Let’s face it: being a small business owner is hard work. It’s nearly impossible to find time to do everything that you want to do to run your business. This tends to be especially true for a company’s finances.

Many small business owners are not trained in running the financial side of a business, and even if they are trained in and adept at it, they are usually too involved in other areas of the company to focus a sufficient amount of time on the finances. This is why companies hire CFOs, or Chief Financial Officers.

The only problem is, having a CFO can be very expensive, and finding someone who is a good fit for your company and checks the boxes on all of your requirements can, at times, be prohibitive. This is where fractional CFOs come in.

This article is all about fractional CFOs:

  • what they are
  • the services they provide
  • why they can be a great option for small businesses
  • tips on how to choose the perfect fractional CFO for your business

And more.

What Is A Fractional CFO?

Let’s begin by talking about what exactly a fractional CFO is.

You have probably heard the terms “remote CFO” or “outsourced CFO” before; a fractional CFO is similar, but there are a few key distinctions. A fractional CFO is a trained and experienced professional who provides CFO services for companies on a part-time or contract basis.

Also, a fractional CFO usually performs slightly different duties than that of a full-time CFO. They are usually hired on for specific projects and are prepped to tackle major challenges or goals that the particular company is facing.

Reasons A Company Could Hire Fractional CFO

Now we will discuss reasons that companies — especially small businesses — might choose to hire fractional CFOs as opposed to a full-time or interim CFO.

Contract Workers

The biggest reason that businesses typically hire fractional CFOs is that they don’t have to hire a full-time employee. Hiring a contract worker means they don’t have to pay a full-time salary or provide benefits and bonuses.  While this is a huge one for companies without unlimited funds (which is most companies), there are many other reasons that hiring a fractional CFO can be the right choice for your small business.

Add to Company Bandwidth

Another common one, mentioned earlier, is that the current employees and the business owner simply do not have the bandwidth to perform bookkeeping and accounting duties.

Increase Financial Forecasting

Along those lines, as companies grow their accounting and financial forecasting become more complex. You and your employees may have had the capacity and knowledge to craft your strategic financial plans in the business’s early days. But as you gain more capital cash management and long-term outlooks may not be within your wheelhouse anymore. Hiring a professional financial manager can be a necessary step.

Additional Help for New Ventures

Another reason to hire a fractional CFO is if you are embarking upon a new endeavor.

This could mean many different things. Maybe you are entering a new market or bringing on new partners. Maybe your business plan is shifting or you need to refinance debt. Or maybe you are participating in a merger or acquisition. The list could continue forever.

All of these scenarios have something critical in common: they will require a fair amount of financial strategy upfront, but once things get settled they will mostly just require routine maintenance on the financial end.

Fractional CFOs Are Professionals

One of the main draws of hiring a fractional CFO, even as opposed to a more traditional interim or part-time CFO, is that they are highly trained professionals who will have the skillset and experience to help you with specific projects, such as those mentioned above.

If you are hiring someone for a specific reason, they will become intimately familiar with your company. From your financial statements to your cash flow forecasts to your long-term strategic planning prior to starting the advising process. This means that they will have an objective, outside view of your strengths and weaknesses, and be able to tailor their advising directly to your company’s specific situation.

Why You Need A Fractional CFO

There are many other reasons that small business owners choose to hire fractional CFOs. It would be impossible to list them all, but we will go over some more common ones.

Growth

One major issue that many small businesses run into is stagnant growth. There could be many different reasons for difficulty growing, maybe you have too much cash tied up in inventory, or you need to refigure your payroll structure.

Whatever the reason, investing in fractional CFO services can be the perfect solution. If your business is having trouble growing then chances are you are not in a financial place where you want to invest in a full-time CFO. But on the other hand, if your business is having trouble growing you likely need some financial advice.

Economics

Hiring a fractional CFO gets you the best of both worlds: sound, experienced, pragmatic financial advice without having to sign someone on for an indefinite period of time and pay for their benefits. A fractional CFO will be able to help you come up with a long-term strategic financial plan that focuses on finding solutions and adapting practices focused on accelerating growth.

Cash Flow Management

The last reason for hiring a fractional CFO that we will discuss is if you have had a recent increase in cash flow and need help managing the capital.

Maybe you just closed an investment round, maybe you’re finishing off a successful acquisition. Either way, a significant increase in finances — while a great thing for the business — can create fairly complex administrative and financial steps, at least for a short period of time.

A fractional CFO will help you manage the cash flow and create a system for incorporating it into your current financial reporting. This is a perfect example of how having a fractional CFO on board for the short term will enable your business to establish systems that you should be able to follow independently for years to come.

Best Practices for Hiring a Fractional CFO

Now that we have reviewed several reasons on how a fractional CFO can benefit your company, let’s spend some time going over best practices when hiring one.

First, we want to emphasize that who you hire as your fractional CFO is a very important decision. Sometimes when hiring for part-time, fractional, or interim positions, businesses have a tendency to think of them as less important and spend less time and energy on the hiring process. Resist this temptation.

For the reasons enumerated above, hiring a fractional CFO can have a huge impact not only on your company’s financial situation, but also its overall sustainability and strategic plan. If you hire the right person things will likely work out quite well. If not, you may find yourself in the position of having to start the hiring process all over again.

Evaluating A Fractional CFO Candidate’s Experience

One key question to ask when hiring a fractional CFO is whether or not they have experience within your particular industry.

Sure, they may have had substantial success as a fractional CFO, but are they familiar with your company’s specific market? It is important to feel confident that they have significant experience in your industry. They should have already helped companies similar to yours grow and sustain themselves.

A similar question to ask is if your fractional CFO candidate has experience dealing with the particular issues you are facing.

Even if they have worked within your industry, have they dealt with a merger, vertical integration, debt refinancing, or whatever the specific project that you are hiring for them may be? Their strengths and experiences should directly line up with your service needs.

Another important question to consider is what the various candidates see as your company’s strengths and weaknesses. You don’t want to give them all the information upfront. Make sure that they are not only perceptive enough, but also willing enough to point out gaps and challenge areas that they see your company facing.

If they are not able to identify areas where you need assistance, then they are not the right fractional CFO for you. They should have a deep enough understanding of your company that they can effectively advise you.

More likely than not, you and the interview team will already have identified the areas in which you see the greatest challenges and room for growth. Watch to see if potential candidates identify the same areas.

Saddock Advisory is Here to Help

As you can see, hiring a fractional CFO is a complex and very important process. Every single small business, for one reason or another, hits a point where they require more financial assistance than they have on staff.

If you reach this point, we are more than happy to help you with the fractional CFO hiring process. We have years of experience in the field and have worked with a diverse group of businesses and clients.

Contact us to find out more.

 

Sources:

https://www.bergankdv.com/resources/

https://www.driveninsights.com/small-business-finance

https://acuity.co/

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How A Fractional CFO Will Level-Up Your Business
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As small businesses grow, financial management becomes more complex. When that happens, it may then be time to hire a fractional CFO.
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1 Response
  1. Thanks for clarifying that the a fractional CFO’s responsibilities varies a lot compared to other similar positions. I’d like to know more about that because I’m interested in starting a business someday. It would be important to know about the kinds of things that will help in steering its course to expansion.

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