Fractional CFO: What Is It — And Who Should Hire One?

A fractional CFO is a financial expert with years of experience who provides the job functions of a Chief Financial Officer but on a part-time basis. They often work with multiple clients on a subscription or project-basis.

Why would a business want to hire one? The role is growing in popularity for a simple reason: Many small and mid-size businesses need the expertise of an in-house Chief Financial Officer, but either they don’t have the funds available to make a full-time hire, or they don’t have enough work to warrant a full-time employee joining the team.

There are lots of terms for the same function: a virtual CFO, outsourced CFO, or a part-time CFO are other commonly used names. But regardless of what they’re called, they are finance professionals who provide financial services designed to help businesses reach goals and improve profitability. These highly trained experts in financial planning — some of whom work with a team — will provide the insight of a full-time CFO but charge significantly less.

What Does a Fractional CFO Do?

A fractional or virtual CFO is a trusted financial advisor who provides expertise — including strategic planning — that enables business owners to make calculated decisions to get closer to their business goals.

Often working with a team of accounting professionals, they can provide the transactional services of a bookkeeper or a traditional CPA firm, designed to keep a business in good financial standing:

• month-end close

• financial statements

• scheduled financial meetings

• revenue recognition

• management of banking relationships

However, if your business already has a bookkeeper or CPA on staff, a fractional CFO can work with them: they can supervise them, advise on best practices, and use their financial reports as a foundation for their consulting.

In addition, CFOs use the above listed services to gather information used to develop long- and short-term financial forecasts, cash flow management, financial analysis, and company-wide KPIs.

These last services will help you understand where your company is currently sitting financially, and how your company can make changes to achieve certain business goals. For example, your CFO can use a forecast to show you how certain business decisions will impact your future numbers. From there, you could see if you would have the money to make a new hire or if you may have to scale back a certain product line that isn’t doing well.

One of the major benefits of a CFO is that they help entrepreneurs understand the financial and non-financial metrics that drive their business, in other words, the things an owner can control, like whether to grow their team, use freelancers, or change their pricing.

Fractional CFO services include:

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

• performance by project

• team member and department performance evaluations

• customized department reports

• preparation for M&A

Why do startups use Fractional CFOs? 

A startup may want to hire a fractional CFO for many of the same reasons any business would — cost-effectiveness, flexibility and scalability — but startups also face unique financial challenges and opportunities that make them a good fit for fractional CFO services. For example, startups may want an interim CFO solution in their early growth stage. They’ll likely also need specialized expertise during critical phases like fundraising, mergers or preparing for an IPO. Because fractional CFOs work with a number of clients, they may have deep industry expertise and a broad perspective when it comes to crafting financial strategy. No matter the complexity of a problem, chances are, they've solved it before.

How is a Fractional CFO different from a traditional Bookkeeper or Accounting Firm?

Why not just hire a bookkeeper or a traditional accounting firm for your financial management? We get this question quite often.

The answer is: an advisory relationship. Fractional CFOs help with data-driven decision-making, based on forward-looking financial reporting; they don’t just help you file your taxes and prepare basic financial statements. In fact, because CFO services are customizable you can work with a CFO and keep your current bookkeeper.

Who should hire a Fractional CFO?

The first reason a business owner would want to hire a fractional or virtual CFO is cost: if your business requires the services a Chief Financial Officer but isn’t in the financial position to hire one full-time. It costs on average $229,000 per year to hire an experienced CFO. That doesn’t include vacations, bonuses, and other benefits.

The second reason? Business scale. At Summit Virtual CFO by Anders, we advise that if your business is under $1.5 million in annual revenue, a bookkeeper or traditional CPA firm will likely be more cost-effective in terms of handling a company’s financial situation. This will usually mean that startups and very small businesses will be better off hiring a bookkeeper or small CPA firm.

However, if your business is over $1.5 million in revenue and has grown to the point where you need a financial advisor, your business is ready for the financial expertise a fractional or virtual CFO could provide.

What about an upper limit? It's not so much about a certain revenue amount, although we often use $20-50 million as an upper range. It's more about the degree of complexity of an organization’s financial processes. When we see clients grow to the point where they are asking high-level financial questions at a majority of their leadership meetings, it suggests they could benefit from an in-house, full-time CFO on the ground and involved in day-to-day business decisions. They may even be ready to build out an entire finance team at this point. 

(We love when this happens: Here’s a story about a client that we helped grow beyond our services.)

If you have any questions about whether this role fits your specific needs, please feel free to reach out to us. You can book a free virtual CFO consultation where we can share more information about the services we offer and if we’d be a right fit for your business.