Many businesses need a CFO to help them plan out the future from a financial perspective, but not everyone can afford a full-time CFO. In some cases, a “fractional” CFO may be just what the company needs to power forward.
A fractional CFO is a chief financial officer who handles various financial operations and financial management responsibilities of multiple companies on a part-time basis. With a fractional CFO, you can access high-end knowledge and expertise at just a fraction of the cost. They can work remotely either on a per-project or hourly basis, requiring no office space. Here we’ve detailed how a fractional CFO can help entrepreneurs grow their businesses and how to find the best fit for your company.
What a Fractional CFO Does
Most fractional CFOs have experience with many different companies in a variety of sectors. This allows them to assist you in both understanding and improving the financial well-being of your company. Fractional CFOs can work on several projects and solve financial problems that require expertise in financial modeling, accounting and business strategy. Here are a few tasks that a fractional CFO can perform for every firm, from early-stage startups to large enterprises.
- Define key performance indicators (KPIs) to track your business goals.
- Identify the products and services that can help you earn the most money.
- Illustrate the most successful marketing and distribution channels.
- Develop marketing strategies that have the best ROI.
- Perform budgeting and forecasting.
- Keep you up-to-date with industry trends and changes in government laws and regulations.
- Guide you to make pricing decisions that can improve sales and profits.
- Predict the potential risks and plan actions to be taken to mitigate them in advance.
- Inform and help you implement new technologies that can improve employees’ performance.
- Build initial systems and processes for businesses.
- Identify opportunities to invest, raise funds and reduce costs to make your business grow.
- Prepare accurate financial statements and reports.
How CFOs Can Help Small Businesses
A fractional CFO can help business owners by performing the following tasks efficiently and accurately:
Strategize Short- and Long-Term Goals
A fractional CFO can help you identify and quantify the goals of your organization. Your fractional CFO can analyze your business parameters, such as revenue growth rate, debt to equity rate or lifetime value of a customer, to set your goals.
Get the Books in Order
Fractional CFOs can keep your accounting records in order and up-to-date. They can also keep your books accurate, thus avoiding tax and banking errors. This can help you in the future when you’ll expand or add a new division into your current accounting system.
Guidance on Financial Challenges
Fractional CFOs can serve as long-term strategic advisors for your business and help you navigate through many financial challenges, such as raising capital, implementing a new accounting system, applying for a bank loan, or undergoing a financial audit.
Strengthen the Skill Set of Internal Team
Your fractional CFO can provide mentorship to the company’s current accounting and finance team. The CFO can also manage a wide range of special projects, including pricing analysis, ROI evaluation, mergers and acquisitions, and entity restructuring.
Make Data-Driven Decisions
You can leverage the expertise of a fractional CFO for day-to-day business decisions. CFOs can provide you with accurate financial statements and reports to help you make informed decisions.
Find New Sources of Financing
When you need to raise capital, a fractional CFO can prepare financial reports about your business to pitch to investors. They can also help you find the best financing match for your business to fulfill your needs. Fractional CFOs can work with lenders, vendors and investors to provide them with the correct financial information. Due to their experience and expertise, CFOs know what an investor is most attracted to and can make sure that your financial reports reflect that.
Mitigate Risks
Most fractional CFOs work across many different companies and industries with unique challenges. Therefore, they can advise business owners on the financial aspects of their operations. They can also prepare the action plans during times of financial crisis, like overwhelming debt or shifts in the economy, thus helping you respond faster. The CFO can set up an infrastructure and even implement different processes to prevent future issues.
Build New Client Connections
Fractional CFOs can help businesses build and maintain new relationships with investors, lenders, vendors and customers. Most CFOs also have a network of investors, making them an invaluable resource to businesses seeking investor funding.
Provide Financial Reporting and Analytics
A fractional CFO can provide you with customized analyses and financial reporting regularly. These analyses and reports can assist you in planning the next steps for your company. With accurate reporting from the fractional CFO, you can keep track of your company’s progress against implemented business strategies.
Improve Process Efficiency
A fractional CFO can help businesses achieve their highest potential. They can bring the best practices to the various functional areas of your business and incorporate internal checks for current processes. They can also streamline and automate administrative and financial operations to improve their efficiency.
Forecasting
A finance expert can plan your business’ future based on financial projections and make adjustments as things change. Your fractional CFO can forecast your business’ cash flow and strategize the best ways to use the funds.
Formulate Business Strategy
A fractional CFO can analyze your financial records and set up a business strategy to help you achieve your company goals. Your CFO can also anticipate risk factors and help you build a risk management plan.
Improve Cash Flow
A fractional CFO can analyze your income and expenses to figure out strategies for a more profitable business. Your outsourced CFO can help you determine where you can cut costs, and can also streamline processes and develop strategies to improve your cash flow.
Budgeting
A fractional CFO can help you plan an effective business budget. Budgeting can not only help you manage your cash flow, capital investment strategy and expenses, but can also become essential for any fundraising or strategic planning activities.
What to Know Before Hiring a Fractional CFO
Every business owner may have different goals for hiring a fractional CFO. Below are the things that every entrepreneur should consider to find the best fit before hiring a fractional CFO.
Client Requirements
Companies have several options for selecting a fractional CFO, but they should consider clients’ expectations and needs before the selection process. It’s helpful to have a clear picture of what clients want that individual to deliver.
Business Financial Goals
Define the financial goals that you want your fractional CFO to meet and set parameters to measure their success. Prepare a list of the tasks and responsibilities you want your CFO to perform, and stay informed of the efforts and initiatives taken by your CFO.
Aligned Experience
Entrepreneurs hiring a fractional CFO should consider someone with relevant experience in their industry or sector. They must ensure that the CFO’s experience lines up with the type of challenges or initiatives their company is undertaking. Ensuring this can help you find a fractional CFO who has better market awareness, competitive analysis and contacts within the industry.
A fractional CFO with industry-specific experience will be accustomed to how things work in your industry, including workflows, laws, regulations and requirements. Make sure your CFO has the right expertise and knowledge to create a significant beneficial impact on your business.
Background
Check whether the potential CFO works alone or has an accounting or finance team to support. A fractional CFO who is part of a financial services-providing company may offer better service continuity that is less dependent on individuals. They will also have a team of experts who can work on your issues.
Ask your prospective fractional CFO about their practices and how they’ll handle the unique financial complexities of your business. A CFO with a proven track record typically has reviews or case studies available to verify their level of service, so make sure you refer to those reviews.
Cultural Fit
A fractional CFO offers a uniquely valuable perspective to the company executives. Therefore, when looking for a fractional CFO, find out whether the candidate can fit in with your company culture. The CFO should be highly professional and trustworthy. Before you sign the contract, make sure you have a clear picture of the timeline of events and the specific deliverables to expect from your fractional CFO.
Fee Structure
Some engagements require a fractional CFO to spend fixed days or weeks in a client’s office. Other arrangements are virtual or involve remote work. Some CFOs charge a flat fee per project while some charge on an hourly basis. Ensure that you discuss all terms and conditions while hiring a fractional CFO to avoid any hidden costs at the end. Also, ensure that your fractional CFO has the time and attention to dedicate to your company.
Qualifications
Entrepreneurs need to do their due diligence to ensure that their fractional CFO has the required experience, knowledge and expertise to perform well. A fractional CFO should have experience in accounting, finance, or business management and up-to-date knowledge of current financial and accounting ERP systems. Ensure that you check each prospective CFO’s qualifications so you can better understand their work history and education.
