The Definitive Guide to Fractional CFOs
- The following chart from Google Trends shows the number of times the term “Fractional CFO” was searched worldwide on Google in the last 5 years. From literally 0 searches in 2019, you will find a very clear and unmissable uptrend in the past two years for the number of people now searching for Fractional CFO.
- The fractional workforce is expected to reach 10 million workers by 2030, offering businesses access to a wider pool of diverse and specialized talent [Source: Upwork Study]
- Cost Savings: Businesses can achieve cost savings of up to 40% by utilizing fractional resources compared to owning them outright [Source: HBR Study].
With a clear intent towards hiring the right support at executive levels at lesser costs, coupled with a rise in the number of Fractional CFOs, both early stage and middle market companies are steering towards a higher engagement of Fractional CFOs. But, who are they and what exactly do they do?
Okay, what is a Fractional CFO?
A Fractional Chief Financial Officer (FCFO) is an executive who provides financial leadership and expertise to businesses on a contract or retainership, but on a part-time basis. They most likely will have a background as an Ex-full-time CFO, or a senior finance role. Unlike a full-time CFO, a fractional CFO offers CFO services to multiple companies at one time, often focusing on strategic financial planning, cash flow management, and financial reporting, while working for two to four clients at a time.
The term “CFO Services” is quite recent too, where traditionally the only option available for businesses to get top tier CFO oversight was to go and hire a CFO at an expensive salary. Now, the same pool of individuals are offering their skills, at a fraction of the cost, and for a fraction of their overall time.
If you have the requirement and money to hire a full time CFO, you can skip this article. If you are undecided or need access to CFO at a fraction of the costs, read on.
Qualifications & Background of a Fractional CFO?
They are typically seasoned financial professionals, with extensive experience in senior finance roles.
They would have spent years managing the finance function for various companies in the past, and possess a deep understanding of financial management, strategic planning, and business operations.
Many holds professional certifications such as CPA (Certified Public Accountant) or CMA (Certified Management Accountant).
Bonus Tip: Usually, look for people who have been in various financial leadership roles for at least 10/15 years, plus, and already have some experience working on fractional basis only. You can use these two filters to quickly reach the top 10/15% of the pool when screening.
History & Evolution
The concept of fractional roles has been around for some time now, formerly known as Virtual CFOs or Remote CFOs. However, the industry has since evolved, and the term “Fractional CFO” has become the preferred nomenclature, reflecting the part-time, flexible nature of these roles.
Difference and Similarities Between Full-Time CFOs and Fractional CFOs
| Aspect | Full-Time CFO | Fractional CFO |
| Provides strategic financial leadership | Yes | Yes |
| Extensive professional experience in finance and accounting | Yes | Yes |
| Assists in decision-making with financial insights | Yes | Yes |
| Ensures compliance with financial regulations | Yes | Yes |
| Involved in financial planning and budgeting | Yes | Yes |
| Provide Financial reports, & financial analysis | Yes | Yes |
| Manages financial risks | Yes | Yes |
Differences between Full Time and Fractional CFO’s
| Aspect | Full-Time CFO | Fractional CFO |
| Commitment | Full-time, dedicated to one company | Part-time, serves multiple companies |
| Cost | Higher salary, benefits, and overhead costs | Lower, pay for services as needed |
| Focus | Day-to-day operations and long-term strategy | Primarily strategic financial planning and analysis |
| Flexibility | Limited, tied to one organization | High, can scale services up or down as needed |
| Availability | Always available for the company | Available as per contract or retainer agreement |
| Industry Experience | May be limited to the industry of the current Co. | Diverse, due to working with multiple companies |
| Network | May be limited to the current company’s connections | Broader, due to exposure to various industries & clients |
Fractional CFO typical Costs and engagement models
- Special Project Basis /Close-Ended: When a business is hiring them for specific projects with a defined scope and duration. For example, when the business has needs for Due Diligence, Fund Raising, M&A deals, Books cleanup, Exit planning, ERP, setting up systems/process/reports etc.
- Open-Ended and Continuous: Offers ongoing financial leadership and support. The scope is generally wider in this case and should aim to broadly mimic the responsibilities of a full-time CFO. This is typically the most widely used engagement model.
- Interim Basis: Provides temporary leadership during transitions or absences. Usually deployed when the full-time CFO position is vacant, but you still need finance leadership till you find the right full-time person for the job.
Fractional CFO Costs & hourly rates
Fractional CFO costs can vary depending on the engagement, but some high level guide would be as follows:
- Hourly Basis: Fractional CFO hourly rate can easily range from $150 to $350 per hour.
- Daily Basis: Many companies tend to hire them on daily basis, rather than hourly. Suitable for more intensive, short-term engagements. They are available for the entire day for you, whether onsite or remote as agreed. The day rate will be a multiple of the hourly rates, albeit with some discount.
- Monthly Retainer Basis: Typically between ~$5,000 and $14,000+ per month, depending on the responsibilities and commitment. For small businesses having a turnover of less than $2M, it can be done easily in the range of $2-3K a month.
In contrast, a Full-time CFO will generally cost somewhere between ~$175,000-$400,000+ in salary ( or much higher going into the 7 figures, depending on a range of factors), plus benefits, and taxes. Look at what Salary.com has to say on this.
In general, the Fractional CFO cost can be easily between 25% to 40% of the full the CFO salary and benefits, making them far more affordable, without a full-time cost commitment. Businesses have the full option to scale the engagement up or down, as needed, which option is not available otherwise.
Think of us as your seasoned road trip buddies. We’ve helped businesses from tech startups to large businesses navigate financial highways and byways. We’re here to offer you that expert navigation, ensuring a smooth and successful journey.
| Areas that Fractional CFOs handle | |
| 1. Financial planning and analysis (FP&A) | 11. Preparing for funding |
| 2. Cash flow management and forecasting | 12. Overhauling existing accounting systems |
| 3. Budgeting and cost control | 13. Navigating an external audit |
| 4. Financial reporting and data analytics | 14. Identifying cash flow issues |
| 5. Strategic planning and business modeling | 15. Developing key performance indicators (KPIs) |
| 6. Fundraising and capital structure optimization | 16. Financial modeling, equity funding assistance |
| 7. Risk management and mitigation | 17. Help you Implement Systems, Data Analytics, & Digital transformation |
| 8. Mergers and acquisitions (M&A) support | 18. Supervise payroll, bookkeeping, payroll taxes and compliance |
| 9. Implementing financial systems and processes | 19. Establishing compensation plans, like ESOP’s |
| 10. Creating packages for prospective lenders | 20. Advising on potential investments |
Signs your business needs a CFO. The following list of reasons indicate whether you have a need for a CFO or not. How much you are willing to spend at the onset can help decide between Fractional or Full time:
- Financial Complexity: If your business has complex financial needs that require expert oversight, a fractional CFO can provide the necessary strategic guidance. Read more here, on the typical financial issues growing businesses face, how they affect, and signs if you have them too.
- Growth Stage: Companies in rapid growth phases or preparing for scaling may benefit from a fractional CFO’s expertise in financial planning and capital management.
- Resource Constraints: For businesses that cannot afford a full-time CFO or lack internal financial expertise, a fractional CFO can fill the gap without the overhead costs.
- Strategic Initiatives: If your company is undertaking significant strategic initiatives like mergers, acquisitions, or entering new markets, a fractional CFO can offer valuable insights and support.
- Financial Health: Businesses facing financial challenges or seeking to improve profitability and cash flow can benefit from the strategic financial management provided by a fractional CFO.
- Talent Acquisition Challenges: Finding the right talent for a full finance team can be difficult and costly, especially on a fixed commitment basis like full-time hires. A fractional CFO provides access to top-tier expertise without the long-term commitment and costs associated with building a full-time team.
- Interim CFO Need: If a full-time CFO has left the company, a fractional CFO can fill the gap as an Interim CFO, until a permanent replacement is found.
When looking for a fractional CFO, consider the following:
- Experience both as a CFO and Fractional CFO: Should have at least 10/15+ years of experience in senior finance roles ( if CFO, then bonus), and is already experienced on Fractional basis, so they would know exactly what needs to be done and have better processes to begin with in a fractional capacity.
- Industry Expertise: Look for a CFO with experience in your industry or similar business models.
- Relevant Experience: Assess their track record in dealing with the specific financial challenges or opportunities your business is facing. If they can share some relevant case studies, that can help with better insights for you.
- Flexibility: Confirm their ability to adapt their services to your changing needs. From scope they can handle, to the commitment they can provide as your businesses scale up.
- References: Check their references and speak to other businesses they have worked with to gauge their effectiveness and reliability.
- Tech-Savvy: Last but not least, everything revolves around tech now. Some CFOs are very tech-savvy, while a lot of them range from medium to lows. The more tech-savvy they are, the more robust your processes will be. And cost effective too.
- Types of CFOs: This topic receives far lesser attention that it should. But it’s very important to find the right CFO candidate, full time or fractional. There are broadly three types of CFO’s, basis their overall skills,
- Transactional CFO: Excelling in leading the transactional side, like Fund-raising, Investors, Due Diligence, negotiations etc.
- Operational CFOs: Optimizing internal processes and improving operational efficiency, accounting, auditing, and reporting, among others.
- Strategic CFO: Best in long-term strategic planning, growth initiatives, and corporate strategy, de-risking and business transformation.
Depending on your priorities, decide, which kind of CFO will suit you best. Do not assume, that each CFO will be equally good in all three areas, and many businesses have made expensive mistakes for not thinking this through.
- Order of Hiring: It’s often advisable to hire a CFO before a bookkeeper, as the CFO can establish the financial foundation and processes for the bookkeeper to follow. You can use this first of its kind tool here to evaluate more practically whether you need a Fractional CFO, Controller or Bookkeeper at your current stage.
If you want to read more on this topic, you can check out the commonly asked questions on Fractional CFO’s here.
Fractional CFOs offer a cost-effective solution for businesses seeking strategic financial leadership without the commitment of a full-time executive. By understanding when to hire a fractional CFO, what they can help with, and how to find the right one, businesses can leverage their expertise to navigate financial complexities, drive growth, and achieve long-term success.
If you are considering to hire vetted and experienced Fractional CFO, please do reach out to us to understand more by scheduling a 1-1 free consultation on either Calendly, or email us at sonabh.bubna@strategycfo.com