As a business owner, you will know that a Chief Financial Officer is integral to scaling your business or keeping it afloat. A CFO is an officer in charge of a business’s financial planning, management, and record keeping.
A fractional CFO performs the same functions on a temporary or part-time basis with more specific goals to reach. What sets a CFO apart from its fractional counterpart is that while a CFO handles the business’ finances in its entirety, a business owner will bring in a fractional CFO to solve specific challenges the company is currently facing.
Also, while a full-time CFO oversees every aspect of the business, such as mergers and acquisitions, hiring a fractional CFO is very dependent on the stage of the business’ growth. Companies in stages one and four need a bookkeeper and full-time CFO, respectively. However, those in stages two and three require a fractional CFO as their revenue generations and expenditure become too complex for bookkeepers. This is why most fractional CFO hires come from start-up businesses that cannot afford to pay a full-time financial officer.
To better understand the role of a fractional CFO, here’s a complete guide to who they are, what they do, and why you should hire one.
The Job Description of a Fractional CFO
A fractional CFO is different from an interim CFO. An interim CFO fills the role temporarily while the business owner searches for a permanent CFO. Also, an interim CFO is often an intra-company hire with someone of little expertise or experience taking on the role temporarily.
The most significant responsibility of a fractional CFO is to handle finances. As start-ups grow, their financial operations may become too complex for the founders and operators to manage independently. A fractional CFO will come in and handle these finances by providing reports and ensuring efficiency.
The second core responsibility of a fractional CFO is to achieve short to medium-term goals while mapping out structures for long-term financial success. A fractional CFO is like a contractor who comes in and sets the project on the right path. They assist struggling businesses out of financial ruin and implement structures for long-term continuity and growth. These optimization strategies are another reason fractional CFOs are popular with start-ups. As start-up businesses grow, they need a financial mind to anticipate potential challenges and design strategies to overcome or avoid them entirely.
Scaling a business requires strategic capital usage. As such, business owners task fractional CFOs with developing a short, medium, or long-term blueprint to take the company to its desired destination and scale. A significant challenge start-up businesses suffer from is budget allocation. It can be difficult for them to decide which parts of the company require their limited capital the most. A fractional CFO will prepare budgets by making sound budgetary decisions for business growth. They will also run financial analytics based on market forecasts, products, and services.
Another duty of a fractional CFO is to perform financial audits and complete transactions. As aforementioned, an audit process may be too complex for a start-up business owner to navigate. A fractional CFO will oversee the company’s cash flow, procurement systems, and taxation to ensure everything is in sound condition. You may also hire a fractional CFO to manage IRS audits to ensure you do not make costly errors. Furthermore, a fractional CFO is a massive asset in completing significant transactions like a huge sale, a merger, or an acquisition. Their experience and know-how will help you get the best bargains which can be priceless to a small business strapped for cash.
Finally, a fractional CFO has the responsibility of raising capital. They can determine when, where, and how to seek investment and apply for business loans through their optimization strategies. They can speak with potential investors and also handle the paperwork after transactions. To small businesses and start-ups, a fractional financial officer is especially valuable to the cash infusion process.
The Advantages of Hiring a Fractional CFO
The first benefit of hiring a fractional CFO is cost. Start-up businesses and small businesses need to limit expenditure to absolute necessities. A fractional CFO brings the experience and expertise of a CFO at a significantly lower cost. The cost of employing a full-time CFO can range from $250,000 to $450,000. Meanwhile, you can hire a fractional CFO for between $250 and $500 per hour.
A second advantage of hiring a fractional CFO is their experience. Scaling a business requires loads of experience. Most fractional CFOs are freelance accounting professionals who have worked in CFO capacities, led organizations through financial storms, and know what challenges to expect. Their experience in short or long-term economic growth and planning makes them an easy bargain for start-ups. Most fractional financial officers also work for multiple companies simultaneously, meaning they tackle various financial challenges.
Another advantage of fractional CFOs is that they can assist you in achieving specific goals. Their focus will be on your business’s immediate needs so you can perform urgent tasks of acquisitions, audits, capital sourcing, or mergers. Their focus means you can complete projects faster, as day-to-day financial operations do not slow them down.
Fractional CFOs also bring a certain pedigree to your organization. Having a fractional CFO on your books and resume during fundraising can significantly boost your chances of securing loans and investments, as investors want to know there’s a capable financial mind overseeing their investment.
Additionally, a fractional CFO eases decision-making processes. Their expertise and financial perspectives can save your business from costly mistakes. Your business will be better off putting decisions such as budget allocation, acquisitions, and taxation in the hands of a professional with loads of experience, such as a fractional CFO. They will also steady your business during organization restructuring.
Lastly, a fractional CFO is a flexible hire. You do not need to commit too much money to their employment. Start-ups often suffer from unaligned leadership visions and power struggles. Hiring a fractional CFO is flexible because you can part ways if the relationship is not working for the business. Also, their job description allows them to train and mentor financial teams for business sustainability.
