You’ve probably heard the term before, but what is a fractional CFO and why would you need one?
A fractional CFO is a part-time CFO who provides financial strategy and management services to businesses on a contract basis, often remotely.
They can help you with financial planning, forecasting, and strategic decision-making, without the cost and commitment of a full-time Chief Financial Officer. This makes them particularly useful for fast-growth companies that are not quite ready to bring someone on full-time, as well as for more established companies requiring expert support during times of change.
During my 18+ year career, I have supported hundreds of companies with their strategic and project finance needs through times of change, including periods of rapid growth, making an acquisition, obtaining private equity funding, refinancing, and selling all or part of their business.
In this blog post, I explain what a fractional CFO is, compare fractional vs interim CFO services, and the benefits of hiring one for your business. I also discuss the services a fractional CFO can provide, what key questions to ask before hiring them, and whether hiring someone in this capacity could be the right choice for your business.
Fractional vs Interim CFO: What’s the Difference?
Fractional and interim CFOs are both part-time or contract CFO services, but have different focuses and scopes of work, although the terms are often used interchangeably and many suitably-qualified financial professionals can provide services in either capacity.
Fractional CFO services are typically provided on an ongoing basis, providing financial management services to a business for a set number of hours per week or month. They should become a trusted advisor to the business owner or management team, and can provide strategic planning and guidance as well as support with long-term financial planning and forecasting.
Interim CFO services are typically used for a specific project or period of time, such as during a transition or turnaround period. They are often brought in to provide expertise in a specific area, such as managing cash flow, financial restructuring or M&A transactions.
Fractional and Interim vs Full-Time CFO
There are several reasons why a business may want to use interim or fractional CFO services rather than hiring a full-time Chief Financial Officer.
Fractional CFOs are typically more affordable than a full-time CFO, as they work on a part-time or contract basis. This can be particularly beneficial if your business is not quite ready to hire a full-time CFO.
An interim or fractional CFO can provide flexibility and scalability. As your business grows, its financial management needs may change, and a fractional CFO can adjust their services to meet those needs.
They can also be engaged on a project-by-project basis, which can be more efficient and cost-effective than hiring a full-time employee for a specific project.
This is particularly helpful to companies raising capital, obtaining private equity funding, or looking to sell, as you can identify and hire a Fractional CFO who has the necessary M&A expertise to help you through that process.
An experienced fractional CFO can bring a fresh perspective to your business. They often have experience working with a variety of businesses and industries and can offer insights and best practices that a full-time CFO may not have.
Finally, a well-networked interim or fractional CFO can connect you to a wider network of professionals, such as CPA firms, lawyers, and investment bankers, who can provide additional support and expertise as needed.
Remote CFO Services: Can a Fractional CFO Work Remotely?
It’s very common (especially since the global pandemic) for CFO services, whether fractional or interim, to be provided remotely. This approach can be particularly beneficial for businesses that:
- Require a CFO with specific sector expertise, for example SaaS companies
- are located in areas with limited options for local CFOs with particular project expertise, such as deep M&A experience
- have distributed teams themselves and are comfortable with remote working.
It can also be more cost-effective and efficient than hiring a full-time CFO or finding and engaging a local CFO with the necessary sector expertise on a contract basis.
With the right technology and communication tools, businesses can work with a remote CFO as effectively as if they were working with a CFO in person.
What Services Can a Fractional or Interim CFO Provide?
There are several circumstances in which a company may want to hire a fractional or interim CFO:
When a company is experiencing rapid growth, it may need additional financial guidance to keep up with the pace of change and achieve growth objectives.
A fractional or interim CFO can help the company manage its finances during this period of growth, such as cash management, forecasting and professionalizing its financial reporting practices.
Mergers and acquisitions
When a company is involved in mergers and acquisitions, it may need to work with a finance professional with experience in this area to manage the financial aspects of the transaction.
This is an area where I have particular expertise, having supported hundreds of companies with preparation for selling their business as well as services such as financial due diligence for acquisitions.
When a company has a specific financial project that requires expertise beyond the capabilities of its current staff, it may need to hire an experienced CFO to provide that financial expertise.
This can include projects such as financial modeling, budgeting, or forecasting, as well as reviewing the company’s general financial strategy.
Cash flow management
When a company is experiencing cash flow issues, it may need a CFO to help manage its cash flow and improve its financial performance. A fractional CFO can provide ongoing financial management services to help the company improve its cash flow.
When a startup is just getting off the ground, it may not have the resources to hire a full-time CFO. A fractional CFO can provide financial analysis and management services on a part-time or contract basis, giving the startup the expertise it needs to manage its finances.
When a company is going through a period of financial restructuring or needs to overcome financial challenges or raise capital, it may need to bring on a finance expert with specific expertise in this area.
Questions to ask before hiring an interim or fractional CFO
There are a lot of individuals as well as fractional CFO companies out there offering their services. But not all fractional CFOs have the same expertise, experience or, indeed personalities, so how do you hire a fractional CFO who will provide the most value, relevant expertise and valued insights to your company?
Here are several key questions that you should ask to ensure that the CFO is the right fit for their needs:
What is your experience?
It’s important to understand their background and expertise, and whether they have experience in the specific areas that the business needs help with, as well as if they’re experienced in working with businesses of similar size and complexity.
What sectors or industries do you specialize in?
By understanding their industry expertise, businesses can ensure that they hire a fractional CFO who has experience and knowledge in their specific sector.
For instance, if your business operates a Software-as-a-Service (SaaS) revenue model, you should look for a fractional CFO with a strong background in SaaS finance and accounting.
This will ensure that the CFO can provide sector-specific expertise and will be familiar with the particular KPIs, reporting, and best practices for SaaS companies, as well as what potential investors will expect from them.
What services do you provide?
It’s important to understand what services they will provide and whether they are aligned with the business’s needs and goals.
For example, is your need primarily ongoing accounting services (something typically offered by many fractional CFOs who specialize in supporting small businesses and startups), or do you need someone with deep expertise to help navigate a particular issue or achieve a specific objective, such as acquiring another company?
Who will I be working with?
It’s important to know who you will be working with and whether their style and values are aligned with you and your team. Is that individual an effective communicator? What is their personal background and expertise? Do you have confidence in them to represent your company in board meetings and with external parties such as bankers and potential investors?
What is your availability?
It’s important to understand how many hours per week or month the fractional CFO will be available and whether this will be sufficient to meet the business’s needs.
What are your rates?
It’s important to understand the fractional CFO’s rates and how they will be billed (e.g., hourly, monthly, or project-based).
How do you communicate?
It’s important to understand how the fractional CFO will communicate with the business, and whether they will be available for regular check-ins and updates.
What are your references?
As with any professional service, it’s important to ask for references from other businesses they have worked with, to understand their experience and satisfaction.
Fractional CFO & Strategic Finance Consulting in the San Francisco Bay Area
Based in the San Francisco Bay Area, I have particular expertise in supporting companies in the following situations:
- Rapid growth: professionalizing the finance function, developing financial reporting and KPI dashboards, budgeting and forecasting.
- Selling your business: preparing for investors and financial due diligence.
- Acquiring a company: financial information requests, review, due diligence (including Quality of Earnings analysis), working capital analysis and supporting the needs of your board, lenders and investors.
- Specific financial challenges: including reorganization, carve-out analysis, and refinancing.
I work remotely with clients not just in San Francisco and Silicon Valley but all over the United States and internationally.
If you’d like to discuss hiring me for fractional CFO services or a specific interim strategic finance project, I’d love to hear from you! Get in touch for more information.