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Working with an experienced CFO on a fractional basis can improve the financial management of a growing small business to a lower middle-market company. By hiring a part-time CFO, companies get valuable Chief Financial Officer experience without incurring the cost of hiring a full-time CFO until it’s affordable. We include a fractional CFO definition.
What is a Fractional CFO?
A fractional CFO is a part-time Chief Financial Officer typically hired by startups on a contractual basis to share their expertise in finance, strategic planning and other CFO-related activities. As a fractional CFO, you can provide outsourced CFO services for multiple small businesses, as opposed to just one business in a full-time role.
What is a Fractional CFO?
A fractional CFO is a part-time Chief Financial Officer typically hired by startups on a contractual basis to share their expertise in finance, strategic planning and other CFO-related activities. As a fractional CFO, you can provide outsourced CFO services for multiple small businesses, as opposed to just one business in a full-time role .
Hiring a fractional CFO as an independent contractor (instead of a full-time CFO) reduces business costs. It provides access to higher-level strategic planning, cash flow, advisory, negotiation, and financial analysis skills beyond preparing financial statements.
What Services Does a Fractional CFO Offer?
A fractional CFO provides executive management team services.
Fractional CFO services include:
- Strategic planning
- KPIs
- Business plans and pitch decks to raise venture capital
- Financial modeling
- Valuation
- M&A due diligence
- Deal room documents
- Forecasting and budgeting with variance analysis
- Cash flow management
- Banking relationships
- Business intelligence
- Financial analysis (FP&A)
- Reports and presentations
- Decision-support
- Negotiations, and
- Investor relations.
A fractional CFO may prepare presentations for board meetings and present them to the Board of Directors if invited. Although small businesses generally don’t own real estate, a fractional CFO can negotiate office space leases and equipment leases.
A fractional CFO will perform more project services upon the CEO’s request. 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 strive to reach profitability.
The types of fractional CFO services provided by a professional Chief Financial Officer depend on whether the part-time CFO is working alone or affiliated with a business. A part-time CFO business offers more CFOs to choose from and other independent contractors for hire, including a bookkeeper, financial professionals, and controller to perform accounting services.
Most Common Problems that Fractional CFOs Help Solve
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
Experienced fractional CFOs can assist companies with these types of projects and problems that many companies face as they grow. A fractional CFO may serve as a turnaround specialist to improve cash flow and profitability and obtain additional financing. Fractional CFOs can consult with a company to recommend new software for added efficiency or improve their financial systems.
Is Your Business Ready for a Fractional CFO?
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. Your business can decide whether to hire the fractional CFO on a project or part-time basis.
How Would You Find a Fractional CFO for Hire?
Your business can find a fractional CFO for hire through several sources. Is your business planning to hire a part-time CFO employee through the 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
How can you improve business results?
Download our eBook “The Key to Growth: Financial Automation” to learn how today’s CFOs are navigating change to implement best practices, maximize team efficiency, and more.
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 that they’re using. 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 via contract. Some fractional CFO businesses 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, include qualified freelancers that 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.
How Much is a Fractional CFO?
A fractional CFO costs between $250 and $500 per hour, with $300 as the average pricing for an hourly rate. For fractional CFO services, your business may be able to negotiate a fixed monthly retainer amount between $5,000 and $12,000 per month for five or six hours of work per week.
The cost of a fractional CFO depends on how many hours the part-time CFO will work with your business.
What Qualifications Do Fractional CFOs Have?
A fractional CFO is an experienced part-time CFO with previous full-time CFO and public accounting experience that understands financial statements and financial reporting. The typical fractional CFO worked at a Big 4 CPA firm at the beginning of their accounting career, may have an MBA degree, and served as the Chief Financial Officer of one or more companies.
Fractional CFOs understand small business finance and lean organizations with fewer resources. Part-time CFOs may 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.
The fractional CFO usually holds an active state-issued CPA license or CMA certification for management accountants.
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.
Benefits of Fractional CFO Services
Using fractional CFO services can provide multiple benefits for your business:
- Cost-effective alternative to hiring a full-time CFO
- Access CFO skill set to improve decision-making and profitability
- Impressive resume for fundraising
- Completing projects faster with added resources and focus
- Mentoring and training
Cost-effective Alternative to Hiring a Full-time CFO
The current at-the-market full-time CFO salary for small to mid-sized companies range from $250,000 to $450,000 per year. When you add 30% for benefits and factor in restricted stock or stock options CFOs receive, you’ll find that the cost of outsourced fractional CFO services is much less, even if they’re charging $250 to $500 per hour.
Access CFO Skill Set to Improve Decision-Making and Profitability
An experienced fractional CFO knows how to focus on ways to improve profitability and team efficiencies. The fractional CFO can add value as the CEO’s point person in analyzing decisions and creating financial strategies that work.
Impressive Resume 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.
Completing Projects Faster with Added Resources and Focus
The outsourced fractional CFO can focus on essential projects that add value without getting bogged down in the day-to-day accounting workload.
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.
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.
You’ll gain a mutual understanding of what fractional CFO means and how much the financial services cost based on your business needs.
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 temporarily promoted to that role as a tryout 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.
Or an interim CFO may be used for a temporary short-term project for 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 M&A deals or being acquired.
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 CFO, include mentoring and training tasks in their assignment to upgrade the skills of your current employees.
Before deciding to hire a fractional CFO, read our eBook: “The Key to Growth: Financial Automation.”
