As a business owner, one of the most critical roles you need to fill is that of the CFO – Chief Financial Officer. The CFO is responsible for overseeing all financial operations, including cash flow management, financial reporting and analysis, budgeting, auditing, investments, and more. For a bare-knuckle startup, hiring a full-time, highly experienced CFO is often not feasible due to the substantial cost. This is where exploring a contractor like a fractional CFO services can be invaluable.
A fractional CFO provides financial leadership and guidance without the sizable investment and overhead costs of a full-time CFO. They offer on-demand expertise, working with your company as-needed to handle specialized projects or fill in knowledge gaps related to complex accounting, finance, and strategic planning.
Furthermore, fractional CFOs are experienced finance leaders who work with multiple clients at once. This allows them to deliver high-level strategic counsel to SMBs at a fraction of the cost of a traditional CFO.
In this article, we’ll explore when it makes sense to engage a fractional CFO, the key benefits they can provide growing businesses, how to know if you need one, and tips for finding and hiring the right fit for your financial goals.
Benefits of Hiring a Fractional CFO
There are many valuable benefits to hiring a fractional CFO for your small or medium-sized business, including:
Cost-Effectiveness
One of the biggest advantages of fractional CFO services is the significant cost savings compared to hiring a full-time CFO. A full-time CFO requires a salary at the executive level, along with 401k matching, healthcare, paid vacation, and other overhead expenses and benefits that quickly add up.
Also, the annual salary of a full-time CFO can easily exceed $200,000 or more. In contrast, fractional CFOs typically charge an hourly rate ranging from $200-500/hr or a monthly retainer between $5,000-$15,000. This provides the same high-level expertise and experience at a fraction of the cost of a salaried hire.
For most small businesses, paying $100,000-$200,000 plus traditional employee benefits for a fractional CFO is far more affordable than a $300,000+ full-time resource.
Access to High-Level Expertise
A qualified fractional CFO has years of experience serving as CFO or other senior finance roles at major corporations or public companies. This gives them specialized insight and expertise across key areas, including financial modeling, forecasting, capital allocation, investment analysis, ERP systems, compliance, accounting, and financial strategy.
Fractional CFOs have often led numerous capital raises, sale processes, and financial turnarounds. SMBs can directly leverage this expertise rather than trying to develop it in-house. The breadth of knowledge and experience shared by a fractional CFO enhances strategic planning and decision-making.
Flexibility and Scalability
Fractional CFOs offer flexible support that can scale up or down as business needs change. Unlike an FTE CFO, with a fractional one, you only pay for the time and services actually required each month rather than carrying full-time overhead. If your needs increase due to growth, expansion, or other factors, simply increase your contracted CFO’s hours or project work.
If the need decreases, scale back hours seamlessly. This agility allows you to optimize spending on financial leadership within your budget. The monthly or hourly model also allows you to disengage if your fractional CFO is not the right fit.
Strategic Financial Planning
An experienced fractional CFO provides an objective, third-party perspective to guide strategic business planning. They can dig into your financial records and operations to provide detailed analysis, modeling of growth scenarios, KPI benchmarking, competitive analysis, cost optimization, valuation guidance, and other data-driven insights to inform annual budgets and longer-term strategic plans.
This high-level financial perspective helps identify new opportunities and creates actionable growth plans.
Improved Financial Reporting
From compiling standard monthly financial reports to creating executive-level dashboards, fractional CFOs enhance financial visibility across your company. Implementing robust financial reporting infrastructure and tools ensures management also has a real-time, accurate view of a business’ key numbers.
The expertise, objectivity, and flexibility of having an experienced fractional CFO available provide tremendous value to a small business. It allows you to benefit from high-level strategic financial leadership without the fixed overhead cost of a full-time resource.
Scenarios Where a Fractional CFO is Beneficial
There are several common business situations where seeking fractional CFO consulting makes strategic sense:
Startups Needing Strategic Financial Guidance
Early-stage startups often benefit immensely from the strategic financial planning and analysis provided by an experienced fractional CFO. Important initiatives like securing funding, analyzing key metrics and profit drivers, modeling growth scenarios, and financial planning are key expertise that fractional CFOs offer. This high-level guidance early on positions a startup for future success and growth.
Growing Businesses Requiring Financial Oversight
As small businesses scale, it often makes sense to bring in a fractional CFO to oversee financial operations, reporting, analysis, and strategy. A fractional CFO can evaluate systems and processes to assess if they will scale effectively.
Furthermore, they can also fill any skill gaps within the existing finance team to support growth. Their guidance helps ensure profitability and cash flow are optimized during an expansion phase.
Companies Facing Complex Financial Challenges or Transitions
Situations like mergers, acquisitions, company restructuring, leadership changes or preparing for exit/sale often create complex financial scenarios a fractional CFO can help navigate strategically.
Their specialized experience with transactions, transitions, and exits provides invaluable perspective. A fractional CFO can also help integrate businesses post-merger with financial reporting best practices.
Improving Cash Flow Management and Profitability
Business owners focused on improving their company’s financial position often benefit from an outside financial review. An experienced fractional CFO can also conduct an in-depth analysis to identify opportunities to enhance cash flow, reduce costs, improve profit margins, and optimize financial processes and reporting. Implementing their recommendations can yield significant improvements to the bottom line.
The unbiased insights and specialized expertise of a fractional CFO provide immense strategic value for companies in critical phases or faced with complex financial scenarios. Their guidance supports improved decision-making and positions companies for profitability.
How to Hire a Fractional CFO
If your business can benefit from fractional CFO services, here are some guidelines for hiring the right advisor:
Identifying Business Needs
First, clearly define the pain points, growth goals, and financial initiatives you need support with. Outline the specific expertise and experience required to support key priorities like raising capital, increasing profitability, scaling systems, growth planning etc. This focuses the search on fractional CFOs that align with your situation and objectives.
Evaluating Potential Candidates
Vet fractional CFO candidates to ensure they have proven experience relevant to your business needs. Look for expertise with companies in your industry and in navigating scenarios similar to yours (capital raises, M&A, and the like).
Also, cultural fit and communication styles should be assessed. You want a CFO advisor who meshes well and can clearly convey financial insights to leadership.
Key Interview Questions
The interview process provides an opportunity to assess technical skills, mindset, and communication abilities. Recommended questions include:
- What is your approach to financial modeling and forecasting? Do you have examples to share?
- How do you typically work with leadership teams to drive strategic decisions?
- How have you helped clients improve profit margins and cash flow? What were the results?
- How do you create value for companies like ours in the first 60-90 days?
Check References Thoroughly
Speaking to current and past clients helps validate capabilities, work quality, communication skills, and responsiveness. Ask clients if deliverables met expectations and deadlines. Verify the CFO provided clear value and actionable recommendations.
Understand Contract Terms
Fractional CFOs charge hourly, monthly retainers, project fees, or a combination model. Understand the full expected cost for the anticipated workload. So, it’s crucial to get a sense of how they scope projects and keep efforts aligned with your budget.
Set Clear Expectations
Define expectations upfront regarding hours, availability, response time, meetings, deliverables, length of engagement, etc. Establish processes for requesting ad hoc work if needed. Clear expectations set the relationship up for success.
Taking time to carefully assess CFO candidates ensures you select the optimal advisor to meet your financial and operational needs during key phases of business growth and transitions.
Fractional CFO Case Studies
Here are a few examples of companies that have seen tremendous value from a fractional CFO:
Scaling Global E-Commerce Growth
Company
Alibaba
Situation
Despite being the dominant e-commerce player in China, Alibaba needed significant capital and expertise to expand internationally and compete with entrenched rivals like Amazon. However, taking on too much debt could hamper growth.
Fractional CFO Solution
Recognizing the potential of U.S. capital markets, Alibaba’s fractional CFO devised a record-breaking $25 billion initial public offering (IPO) on the New York Stock Exchange in 2014. This IPO allowed Alibaba to raise capital for global expansion without debt while also cementing its position as an international e-commerce leader.
Results
The highly successful IPO provided Alibaba with the multi-billion dollar capital infusion it needed to fund its global growth and cement its position as a major international e-commerce player. The IPO also enhanced Alibaba’s credibility with investors worldwide.
Key Takeaway
Leveraging the expertise of a strategic fractional CFO can enable companies to achieve ambitious global vision and growth, allowing them to tap into new capital sources.
Leading a Sector Pivot
Company
Royal Dutch Shell
Situation
Plummeting oil prices and declining demand put extreme pressure on Shell’s core oil business. Shell needed to pivot to renewable energy to ensure long-term viability but lacked specific financial expertise in this emerging sector.
Fractional CFO Solution
Shell brought on a fractional CFO experienced in the energy transition. He guided strategic investments into wind, solar, biofuels, and electric vehicle charging assets to diversify Shell’s revenue streams beyond oil.
Results
With the fractional CFO’s guidance, Shell successfully transformed from an oil-dependent company into a diversified, integrated energy provider that was an early leader in renewable solutions. This pivot fortified Shell’s revenues despite oil market volatility.
Key Takeaway
Fractional CFOs can provide the targeted financial expertise and strategic guidance necessary for companies to undertake major business shifts into new, disruptive sectors.
Accelerating a Disruptive Vision
Company
Tesla
Situation
High production costs, low EV adoption rates, and competition from established auto giants put intense pressure on Tesla’s vision to make electric vehicles a mainstream transportation option.
Fractional CFO Solution
Tesla’s fractional CFO helped optimize inefficient production processes to reduce costs. He also secured billions in multiple funding rounds, including an IPO, allowing Tesla to scale and innovate faster than its rivals.
Results
With the fractional CFO’s strategic moves, Tesla accelerated production and sales to become a major globally recognized automotive brand, demonstrating the viability of electric vehicles.
Key Takeaway
Fractional CFOs can fuel strategic growth initiatives and make visions a reality, even for capital-intensive companies trying to disrupt established industries.
These examples demonstrate how fractional CFOs can provide specialized expertise and strategic counsel to take companies to the next level of profitability and growth.
Conclusion
A fractional Chief Financial Officer can provide tremendous value for small and mid-sized businesses needing high-level financial expertise. By tapping into the specialized skills of an experienced fractional CFO on an as-needed basis, companies can access strategic guidance and leadership without the substantial overhead of a full-time resource.
The key benefits of partnering with a fractional CFO include gaining an objective, data-driven perspective on growth opportunities. With a CFO in the C-suite, businesses can enhance their financial reporting and analysis. They can also optimize profitability and cash flow while navigating key transitions and events like capital raises, acquisitions, and public offerings. Their expertise and project-based flexibility also enable companies to scale smarter.
As you look to expand operations, improve margins, explore new markets, or undertake other business growth initiatives, take time to assess your financial needs and gaps. Determine if leveraging an on-demand fractional CFO may be a strategic, budget-friendly approach to elevate your financial capabilities. They can be valued partners in accelerating strategic progress and positioning your company for success.
Companies like Wing offer access to a specialized talent pool of highly qualified remote talent supported by proven frameworks to drive growth, capital efficiency, and value creation. Get in touch with us today to learn more!
Aya is Wing Assistant’s blog manager. When she’s not wrangling content briefs, editing article drafts and handling on-page SEO, she is crafting messages for Wing’s other communication materials. Aya writes about SaaS startups, marketing for startups, search engine optimization, and pop culture.
