Some companies require the services of a CFO, but they don’t have the means (or need) to fill that role with a full-time employee. This is where a fractional CFO comes into play.
A fractional CFO works with companies to steer financial decisions in a direction that ensures good financial health. However, this is traditionally on a part-time basis only (and at a fraction of the cost of hiring a full-time employee).
But what exactly is a fractional CFO and how does a fractional CFO differ from a full-time CFO? Let’s break it down.
What does a CFO do?
A Chief Financial officer (CFO) is a senior executive who is responsible for driving the financial health of an organization. A CFO projects outcomes and identifies areas of risks, so the business can make adjustments for the best result.
Different from a CPA who relies on historical information, a CFO makes predictive recommendations through their financial analysis.
A CFO has six broad responsibilities:
- Financial planning and strategy
- Manage cash and cash flow
- Raise capital from banks and investors
- Drive performance in conjunction with COO and Sales
- Oversee Accounting and Reporting
- Lead mergers and acquisitions transactions
This is much broader responsibility than that of a Controller whose primary responsibilities are producing monthly financials, overseeing daily transactions, reconciling all accounts and closing the books each month.
Related Content: See what the qualities of a good CFO include
How is a fractional CFO different from a full-time CFO?
A full-time CFO has all the responsibilities of a CFO; however, in order to justify a full-time CFO, a company would need to have revenue of at least $75mm (this way the CFO has enough work).
A Fractional CFO does all the same things as a full-time CFO, but the scope of work can be tailored to the specific needs of a company. This could range from simply advising the CEO on financial matters to taking on 2-3 responsibilities of the full-time CFO.
A fractional CFO brings equivalent experience and expertise as a full-time CFO, but does not require the full-time salary, vacation, and benefits. Also known as an interim CFO, a fractional CFO is ideal for growing companies who need the strategic, financial guidance of a CFO, but do not require 40 hours per week.
The work might focus on specific financial challenges or may be to create a long-term approach for optimizing the overall financial performance and value of the business.
What does a part-time CFO do?
When you contract with a fractional CFO, you’re getting all the skills and experience of a regular CFO, but on a part-time basis (usually between 5 and 15 hours per week).
Here’s what a part-time CFO can do for your company:
- Legal & Risk Analysis – Even companies with a full-time CFO may have a need for a Fractional CFO who possesses specific expertise related to a one-time project need
- Financial Planning – CFOs excel at planning, whether it is building your annual plan or a 5-year strategic plan to attract investors
- Financial Analysis – Financial analysis can range from product/customer profitability, cash flow for 13 weeks or evaluating the financial strength of an acquisition target
- Accounting – The CFO owns the numbers and oversees the core processes and results of the Accounting Department
- Reporting – CFOs design the financial metrics and key performance indicators (KPIs) for the business. When done well, these numbers should create an appropriate anxiety to take action
On some occasions, companies may need a full-time CFO for up to six months. This is referred to as an interim CFO. An interim CFO helps with accounting services, as well as managing growth.
When To Hire a Fractional CFO
Companies hire fractional CFOs for a variety of reasons. Let’s take a look at some of the most popular reasons companies seek out a fractional CFO.
You can’t justify a full-time employee
Companies at $5mm to $75mm require some CFO services, but they can’t justify adding a high-cost, full-time CFO position to their payroll. Instead, an outsourced CFO usually bills by the hour (saving your company the high cost of salary plus benefits).
A fractional CFO can charge on an hourly basis or a monthly retainer (which typically ranges between $5,000 and $7,500 per month). Read more about the cost of a fractional CFO.
You need expertise for a one-off project
The CFO leads the way on a variety of legal matters. This could include some of the following activities:
- Navigating an audit
- Preparing for a sale or merger (Here’s how to write an exit strategy for your business.)
- Applying for a bank loan
- Adjusting a financial forecast
- Raising debt and equity funding
- Dealing with cash flow issues
- Deciding how to cut costs
Keep Reading: The 5 most common fractional CFO services
You need to temporarily fill in the gaps
If a company suddenly lost its CFO and needs a qualified executive to fill the seat while an extensive search is conducted, a fractional CFO can be an ideal solution. This need can also arise when a company is undergoing significant challenges that can make it more difficult to attract a full-time CFO.
We’re Your Fractional CFO
New Life CFO sources contractors with a wide variety of industry experience who have served at least ten years as full-time CFOs. If your company needs help with your financial big picture, we’re happy to discuss your needs. Give us a call or send us a message online.