Why you should hire a Fractional CFO
In the past decade a new trend has been closing the gap between the large companies and small and medium enterprise (SME) helping them compete head-to-head without much disadvantage. This trend is hiring a fractional CFO.
A fractional CFO is an experienced finance professional who will bring well-crafted expertise and essential skillset of a large company Chief Financial Officer to a smaller company in need of a boost. It is important to note that a CFO position is not only an accountant and financial expert but rather an asset that will help improve a company’s growth. CFOs are proficient at developing and implementing a business strategy, managing operational issues, change events, and market expansions that are constantly experienced by many smaller companies. CFO’s can be either part-time (or fractional) positions or interim positions or even special purpose engagements.
Similar to a full-time CFO position, a fractional CFO provides the same level of specialized expertise with the added bonus of flexibility and favourable cost advantages to serve the needs of smaller businesses. Certain companies may not be large enough to require a full-time CFO, which is when a fractional CFO can step in. They help manage financial situations in professional and calculated manners. A modern-day CFO is a diverse asset that can aid with a myriad of tasks, including:
- Building financial processes and managing teams;
- Working with key strategies to correctly understand and evaluate revenue opportunities;
- Supervise management reorganization or other change situations.
What can a Fractional CFO assist with?
A fractional CFO can assist with both, financial and non-financial tasks. The role of a CFO is complex and can be deconstructed into key specialized areas.
Businesses Seeking Funding
An aspiring company is bound to need financial resources to fuel its growth or to maintain operations during a downturn. Fractional CFO’s would be useful to assist with fundraising (generally starting with Series B or with debt, but could be as early as seed financing). Due to their expertise and financial understanding, they can offer extensive insight to skillfully deduce the numbers that are being negotiated which will help to analyze how the investment can help business.
Complex Resource Allocation Decision-Making
Many companies are challenged with the issue of deciding on how to allocate cash spending. A fractional CFO is able to evaluate the project at hand and aid in making time-sensitive decisions to increase company growth. For example, a fractional CFO can help to decide whether to pursue an acquisition or invest in an organic growth, like – for instance - altering distribution channels.
Business Processes Optimization
Internal processes are the ties between a company’s performance, operations, and approaches. It is a CFO’s duty to comprehend the cost-effectiveness of all the steps and how to guide their growth. Responsibilities include the evaluation of all operations and the understanding of their effect on the profitability and ultimately the cash flow of the company. This aids with keeping up the company’s performance and shareholder returns. Fractional CFO’s ensure time efficiency through perfecting business processes and standard operating procedures.
Business Restructuring
A CFO is an asset during periods of restructuring as they are able to detach themselves from the business in order to help the new vision come to light. They are pivotal in understanding cash flow and reorganization to benefit and grow the company’s finances.
Provide Missing Leadership Resources
Generally, during leveraged buyout processes companies will opt to alter their leadership. A CFO is helpful during times like this as they are able to take charge to be placed as interim leaders. This is beneficial to the company as it will not halt growth opportunities during difficult managerial times. The experience that a CFO will bring to the company is unmatched and will provide invaluable resource to keep the business running smoothly.
Implement Regulatory Changes
A fractional CFO is an important resource during periods of difficult regulatory transitions as they are able to relieve stress from the CEO and the senior management team by handling crucial tasks. There are extreme financial and business-reputation consequences to under-reporting rules, therefore it is important to be prepared for times like this. A fractional CFO is well-versed across numerous industries and regulatory environments, and their broad expertise will allow them to transfer their knowledge and train personnel.
Provide Support to the Board of Directors
A fractional CFO can serve as an intermediary who is able to provide specialized and guided expertise in Board meetings. The process can be beneficial as a Chief Financial Officer will provide a fresh outlook and will be able to communicate the prominent points through the company’s hierarchy. As a fractional CFO does not have any personal ties to the company, they are free of conflicts of interest which allow them to be placed as an interim or permanent board member if needed.
When does a Company Need a Fractional CFO?
The right time to hire a fractional CFO depends on the company. Companies at various sizes and phases of growth have different needs when it comes to hiring a CFO. These growth phases correlate with four typical skillset required from a financial resource varying from a basic bookkeeper to a traditional CFO expertise.
Stages 1 and 2: Bookkeepers and Controllers
In the early stages of business growth, the company is mostly concentrated on transactional bookkeeping and occasional financial planning taken care by a Financial Analyst or Controller. While most companies at this stage don’t see the need for a CFO, a part-time CFO (even for a few hours a month) could bring a necessary link between the company’s operations and financial performance, a discipline in following the strategy, external relationships and expertise and maintain relationships with the banker, lawyers, accountants, insurance agents, etc. A fractional CFO could be of use on an interim basis if a company is planning to expand, restructure, acquire other companies, or look for an investment.
Stage 3: Fractional CFO
Fractional CFOs are most prominent at the third stage of growth, as this tends to be the most advantageous point of entry to optimize the growth of companies. Generally, at the funding rounds, when the complexity of revenue overburdens a company's finance team, it is definitely a good time to engage a fractional CFO. The CFO will be able to manage and supervise the team while providing their expertise to promote growth. As fractional CFOs understand key pain points, they are able to address any current issues as well as being able to anticipate future events.
Typically, at this stage companies may not have the budget to justify a full-time CFO, this is why it is beneficial to engage a fractional CFO as a more flexible and cost-effective solution.
Stage 4: Full-time CFO
When the enterprise reaches revenues of around $30-$50 million, their accounting and finance needs become increasingly complex. This phase is usually characterized by rapid revenue growth, increasing pressure to delegate responsibilities and a much need to investment into continuous development and performance of the finance function. A CFO can be a focal point to manage relations with company’s investors and lenders. As the company takes on investments or borrows more money from the capital markets, some will make it conditional to the company having a professional CFO.
Profile of a Fractional CFO
The day-to-day operations of a fractional CFO may be altered based on a company’s needs and tasks. Overall, when looking for a CFO strong emphasis should be placed on:
1. Track-record of previous CFO roles
2. Industry experience (even if it was in a different area)
3. Experience working with various sized companies
4. Essential skills to instruct and mentor team members
5. A good record for managing responsibilities
All of these characteristics put together will make for a great fractional CFO team member who will optimize growth and push a company to the next level.
About CFO Masters
CFO Masters is a network of select fractional, interim, part-time, and temporary Chief Financial Officers, strategically positioned to focus on growing and transforming businesses on as-needed, on-demand basis. Founded in 2016, CFO Masters offers an affordable alternative to hiring a full-time CFO that can make a big impact on your business. For more information, please visit CFO Masters.
