CFO sucking up salary and expecting an annual business. In many cases like these, your theoretical full-time CFO would be busy at first and once a quarter thereafter, but otherwise, browse social media and kill time in between projects – costing your company cash that could be used to grow your operational reach.

Since we’re working in a largely digital landscape, expert CFOs can offer their services remotely to a range of businesses as long as you can give access to critical documents, software, and business functions.

Advantages of Hiring a Fractional CFO

The biggest advantage to a fractional CFO, beyond those discussed above, is that it frees you up to focus on what matters, whether that’s running day-to-day operations, soliciting outside funding, or expanding your operational reach. Beyond that value proposition – which, frankly speaking, should be more than sufficient – a fractional Chief Financial Officer can: 

• Improve cost efficiency and ROI compared to hiring full-time executive help while doing the same by improving downstream financial functions like accounting and bookkeeping.
• Give your company a greater air of legitimacy when seeking external funding.
• Help navigate external funding, i.e., helping manage a deal room, putting together pro forma financials, etc.
• Offer depth of business experience and operational longevity that’s otherwise unmatched within your organization.
• Offer flexibility without having to directly align on certain values – for example, a major personality conflict with a full-time CFO is much more manageable when you only work with them a few times a month. Plus, it’s much easier to “fire” fractional help than it is to cut a full-time position (think severance pay, unemployment insurance, and even litigation).

Ultimately, you’ll likely find a slew of additional advantages and benefits when you speak with prospective fractional Chief Financial Officers – but how do you find a fractional CFO for hire?

How Can I Find a Fractional CFO for Hire?

Before finding a fractional CFO to hire, make a list of a few key points to help guide the search: 

1. Values and ethos – though you may only work with them occasionally, you want to avoid butting heads to the greatest extent possible.
2. Ensure they understand your needs and that their skillset aligns with those needs and your expectations.
3. Honesty – what’s their professional reputation? At the end of the day, your name is stamped on those financial statements, so you want to ensure a fractional CFO is honest enough that you’re comfortable standing by their work.
4. Ensure that their cost and pay expectations align with your budget, although top-tier fractional CFOs pay for themselves many times over when you consider cost savings and improved revenue streams in which their services result.

Once you have your wish list ready, here’s where you can find top fractional CFO assistance:

1. Tap your network: Whether through local business associations or a good old social media search on LinkedIn, getting referrals for qualified fractional CFOs is a shortcut to vetting their professional qualifications.
2. Fractional CFO businesses and agencies: innumerable agencies representing fractional CFOs offer a vetted, off-the-shelf experience while often facilitating the onboarding process. At the same time, CFOs represented through an agency tend to be more familiar with the fractional concept and can adapt to remote operations more readily.
3. Freelancing sites: While this venue demands a bit more work and due diligence, you can find top-tier, global help on freelancing platforms. Just be sure that you validate their experience and qualifications before pulling the trigger!

Conclusion

If you’re small enough that hiring a full-time CFO doesn’t make sense, then a fractional CFO is the perfect solution. Fractional CFOs offer custom, in-depth assistance across the spectrum of financial functions while helping your company move in the right direction operationally.

Likewise, if you have an accounting team or financially focused staff, a fractional CFO can be the leader they need to perform at their best while often offering insight into current and emerging future accounting trends and tools, including automated and AI-enabled solutions.

Bottom line – if you’re even vaguely considering a fractional CFO, then now is the time to hire.