Do I Need a Fractional CFO and What Is It?

Founders frequently devote years to overseeing the day-to-day business affairs, marketing, and financing. But as your business expands, its requirements will alter, and eventually, you’ll want to bring in specialized leaders and specialists.

The finance division will be headed by a chief financial officer (CFO). Who can create and put into action financial plans that keep your business expanding. A full-time CFO, though, can be overkill for a firm in its early stages, and a great CFO can be a very expensive appointment. A fractional CFO can help with that.

What Is the Role of a Fractional CFO?

A senior financial specialist who provides expert financial analysis and guidance is known as a fractional chief financial officer. Working with a fractional CFO can provide you with the guidance and insights you need to manage the finances of your business. Or get ready for a future fundraising round. However, instead of incurring the high and ongoing cost of a full-time hire, you can hire a fractional CFO on an hourly, project, or subscription basis.

Several instances of partial CFO services include:

  • Assist in identifying and monitoring key performance metrics that are crucial for evaluating the financial health of your firm.
  • Establish and oversee the budget
  • Estimated revenue and costs
  • Examine vendor agreements and guide negotiations
  • Create and encourage fundraising tactics

A fractional CFO, like a full-time CFO, can help the company’s management understand the importance of these financial insights and KPIs so they can make strategic decisions. However, a CFO often does not perform routine bookkeeping or accounting tasks. These could be dealt with by a combination of internal management, outsourcing to a service provider, or both.

Reasons to Employ a Fractional CFO

Many startups might profit from the advice and assistance that a CFO can provide. However, given that startup CFOs typically earn over $400,000 in total salary, they might not be able to hire a full-time CFO.

  1. A fractional CFO is frequently hired to help with a specific financial objective or problem, such as when you’re raising money. A new investment round’s preparation period might be extremely busy. A part-time CFO may assist founders with pitch deck preparation, financial reporting, understanding the advantages and disadvantages of various forms of funding, and investor queries.
  2. You experience financial difficulties. For a business to survive, managing cash flow might be essential. If you’re having trouble, a part-time CFO might be able to offer advice on how to enhance profitability. And also smooth out your cash flow.
  3. You are unable to see the future. The prior financial transactions of your organization can be kept organized with the aid of bookkeepers and accountants.
  4. You require financial solutions that can expand along with your company. To establish financial management systems and a tech stack with long-term growth in mind, a fractional CFO may be able to make recommendations. Setting up the proper structure in advance could end up saving you time and money later.

How to Employ a Part-Time CFO

You can locate and hire a person who works as a contractor and provides these services. Some firms focus on connecting businesses with part-time CFOs. Or they may have a team of CFOs that you could hire. Additionally, research businesses that provide a variety of back-office assistance, such as accounting, tax preparation, and bookkeeping.

Think about the person or company’s experience and how it pertains to your needs while comparing possibilities. For instance, you might have the chance to work with a part-time CFO who oversaw a large, successful global public firm for several years. But their expertise won’t necessarily help you get ready for a Series A.

  • Have they assisted organizations with similar objectives or challenges? are a few of the queries you would want to think about or put forward.
  • Are they familiar with your industry’s standard key KPIs and your business model?
  • Will a team be working with you as your fractional CFO service, or will you be working with them one-on-one?

You should conduct interviews with potential employees and vendors to determine whether they will mesh well with your leadership team.

Putting Together Your Finance Team

It rarely makes sense for early-stage firms to hire a full-time CFO. Initially, entrepreneurs might handle a lot of the financial responsibilities themselves. Employing a third-party bookkeeper or accountant becomes increasingly necessary as your business expands, however some businesses decide to bring one or both of these roles in-house.

The following employee or contracted service is frequently a controller. The accounting and finance teams are led by controllers, who also contribute to the internal controls and accounting standards of your business. In certain businesses, the controller also provides the kind of strategic and prognosticating advice that is often provided by a CFO.

Once the budgeting, planning, and analysis get too complicated or divert the founders’ focus from other duties, you may decide to hire a fractional CFO. If you have raised hundreds of millions of dollars or if you want to go public within the next several years, it would be wise to engage a CFO. However, you might try to reduce costs in the interim. By working with a part-time CFO on a monthly or yearly basis.

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