What Is a Fractional CFO? How to Hire One?

You’ve started your business with the first round of funding, built up a solid customer base, hired employees who are experts in their fields, and have a clear product roadmap to help your ICP.

With this foundation, now you’re at a point where you want to scale your business. But managing financial planning with everything else can be toll taking, especially if it’s not your area of expertise.

A lot of business owners go through the same trajectory. The ideal solution would be to hire a CFO who can help you with budgeting & cash forecasting. However, due to limited resources, founders and small businesses owners are usually not able to do so.

A fractional CFO though can help you manage your finances effectively.

In this blog, we’re going to talk about what a fractional CFO is, the services they provide, and how you can find one for your business.

What Is a Fractional CFO?

A fractional CFO works with businesses and founders on a contractual or part-time basis. Their job is to help businesses with financial planning and developing financial strategies tailored to the businesses' needs.

Basically, a fractional CFO provides the same level of financial expertise a full-time CFO would, just on a freelance basis. Fractional CFO services are the perfect solution for small businesses and startups who don’t want to invest in a full-time CFO but need financial guidance to grow their business.

Also read: Beyond Basic Bookkeeping: How CFO-Level Insights from Bookkeepers Improve Decision-Making

What Services Does a Fractional CFO Provides?

A fractional CFO helps you leave the guesswork behind and digs deep into your finances to help you grow your business confidently. While the services may differ based on what you need from a business standpoint, the following are the core services a part-time CFO will provide:

• Budgeting & forecasting: Business expansion often leads to increased financial complexity. This is where the CFO will come in and take cost management off your plate. They analyse your business’ financial history and align budget with business goals ensuring proper cost allocation for different business activities.

  The CFO takes a data-backed approach to cash forecasting to accurately predict future performance. This includes creating revenue forecast models that include best- and worst-case scenarios. With this approach, you will always know what’s coming and proactively prepare for the future financial situation.

• Cash flow management: A major thing that businesses struggle with is managing cash flow effectively. To overcome this, a fractional CFO helps you get a clear understanding of cash inflows and outflows. They play a critical role in ensuring that you always have enough resources to run your business smoothly and fund growth opportunities.

  Another part of the CFO job description is to identify inefficiencies that lead to cash leak. Their thorough understanding of your finances will help reducing overhead costs and plug any leaks. This will result in optimized working capital management.

• Financial planning: As a growing business, you already have a vision for the future of your company. A fractional CFO will then come in and be your strategic financial architect helping you take a statistic approach to achieve goals.

  A fractional CFO aligns financial goals with business objectives and sets long-term and short-term financial goals for your company.

• Financial performance tracking: As a business owner you understand the importance of setting up KPIs for your business and employees. A fractional CFO does the same for your financial performance to increase visibility and access to real-time data.

  They define the right KPIs and tell you what metrics are the most relevant to track for your financial growth. The CFO will implement the right reporting dashboards and workflows based on the size, stage, future goals, and the industry your company functions in. This includes monthly, quarterly, and yearly financial reports, tools to streamline the finance process, and automating tasks for operational efficiency.

• Fundraising preparation & stakeholder management: If you are preparing for the next round of funding, a fractional CFO’s insights will be invaluable. Your CFO helps you understand how much funding to raise and how and where to use the funds.

  They will ensure your books are investor and audit ready in addition to creating financial models for all the meetings so you can present a compelling financial story. Essentially all the nitty gritties such as the pitch deck for investors and the board and your ROI narrative will be handled efficiently by a fractional CFO.

• Risk management: Starting your own business is a significant risk. If you add on the stress of dealing with compliance issues and financial risks on top of that, things can quickly become overwhelming.

  Instead, you can outsource risk management to a fractional CFO. They will implement strict internal controls, risk evaluation strategies, and review & approval workflows, so that your business never runs the risk of facing compliance issues. Moreover, the CFO will closely monitor your financial situation at every step to avoid major mishaps and have contingency plans in place in case something goes wrong.

Does Your Business Need a Fractional CFO?

As you can see, there are several benefits of hiring a fractional CFO. But how do you determine if your business needs one?

Here are some of the key indicators that can help you make an informed decision:

• All aspects of business are growing fast – revenue inflow, employee headcount, and product growth – but you have less and less clarity and visibility into your finances.
• You are preparing to go for the next round of funding and need expert financial advice to help you go through the process efficiently.
• You don’t have enough time to spend on financial planning and reporting because you want to focus on other key areas of business expansion.
• Business is booming and steady revenue is coming in, but cash flow management is not streamlined making it difficult to see where the money of going.
• Lastly, you already know that you need a CFO to manage your finances but don’t want to hire a full-time CFO due to constrained resources.

In essence, small businesses and startups benefit the most from a fractional CFO. They bring in high-level of expertise that is essential for businesses to make strategic financial decisions.

Steps to Hire a Fractional CFO

If your business is ready a fractional CFO, you need to consider the following steps to ensure you have the right person to help you grow further:

• Evaluate business needs: The first step is to thoroughly understand the financial challenges you are facing. List down pain points that your CFO will need to address.
• Outline business goals: Be specific about your business goals as they will help you understand how exactly a fractional CFO will be able to help you.
• Define CFO’s responsibilities: Once you are clear about your financial goals and pain points, it will be easy to determine exactly what responsibilities your fractional CFO should have. Whether you need them for budgeting & forecasting or for funding prep, specify the scope of engagement. This will be crucial to ensure both you and your CFO are on the same page.
• Understand CFO qualifications: Make sure that you know how a fractional CFO functions in today’s business landscape. Different candidates will have different specialities so your research about what exactly your business needs will be important.
• Check different sources for candidates: When you get to the actual part of finding the right CFO, there are multiple sources to consider. You can get references from VCs and founder community forums. Independent contractors can be found on platforms like LinkedIn and Upwork. There are dedicated firms that offer fractional CFO services. Again, do you research and finalize candidates from the right sources.
• Access candidates according to your needs: To hire a CFO that fits your exact criteria, you should evaluate candidates accordingly. Ideally, they should have knowledge about your industry and experience working with clients at the same growth stage. The candidate should also be the correct fit for your business’ specific needs. Apart from these key considerations, you should also evaluate cultural fit – communication skills, strategic decision-making abilities, and the mindset they work with.
• Review references: After you’ve finalized the right fit for your business, make sure to check in with current and previous clients of the CFO. It’s important to review the outcomes they have delivered in the past.
• Set the right expectation: The last stage is to align on deliverables, projects, and engagement terms. Have clearly defined roles and responsibilities for the CFO so that both parties are aware of what needs to be done. Set the terms of engagement – you might need to meet once a week or once a month, depending on your requirements.

After carefully selecting your fractional CFO, you will be ready to onboard them and define initial priorities.

Conclusion

A fractional CFO will add a definitive layer of expertise to your already existing masterplan to take your business to the next level.

To make the most of their time with your business, it’s crucial for you to first understand what your business needs in terms of financial management. From there, you can easily onboard the perfect fit to scale your business sustainably.