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A fractional CFO is a part-time Chief Financial Officer focused on vital strategic and analytical finance work, contributing to business growth and cost improvement. The lower cost of a fractional CFO vs. a full-time CFO enables small and mid-market companies to gain this expertise at an affordable price. To better understand the fractional CFO meaning, the engagement model for hiring a fractional CFO is either part-time or project-based.
What is a Fractional CFO?
A fractional CFO is a part-time Chief Financial Officer hired by SMBs as an independent contractor to share their expertise in finance, strategic planning, and perform analysis.
A fractional CFO provides your business with access to higher-level strategic planning, strategic financial guidance, cash flow, negotiation, and financial analysis skills beyond preparing financial statements.
Key Takeaways
- A fractional CFO is a part-time independent contractor providing strategic, financial, fundraising/M&A, and decision support.
- A fractional CFO typically costs less than a full-time CFO, depending on a negotiated retainer, hourly rate, or project rate.
- It’s time to hire a fractional CFO when your business reaches revenue growth, fundraising, M&A, or other business triggers.
When Does Your Business Need a Fractional CFO?
Your business needs a fractional CFO when these triggers occur:
- Reaching revenue thresholds
- Fundraising stage
- M&A activity
- Rapid headcount growth
- Recurring cash flow issues
- Board reporting complexity
Common problems that fractional CFOs solve are:
- Helping with business plans/pitch decks and venture capital raising
- Assisting companies with M&A deals or pre-IPO preparation
- Collaborating on growth and profitability strategies
- Improving cash flow
- Enhancing financial systems
As fundraising and cash flow management assistance use cases, consider these real-world fractional CFO services examples:
I work with early-stage businesses preparing for a funding round, such as seed or Series A. I have a playbook where I produce a financial model and align it with the business pitch deck. I support founders in getting the right story across to investors and support the due diligence and legals.
Imran Chagpar, Fractional CFO, Scale Now
We provide an entire outsourced finance function for our clients. This includes looking after the transactional side—such as bookkeeping, payroll, and payments—right through to advisory services, including investor reports, raising funds, maintaining the financial model, and managing cash flow.
Angela Brown, Founder of fractional CFO company, FinFlare
Fractional CFO companies offer more CFOs to choose from and other independent contractors for hire, including a bookkeeper, financial professionals, and a controller to perform accounting services.
A fractional CFO may serve as a turnaround specialist to improve cash flow and profitability and obtain additional financing. Fractional CFOs can consult with your business to recommend new software for added efficiency or to improve your financial systems.
Your business is ready for a fractional CFO if it is growing rapidly, needs advice or professional financial services from an experienced CFO, but only has the budget to hire a fractional CFO instead of a full-time CFO.
What Does a Fractional CFO Do?
A fractional CFO provides executive management team services relating to strategy, forecasting, fundraising, M&A, reporting/systems, and financial analysis. The fractional CFO and his modern FP&A team perform forward-looking, prescriptive finance with a strategic focus.
Fractional CFO services include:
Strategy
- Strategic planning: This type of long-term or mid-term planning demonstrates how the company intends to achieve growth and profitability in line with its mission.
Forecasting
- Forecasting and budgeting with variance analysis: Preparing and analyzing financial forecasts, cash flow forecasts, and budgets.
- Cash flow management: Handling cash flow to determine when financing will be required and ensure that receivables are collected timely and outflows are managed.
Fundraising
- Business plans and pitch decks to raise venture capital: Strategic business plans and pitch decks outline business strategies and include 3- to 5-year financial projections.
- Banking relationships: Interface with the company’s bankers to ensure productive relationships and reasonable financing terms.
- Investor relations: Prepare communications and documents for analysts and shareholders. Answer questions in conference calls for earnings releases and investment conferences.
M&A
- Financial modeling, including M&A valuation: Preparing spreadsheet or software models to analyze M&A valuations or achieve another purpose.
- M&A due diligence: Using an M&A deal checklist to review the target company’s structure, contracts, financial statements, corporate bylaws, Board minutes, etc., interview key employees, and assess risk factors before completing an acquisition.
- Deal room documents: Creating and managing essential M&A documents.
Reporting and Systems
- Reports and presentations: Prepare reports and presentations for the Board of Directors, shareholders, bankers, and other stakeholders.
- KPIs: Key performance indicators are metrics that businesses track to gauge performance.
- Systems: advise the company on automation systems for increased efficiency
Financial Analysis/Business Intelligence/Negotiations
- Financial analysis (FP&A): Conduct financial analysis for cost improvement and other purposes.
- Decision-support: Prepare a financial analysis to support specific business decisions and make recommendations.
- Business intelligence: Review AI-generated business intelligence for accuracy and insights.
- Negotiations: Manage business negotiations and prepare analyses for the CEO to secure favorable terms, including office space and equipment leases.
Fractional CFO Services for Small Businesses
An experienced CFO working on a part-time basis can serve as a trusted advisor, helping CEO entrepreneurs and business owners make effective business decisions and achieve desired financial results, such as reaching increased profitability.
A fractional CFO may be used for ongoing work or a short-term project for a few months. Projects may be related to mergers & acquisitions (M&A), capital raises, implementation of finance automation for digital transformation, or another specific project.
Cash Flow Forecasting
The fractional CFO prepares cash flow forecasts using expected inflows and outflows, including the timing of accounts receivable collections and supplier payments. Financing is obtained, or a line of credit is used when needed to meet cash requirements.
KPI Dashboards
Determining and monitoring key performance indicators (KPI) for the business is an essential responsibility. Software system dashboards, which are often customizable, can present these metrics.
Capital-raise Readiness
For fundraising support, a fractional CFO prepares or updates the business plan with financial projections and helps companies that are raising capital. They also prepare pitch decks. Some fractional CFOs have established relationships with venture capital firms during their career. The fractional CFO and the CEO make presentations to venture capital firms to raise capital.
For a more established growth company, the fractional CFO may help companies prepare for an IPO (initial public offering). This requires preparing SEC filings, determining that systems and employees can generate reliable public company financial statements, and ensuring that internal controls are effective. The fractional CFO may complete an IPO-readiness checklist and train employees.
Unit Economics
Unit economics is the analysis of per-unit revenue and profitability. It is measured either on a per-unit basis for products sold or on a per-customer basis.
For product units, contribution margin is measured as revenue minus variable costs.
For customer units, metrics (often used by SaaS companies) include:
- Customer acquisition cost (CAC)
- Customer lifetime value (CLV)
- Monthly recurring revenue per user (MRR)
- Customer churn rate (CCR)
Board Reporting
A fractional CFO may prepare presentations for board meetings and present them to the Board of Directors if invited.
The business CEO hiring a fractional CFO may request a wider range of project services.
Fractional CFO vs Controller
The duties of a fractional CFO vs. Controller differ: a Controller handles day-to-day accounting responsibilities, while a fractional CFO handles more strategic financial, M&A, and treasury responsibilities, as well as overall finance and accounting oversight. The CFO also performs decision support for the CEO.
How to Find and Evaluate a Fractional CFO
Finding a fractional CFO involves determining where to find one and considering hiring criteria when you interview and select one.
Your business can find a fractional CFO for hire through several sources. Is your business planning to hire a part-time CFO employee through its payroll or find an independent contractor or freelancer for hire via a contract? Where to look for a fractional CFO depends on your decision.
You can find a fractional CFO for hire through:
- Professional referrals from CPA firms and attorneys
- Word-of-mouth networking
- Fractional CFO (part-time CFO) businesses
- Freelancer platforms
- Financial placement services businesses
Professional Referrals from CPA Firms and Attorneys
Your CPA firm, attorneys, or other professional teams may be able to refer you to a fractional CFO. CPA firms in public accounting need to maintain independence from the companies they audit. Therefore, they aren’t the direct source for part-time CFOs.
Word-of-Mouth Networking
Other small businesses can refer you to the fractional CFO they use. Because part-time CFOs split their time between multiple companies, you won’t divert necessary CFO resources from that business.
Fractional CFO (Part-time CFO) Businesses
Several companies are in the fractional CFO business. Fractional CFOs, often working as independent contractors, are vetted by and associated with the fractional CFO business through contractual arrangements. Some fractional CFO companies have a nationwide focus, whereas others serve regional markets. Search the Internet to review the websites and client ratings of fractional CFO companies.
Freelancer Platforms
Freelancer platforms, including Upwork and Toptal, feature qualified freelancers who offer fractional CFO services or financial consulting services as independent contractors.
Financial Placement Services Businesses
Robert Half is a large accounting and financial placement services company for temporary and full-time employees. Its Robert Half Management Services division offers fractional CFO and interim CFO services. Robert Half bills its clients for placements or hourly temporary financial services at a markup rate.
What to Look for When Hiring
When choosing a fractional CFO, consider vetting criteria, interview questions, and red flags to avoid.
Vetting Criteria
Criteria for selecting the right fractional CFO for your business include:
- Successful business experience in your industry and company stage/size
- Strategic financial planning skills
- Financial modeling expertise
- Types of experience matching your company’s current needs
- Cash flow management
- Fundraising
- M&A
- Board of Directors information
- Publicly-traded company experience
- Communication, leadership, and interpersonal skills
Suggested Interview Questions
Consider asking these fractional CFO interview questions:
- What are your strengths and areas of expertise when providing fractional CFO services?
- What types of financial modeling do you perform?
- What problems have you solved for your other clients?
- What is your industry, company size, and fundraising experience?
- How do you best communicate information?
Red Flags to Avoid
When considering a part-time CFO, look for these red flags:
- Lack of industry experience: Your fractional CFO candidate must have successfully worked in your industry to thoroughly understand the business and metrics.
- Only serves as a top-level advisor: The fractional CFO must be willing to perform and have experience with hands-on financial modeling and other needed responsibilities.
- Has not successfully raised capital: Having VC contacts, valuation knowledge, experience writing business plans and pitch decks, and prior successful capital-raising experience is essential.
- No client references to provide: Your business needs to work with a fractional CFO with excellent client references.
How Much Does a Fractional CFO Cost?
The cost of a fractional CFO can be structured as:
- Monthly retainer
- Hourly rate for hours worked
- Project-based fees.
Monthly Retainer
The monthly retainer for a fractional CFO varies by company stage:
- Early-stage: $3,000 to $5,000
- Growth: $5,000 to $8,000
- Mid-market: $7,000 to $15,000
When determining a fixed monthly retainer amount, the cost of a fractional CFO varies based on the number of expected hours the part-time CFO will work with your business, ranging from 10 to 40 or more hours.
Hourly Rate
Hourly fractional CFO rates generally range from $175 to $500.
The average mid-career fractional CFO hourly rate across all company sizes is $200-$350 per hour.
Rates vary by company complexity and size, as well as the part-time CFO’s level of expertise. A recurring or maximum number of hours per month to be worked by the CFO may be stated in your negotiated contract.
Early-stage companies may only need the part-time CFO to work 10-25 hours per month. As requirements increase for mid-market companies, mid-market fractional CFOs may work 30 to 50 hours per month, with more hours during financing or M&A deal transactions.
Project-Based Fees
If your business is hiring a fractional CFO for a specific project, negotiated project-based fees may be used instead of an hourly rate, if that is acceptable to both parties. A cost component for project urgency may be added to determine total project-based fees.
Examples of project-based fee engagements for fractional CFOs include:
- Preparing financial packages for SBA loans or another type of financing
- M&A valuation model preparation or due diligence work
- Cash flow forecasting
- KPI metrics determination for your company
For a major venture capital fundraising or M&A project, the project-based fee may range from $25,000 to $50,000+.
Fractional CFO Annual Spend vs. Full-Time CFO Total Compensation
| Fractional CFO Annual Spend | Full-time CFO Total Compensation | |
|---|---|---|
| Mid-market company compensation | $ 168,000 | $487,500 before bonus and equity compensation (4) |
Assumptions:
- A mid-market company fractional CFO works 40 hours per month at $350 per hour, for a total of $14,000 per month, which is $168,000 per year.
- The full-time CFO’s total compensation in this comparison table includes salary and 30% in benefits. This comparison does not include bonuses (though they may be as high as 55% of salary in some companies) or equity compensation.
- The average full-time CFO salary for a mid-market company with $100-$500 million in annual revenue is $375,000, with a range of $350,000- $399,000.
- Full-time CFO Total Compensation (before equity and bonus) is calculated as:
- Base salary: $375,000
- +30% benefits = $112,500
- Total = $487,500
Fractional CFO Services Agreement
Your company or the fractional CFO should provide a negotiated part-time CFO job description in a fractional CFO services agreement to define the scope. The services contract should also include fractional CFO pricing and maximum contracted hours or a monthly retainer amount to define the cost of financial services and ensure they are cost-effective.
What Qualifications Do Fractional CFOs Have?
A fractional CFO is an experienced part-time CFO with previous full-time CFO and public accounting experience who understands financial statements and financial reporting.
Some fractional CFOs worked at a Big 4 CPA firm at the beginning of their accounting careers or in the industry, hold an MBA degree, and served as the Chief Financial Officer of one or more companies. Others have investment banking experience, IPO experience, or other skills that qualify them for this role or specific projects.
Fractional CFOs understand small-business finance and lean organizations with fewer resources. Part-time CFOs usually have equity funding and bank line of credit experience for startups and small businesses, and M&A knowledge.
The current CFO role has evolved towards strategic value creation. The fractional CFO must be able to perform at that level with CEO team partnership. Fractional CFOs must contribute to the financial strategy and business profitability, think strategically, and provide decision-making support based on financial analysis.
Although the controller or bookkeeper prepares the financial statements, the CFO should understand generally accepted accounting principles (GAAP) and be somewhat familiar with small business accounting software and ERP systems for small business.
The fractional CFO usually holds an active state-issued CPA license or CMA certification for management accountants.
Although fractional CFO certification programs are offered, your business will find highly qualified fractional CFOs without this certification. Some fractional CFOs take a continuing education course on the Fractional CFO topic. Certain training schools, such as Universal Accounting, offer a CFO Advisor or similar certification.
For two real-world examples of a fractional CFO’s credentials and transition journey, read Tipalti’s Next Gen Finance Leaders transcripts about Imran Chagpar and Angela Brown.
9 Benefits of Hiring a Fractional CFO
Securing an independent contractor as a fractional CFO can benefit your company by reducing costs, enhancing skills, improving capital-raising and M&A outcomes, and improving focus on value-added tasks.
9 benefits of hiring a fractional CFO for your business are:
- Cost savings: The above comparison table highlights the lower cost of a fractional CFO vs. a full-time CFO’s compensation before bonus and equity. When these pay factors are also considered, the cost reduction is much higher.
- Flexibility: Your business can use an independent contractor for fewer hours essential to perform CFO-related tasks.
- Access to an experienced CFO’s skill set: Your business may improve analysis for decision-making and profitability.
- Better cash flow management: A part-time CFO is often skilled at forecasting cash flow, optimizing burn rate, and accounts receivable collection strategies to minimize shortfalls, and securing financing when needed.
- Impressive resume and contacts for fundraising: When raising equity funds in an angel or venture capital round, top management resumes with impressive credentials may be needed to secure the deal.
- M&A skills: A fractional CFO with expertise in financial modeling, valuation, due diligence, and risk factors evaluation will contribute to your company’s deal success or deal avoidance.
- Faster project completion: Adding resources and focus beyond day-to-day tasks will accelerate project completion.
- Mentoring and training: The fractional CFO can provide training and mentoring to in-house and other outsourced team members to improve their knowledge, work quality, and advancement opportunities.
- Insightful Board of Directors information: An experienced fractional CFO will prepare essential, well-formatted Board materials for decision-making.
Fractional CFO vs. Full-Time CFO vs. Interim CFO
To compare a fractional CFO vs. full-time CFO vs. interim CFO, you must understand what an interim CFO is and how it is different than a fractional CFO or a permanent full-time CFO.
What is an Interim CFO?
An interim CFO differs from a fractional CFO (part-time CFO, often an independent contractor) because the interim CFO role is temporary. An interim CFO fills the gap between the business losing its full-time CFO and the new position being filled.
An interim CFO is a job recruit or existing employee with financial expertise, serving as an acting CFO to try out the CFO position. The business will assess the acting CFO’s performance.
It may decide to permanently hire or promote them to the CFO job, or reject them for this position. If competent, assuming a good culture match, the interim CFO may later be chosen as the successor Chief Financial Officer after competing with other outside candidates.
Table: Fractional CFO vs. Full-Time CFO vs. Interim CFO
| Fractional CFO | Full-Time CFO | Interim CFO | |
|---|---|---|---|
| Cost | Lowest | Higher, with salary, benefits, bonus, and equity | Often lower than a full-time CFO |
| Commitment | Short cancellation timeframe or project completion | Contractual, with long-term expectations | Temporary, with full-time CFO potential if selected |
| Flexibility | High | Less | Less |
| Typical Company Stage | Early stage, growth, or mid-market | Any size company | Any size company |
| Time to Hire | Very short | Recruitment, vetting, interviews, hiring: 3-6 months | Short time to select and hire |
| Scope | Limited and specified, doesn’t include day-to-day accounting | Full responsibility for managing accounting and finance | Full responsibility for managing accounting and finance |
As this table indicates, hiring a fractional CFO is a quicker, more flexible business commitment, with a lower cost, a limited scope or time commitment, and is often used by SMBs. An interim CFO has full-time, comprehensive CFO responsibilities, but may be promoted or replaced by a permanent financial executive as CFO in approximately 6-9 months.
What is the Difference Between a Fractional CFO and an Interim CFO?
An interim CFO is different than a fractional CFO (part-time CFO) because the interim CFO role is temporary. An interim CFO fills a gap between the business losing its full-time CFO and filling the new position. The services of a fractional CFO are ongoing, although the number of hours per week is limited to a part-time basis.
An interim CFO is sometimes an existing employee with financial expertise who is temporarily promoted to the role to try out as acting CFO. If competent, assuming a good culture match, the interim CFO may later be chosen as the successor Chief Financial Officer after competing with outside candidates.
An interim CFO may be used for a short-term project lasting a few months related to mergers & acquisitions, capital raises, implementation of finance automation for digital transformation, or another specific project.
Is a Fractional CFO Worth It?
A fractional CFO is worth it for small businesses and midmarket companies that need but don’t have an in-house CFO or Controller capable of performing the highest-level financial functions.
A fractional CFO can provide strategic finance, advanced forecasting, cash management, and financial expertise related to getting new financing, and making potential investments, like buying other companies through mergers and acquisitions deals or being acquired.
Consider the triggers in the “When Does Your Business Need a Fractional CFO?” section to determine when adding a fractional CFO would be useful.
The role of CFO vs. Controller is different. Evaluate your in-house Controller to determine whether they can handle or grow to assume the CFO role by making their work more efficient through automated financial systems like AP automation. If so, they may be able to take on a more strategic finance role in addition to closing the books. Some fractional CFO firms also provide accounting services that could assist the Controller.
If you hire a part-time outsourced CFO, include mentoring and training tasks in their assignment to upgrade the skills of your current employees.
Signs It’s Worth It vs. Signs You May Not Need One Yet
Consider the following criteria to determine if a fractional CFO would be beneficial for your company now or later, as it matures.
Signs It’s Worth It
Your business has:
- Sufficient budget to hire a fractional CFO
- Limited financial expertise
- Cash flow shortfalls
- Insufficient analysis for cost reduction
- Financing needs
- M&A deal anticipation
- Planned IPO
- Insufficient or poorly structured Board of Directors information packages
Signs You May Not Need One Yet
- Minimal needs beyond basic accounting yet
- Can’t afford a fractional CFO
- Your Controller also functions as CFO, has the required expertise, and the time to perform projects
- No venture capital financing or M&A needs
How Fractional CFOs Use Financial Automation
For financial systems implementation, Fractional CFOs suggest and use ERP-integrated finance automation to help increase the efficiency of their clients’ businesses, reduce costs, and improve real-time visibility.
For example, Tipalti offers AP automation software for invoice processing through global payments, with automated KPI dashboards and AI-driven analytics. It also offers Statement® Treasury cash flow forecasting software that can handle 13-week cash flow forecasting.
Our goal was to keep the team lean by implementing technology solutions that would grow with us—eliminating the need to hire more headcount. Partnering with Tipalti as our accounts payable solution was one of the best things we could have done.
Courtney Santry
Controller, Sensei, Tipalti Accounts Payable automation customer
Fractional CFOs Imran Chagpar and Angela Brown understand the importance of implementing finance and AP automation workflows for their clients.
Over the last year, I’ve used automation to build and manage 13-week cash flow forecasts, as this is essential for clients, given most quarters are 13 weeks long.
Imran Chagpar, Fractional CFO, Scale Now
We implemented a data capture tool that sent invoices and expenses to a centralised mailbox and linked this to Xero. We also used a payments automation tool. This was a quick win, as it increased throughput in the system and drastically reduced manual processing.
Angela Brown, Founder of fractional CFO company, FinFlare
Using a fractional CFO in your business can catapult it to the next level of financial management, capital raising, deal-making, and business growth.
Is Your Finance Stack Holding Your CFO Back?
See how finance teams use Tipalti to automate AP, streamline cash flow, and free up time for the strategic work that drives growth.
FAQs About Fractional CFOs
What is a fractional CFO?
A fractional CFO is a part-time or project-based financial expert, working with your business on a contract basis to handle financial tasks beyond basic accounting duties.
How much does a fractional CFO charge?
A fractional CFO generally charges between $175 and $500 per hour, with an average hourly rate of $200. Business size, experience, and complexity determine the rate.
Is a fractional CFO worth it?
A well-vetted fractional CFO is worth it for SMB companies that don’t need a full-time CFO because it provides cost savings, adds financial expertise, and may improve capital-raising and M&A results.
Do I need a CPA to be a fractional CFO?
No, not all fractional CFOs are CPAs. Although certification isn’t required, some have CMA, CFA, or other certifications instead of CPA. Fractional CFOs may have worked for companies in the same industry or investment banking firms.
What does a fractional CFO do for a small business?
A fractional CFO for a small business or mid-market company performs cash management, capital-raising, M&A, and strategic analysis to support decision-making and improve profitability.
When should a company hire a fractional CFO?
A company should hire a fractional CFO when triggers are met for revenue growth and an expanding employee count, when cash flow needs improvement, or financing and M&A work is required.
What is the difference between a fractional CFO and a full-time CFO?
The difference between a fractional CFO and a full-time CFO is that a fractional CFO is often a part-time independent contractor with limited scope, whereas a full-time CFO is an executive employee.
