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Fractional CFOs – What do they do, and how should CEOs work with them?
What is a fractional CFO?
Whereas traditional CFOs clock into the same company daily, their fractional cousins are part-time, working with multiple CEOs on a contract or project basis. A primary benefit is the CFO steps into your business at a fraction of the traditional cost. Indeed, “fractional” sounds like a temporary or interim fix, but not necessarily so – some CEOs stay with their fractional CFOs for years. If the concept works for you, the incumbent can deliver more for longer than anyone expects. Getting ready to take it on is what this article is all about.
What should your fractional financial guru not do? – A great starting point.
We suggest you exclude the following from the CFO mandate:
- Audit firm’s services, covering financial statement preparation, tax configurations, and meeting compliance regulations. In other words, “rear-view mirror” stuff – wrapping up the financial picture of past events.
- Bookkeeper or controller functions – maintaining the financial systems (embracing records and transactions) accurately and timeously.
It’s easy to let (1) and (2) above slip into the picture but resist the urge. Of course, accurate, solid results emerging from both activities are a must before considering a fractional CFO hire. Why? Your CFO’s guidance is only as good as the data you provide. In other words, if you want a no-nonsense, constructive, “forward-looking” approach, it inevitably springboards off the past. Therefore, any “garbage in, garbage out” scenario reduces your strategic financial projects to nothing more than guesswork.
Deriving the maximum fractional CFO benefit
Firstly, don’t feel uncomfortable about not affording a full-time CFO; many small and medium-sized businesses are in the same boat. However, it doesn’t erase the need for CFO input when and where you need it; that’s why fractional hiring is so popular. Here are five groundbreaking benefits a fractional CFO can deliver to put your operations ahead of the curve:
- Growing the business without taking unreasonable risks: CEO visions frequently revolve around increasing shareholders’ equity by climbing on the growth bandwagon. CFOs worth their weight in gold aim to convert these dreams into reality. How? They have the know-how, cutting-edge software upgrades, and financial-centric KPIs to address severe growth pains such as:
- Shifting employee parameters.
- Controls bursting at the seams.
- Real estate footprints becoming inadequate.
- Debilitating cash flow crunches one never imagined.
- Processes that worked fine suddenly start to stutter and flat
- Conversely, downsizing may be a viable alternative to improve ROI, with substantially different dynamics but no less stressful on resources. CFOs understand disinvestment drivers like the backs of their hands.
- New and improved SaaS editions flood the markets with the virtual era in full swing. That’s good. What’s not good is it’s severely confusing and overwhelming to many stakeholders and CEOs. So, qualified fractional CFOs can erase redundant tools and deploy those with the latest technologies at affordable prices – creating a financial framework with success written all over it.
- CFOs anticipate and guide mergers and acquisitions, gauge entering new markets, and bolster their investor relations/lender connections, mainly when fundraising presentations are in the mix.
- Finally, a fractional CFO is invaluable for creating board confidence in the organization’s management by presenting complex issues in layperson terms using structured pitch decks, images, and charts.
Hiring your fractional CFO
Enter the fractional CFO arena with lofty but doable expectations. Know your objectives going in, put them on the table, and assess the CFO candidates’ responses. You can judge excellent skills and talents if you have the yardsticks to measure them against. Do it right, and you’ll discover your fractional CFO is a massively cost-effective option who asks the right questions, takes a load of worry off your shoulders, avoids severe errors, delivers financial confidence and support, and creates stakeholder harmony from corner to corner of the business.
