Fractional CFO: When to Hire A Strategic Financial Leader

Letter blocks spell out CFO, representing the topic of this article, the role of the fractional CFO.

Written by Beth Jacobs

January 19, 2024

A fractional CFO is a strategic financial leader who helps organizations build efficient financial processes to boost profits and enable better decision-making.

By offering chief financial officer services on a part-time basis, a fractional CFO empowers organizations that couldn’t afford and don’t yet need a full-time CFO to benefit from the expertise of a seasoned financial leader.

Many CEOs of small businesses and nonprofits start out handling the finance function by themselves, and when the duties become too cumbersome, they hire an accountant or bookkeeper, either on a part-time or full-time basis. Depending on the growth trajectory of the organization, this solution can work well for quite some time. However, if the business continues to grow, there will come a point when the existing processes begin to break down, leading to potential problems with cash flow, a decrease in profitability, and missed financial opportunities.

Here are some of the signs that you’ve outgrown your current financial systems and might need the help of a fractional CFO:

  • You’re billing clients late, which is leading to cash flow issues
  • You’re unable to match client payments to invoices with accuracy, leading to lost revenue
  • You’re unable to close the books in a timely fashion, leading to missed opportunities because you lack an up-to-date picture of your financial position
  • You don’t have consistent reporting on profits and losses, profit margin, projections and other key performance indicators
  • Your systems for tracking your financial performance are convoluted and/or inadequate

Read on to learn what a CFO does, the advantages of hiring a fractional CFO, and the most cost-effective way to leverage their support.

What Does a Fractional CFO Do

A fractional or part-time CFO (the two names are interchangeable) is often brought in to act as a bridge between traditional accounting and a more strategic, growth-oriented financial approach, providing the expertise and leadership necessary to support an organization’s financial health and profitability.

Some of the most impactful duties they take on are the following:

Optimize Cash Flow

Effective cash flow management is crucial for the sustainability and growth of a mid-sized company. Drawing on their years of financial leadership experience and insight from working in a wide variety of companies, a fractional CFO can look at the company’s financial health as a whole and plan for its future. Unlike a bookkeeper, who focuses on recording and reporting financial transactions and making sure all the numbers are accurate, a fractional CFO looks at the organization’s financial health as a whole and plans for its future. Some of the cash flow management changes they might make include optimizing working capital, managing debt and financing options, and identifying areas to improve cash conversion cycles.

By enhancing an organization’s cash flow management, a fractional CFO helps to ensure the organization has sufficient liquidity to meet its obligations and invest in growth opportunities.

Strategic Financial Planning and Financial Analysis

An experienced CFO can help business owners transition from basic accounting to more advanced financial planning and analysis. This involves developing comprehensive financial models, forecasting future revenues and expenses, and providing insights for strategic decision-making.

The CFO would also identify key performance indicators (KPIs) and metrics that align with the organization’s objectives, enabling the company to make more data-driven decisions.

Financial Processes and Systems Improvement

In an organization with a basic financial setup, the fractional CFO would play a critical role in establishing or upgrading financial processes and systems. This includes implementing or enhancing financial software and tools, streamlining accounting processes, and ensuring compliance with financial regulations. By building a more efficient and scalable financial infrastructure, the organization can manage its finances more effectively and prepare for the future.

Additional Special Projects a Fractional CFO Might Direct

In addition to overhauling an organization’s routine financial processes, it’s also common to bring in a fractional CFO to support short-term projects or to overcome financial challenges, such as:

  • Due diligence during a merger or acquisition
  • Restructuring debt or venture capital fundraising
  • Creating a multi-entity strategy
  • Interim CFO support while your in-house CFO transitions out of the job or goes on leave
  • Complying with new regulatory changes

Advantages of Hiring a Fractional CFO

Hiring a fractional CFO offers many advantages. One of the primary benefits is the lack of overhead and cost efficiency. By bringing in a fractional CFO, you avoid the expenses associated with a full-time executive, such as a high salary and benefits package. This makes it a financially smart choice for businesses not ready for or not needing a full-time CFO.

An outsourced CFO also brings top-tier expertise gained from experience across multiple organizations. This cross-industry experience means they have a wealth of knowledge and best practices at their disposal, which they can apply to your business. This is invaluable; it saves your team from the trial-and-error process of learning complex financial strategies on their own.

Additionally, the flexible terms of engagement with a fractional CFO are a significant advantage. There’s no long-term commitment required, allowing your business to adapt and scale the CFO’s involvement as needed. This flexibility is ideal for early-stage companies experiencing rapid growth or undergoing significant transitions.

How to Leverage a Fractional CFO to Drive Sustainable Growth

To maximize the benefits of hiring a fractional CFO and drive sustainable growth, consider the following strategies:

  1. Prioritize Relevant Industry Experience: When selecting a fractional CFO, prioritize financial professionals with experience in your specific industry. The nuances of financial management can vary greatly between industries, so an expert with relevant background can provide more targeted and effective financial guidance.
  2. Utilize their Expertise Efficiently: Often, you won’t need a full-time CFO. Their high level of expertise means they are adept at setting up efficient systems quickly. By applying their expertise, your organization should gain enough efficiency to not require their full-time assistance until significant growth occurs.
  3. Augment Your Existing Team: To leverage a fractional CFO cost-effectively, bring them in as a complement to your current accounting team. with this. A fractional CFO brings a higher level of experience and knowledge about financial management as well as fresh perspectives and innovative solutions from working in a wide variety of businesses.

Many of our clients engage a fractional CFO more intensively for the first six months to streamline financial operations with new systems and processes. Following this setup phase, they can scale back their involvement to around 20 hours a month. Junior finance team members can continue managing the day-to-day financial operations with guidance from the fractional CFO, while the management team can rely on the CFO for ongoing support in strategic planning and decision-making.

Fractional CFO FAQs

  • What are the requirements for becoming a fractional CFO?

A fractional CFO should have at least one year of experience as a full-time CFO or VP of Finance, and at least eight years of professional finance experience. They need to be comfortable with financial statements and financial reporting. A bachelor’s degree is required with a strong preference in finance, economics, or accounting. They don’t have to have a CPA, but it’s preferred.

  • How much does a fractional CFO cost?

Pricing varies throughout the fractional staffing field, but our fractional CFO services range from $200 an hour to $220 an hour, depending on how many hours per month you need. You can access senior financial leadership for as little as $4,400/month.

  • Is a fractional CFO worth it?

Engaging a fractional CFO is a smart investment that can produce a high return. The upfront cost can be easily recouped through improved profitability from optimized financial processes, streamlined cash flow, and strategic financial planning. In addition to avoiding inefficiencies, you’ll be able to capitalize on opportunities that only seasoned financial expertise can uncover.

Drive Your Business Forward with a Fractional CFO

At vChief, we provide flexible executive staffing solutions that add capacity, fill gaps, and drive growth. We place talented change-makers in fractional roles such as Associate Chief of Staff, Chief of Staff, Chief Operating Officer, Chief Financial Officer, Human Resources Business Partner, Integrator, and Executive Director. Our clients include startups, nonprofits, foundations, and corporate enterprises.

Custom Talent Matching

Our consultative approach helps uncover your most urgent needs and match you with seasoned finance professionals with relevant industry experience.

Flexible Support

Our fractional CFOs work on flexible month-to-month retainer contracts. You can cancel anytime with only 30 days notice. As your needs change from month to month, you can flex your hours up or down freely.

Fast Solutions

The average time from your first consultation to your fractional CFO’s first day on your team is just two weeks.

Schedule your free consultation today.

You may also like…