What Are Fractional Services?

Fractional services are professional services offered on a part-time, for-hire basis. In this article, we are going to focus on fractional services in reference to fractional CFOs (Chief Financial Officer), but it is important to note that there are other forms of fractional services such as Fractional CMOs (Chief Marketing Officer), fractional COOs (Chief Operations Officer), fractional CTOs (Chief Technology Officer), and so on. Basically, any C-suite executive can be hired on a fractional basis.

Fractional CFO vs. Interim vs. Full-Time CFOs

Most of you are probably aware of what a traditional, full-time CFO is. A full-time CFO is hired onto a team and is usually an employee with benefits. Their salary, on average, will be $229,000 plus the value of vacations, bonuses, and benefits.

On the other hand, a fractional CFO will offer the same services that a full-time, in-house CFO will (we will explain these services later on) but at a fraction of the time and cost. Why? Because fractional CFOs are often hired by small to medium-sized businesses that don’t quite have the workload or budget for a full-time CFO. So, they don’t necessarily need or want a full-time employee. However, these businesses are still looking for the expertise that a Chief Financial Officer can offer. These businesses opt for fractional CFOs (also known as virtual CFOs, outsourced CFOs or part-time CFOs).

Interim CFOs can sometimes be confused with fractional CFOs, however, this role serves an entirely different function. Interim CFOs are generally hired on a short, contract basis after a full-time, in-house CFO leaves a team. The interim CFO takes over the responsibilities of the prior CFO until a permanent replacement can be hired.

What Fractional Services Are Offered by Fractional CFOs?

A fractional CFO is a trusted financial advisor who provides insights to business owners to help them make calculated decisions to increase profitability.

A mix of financial strategies and strategic planning helps business owners reach their business goals. Virtual CFOs can provide “basic” accounting services that a bookkeeper or a traditional CPA firm also offers:

• month-end close

• financial statements

• scheduled financial meetings

• revenue recognition

• management of banking relationships

Beyond these basic services, virtual CFOs use the above listed services to gather information used to develop long- and short-term financial services such as cash flow forecasting, cash flow management, financial analysis, and company-wide KPIs.

These fractional services and financial reports will help you understand the current cash position of your business and what business decisions you can make to achieve certain goals. For example, a cash flow forecast can show you how certain business decisions will impact your future financial position. Having this in your back pocket will help you decide whether to hire a new engineer or invest in that website redesign.

One service that really sets a fractional CFO apart from other financial professionals for hire is that a CFO can help you understand both financial and non-financial metrics that influence the cash position of your business. One example of this is a CFO hired for a transportation and logistics company can calculate the average number of trips one semi-truck can make in a week, and the average amount of revenue generated from one trip. A CFO of a digital agency might calculate the difference in revenue the average blog post generates versus a client’s total website redesign. A cannabis retailer might find that their CFO runs numbers to determine the number of orders necessary to reach a certain revenue goal. And a CFO hired by a law firm might calculate the number of won cases necessary to hire another partner.

Here are a few other common fractional services you can expect to be offered from a virtual CFO:

• incentive plans (phantom stock, esops and variable pay)

• performance by project

• team member performance evaluations

• department performance evaluations

• customized department reports

(If you’d like to learn more about what to expect when working with a fractional CFO, you might like to read our recent blog post on that topic.)

By outsourcing the role of a CFO, a small business can save money that they don’t have to spare for a full-time hire but still receive the financial services they need to accelerate the growth of their business. Fractional executives, like a fractional CFO, help businesses meet the talent needs they have without putting unnecessary burden on their budget and business as a whole.

If you’d like to learn more about our Virtual CFO services, reach out to us for a free consultation.