What is a Fractional CFO, Anyway?
One recommendation for many small businesses is to hire a fractional CFO, or Chief Financial Officer. But this term might be confusing. Since more consulting firms have added this service to their repertoire, it may be hard to understand what a fractional CFO does. If you’re confused by the jargon and are looking for a straightforward explanation, you’re not alone. In short, a fractional CFO offers executive-level financial support at a part-time rate.
Fractional CFOs help businesses who need the financial guidance, but don’t have the funds or the need to hire someone full-time. This is where the fractions come in. Instead, you contract a set amount of their time monthly at an agreed upon rate, usually adding up to a certain number of days or hours each month. On other days, they work for other clients. This allows your business to have an expert on staff without the price-tag of a full time executive.
Keep reading to learn more about what a fractional CFO is, who might need one, and when you should hire one — as well as the qualifications you should look for to find the best possible fit!
What does a fractional CFO do?
Fractional CFOs (or Chief Financial Officers) are experienced professionals who work with companies on a certain project or on a part-time basis, sometimes as few as 10 hours a month. When you consider that the average salary for a CFO in the United States is between $240 to $740 thousand per year, it enables you to only hire a “chunk” of that time. Part-time CFO positions are rare, but a consultant can make financial expertise more accessible to smaller businesses that don’t have the budget or the need for a full-time CFO.
The responsibilities of a CFO can vary and can be tailored to match a company’s unique requirements, typically concentrating on tasks where the company’s current financial team lacks experience, background, or availability. But the main tasks of a fractional CFO are usually: financial reporting, supervision of monthly books and financial reporting, mentoring and coaching the current accounting team, managing budgets and strategic planning.
Who needs a fractional CFO?
Businesses in the small-to-midsize range are usually the best candidates to work with a fractional CFO. They generally hire this type of consultant when their business has new — or more complex — financial needs than their current financial staff can handle. This may be due to growth, but this level of expertise is often necessary during times of financial challenge. In some cases, a business may hire a fractional CEO when they are planning an exit strategy. It’s not uncommon to find someone who works with a variety of industries, although some professionals do have a niche in one industry.
Remember that a Chief Financial Officer is generally a C-Suite executive in a larger company. While accountants and analysts often look at the small bits, CFOs provide a vision and a plan for long term success. No matter your business size or market, a fractional CFO can provide your business with the specific services that you need.
When should I hire a fractional CFO?
There is no exact “right time” to hire a fractional CFO, but there are some scenarios where you might need that level of help:
Your small business is encountering financial challenges that require senior-level expertise to surmount.
Your business is expanding and its financial demands have outgrown the capabilities of your current team.
Your company is at a point where you are considering seeking proficient financial assistance for a particular undertaking, whether it's raising capital, considering an acquisition, or selling your business.
These needs generally fall outside of the level of expertise that your typical accounting and financial team can offer and require someone who is skilled at crafting big picture strategy. If you need help with these needs but don’t need a full-time CFO, this might be the time to add a fractional CFO to your team.
What qualifications should a fractional CFO have?
Fractional CFO’s need to be financial masters with a deep understanding of everything from financial statements to accounting principles, budgeting, forecasting, and more. Most fractional CFOs come from a career as a CPA or general financial expertise/advising which helps their financial work as a Fractional CFO. But CPA’s do not have the same professional background as a CFO.
Ideally, finding a Fractional CFO with an additional banking background would be ideal. By having a background in the baking world this Fractional CFO is able to come in with the expertise and experience of dealing with and being at banks. This is crucial because a fractional CFO often deals with banks. Having an inside perspective on what the banks want gives your business a leg up.
Takeaways
Overall, a fractional CFO is an experienced professional who works with small to midsize businesses on a part-time basis to help the business craft big picture strategy for its financial needs. Here at Coveted, we have enhanced the typical fractional CFO role by putting together a full team of experts for a variety of business functions. We have been doing this for a long time — in fact, since before the term “fractional CFO” was popularized.
Our staff is composed of experienced professionals with an abundance of experience in the financial and business sphere. This allows our team to get higher quality work done faster, supporting your business from multiple sides. We also have seen many of the scenarios that you would need a CFO for many times. There are certain events, like establishing a banking relationship, securing funding, or planning an exit strategy, that many businesses (and their finance executives) will only experience once in their life cycle. But our team specializes in these events and has strategic plans already in place.
Does your business have new needs? Are you needing to develop a higher level of financial strategy?
Schedule a call today. Together, we can review your business’s situation and develop a plan that fits your goals.