What is a fractional CFO role and why to hire one

A fractional or outsourced CFO (chief financial officer) is an experienced finance professional who brings extensive business management expertise to a company on a part-time or project basis. Hiring one at the right time can add significant long-lasting value to a business.

Unlike a bookkeeper, who maintains the financial system and records transactions, hiring a fractional or outsourced CFO will enable the business owners and entrepreneurs bridge the significant financial information gap they are open to to make informed decisions.

For some businesses, hiring a full-time CFO is beyond their needs and financial capabilities, despite the many apparent benefits gained from the leadership and strategic knowledge of a hire.

A feasible and recommended alternative to a full-time resource is a fractional CFO. This has the advantage of bringing a senior-level financial expert to the table but at a fraction the cost of a full-time resource. A fractional arrangement can work well indefinitely, and right up until a full-time CFO is needed.

What areas can a fractional/outsources CFO resolve

  1. Profit and cash flow optimization
    Includes producing accurate and timely financial statements, management reports and projections, forecasts, budgets, and cost models that are all based in economic reality. By identifying the levers that drive performance they can be calibrated to maximize efficiency, lower costs and optimize profit and cash flow. Owners of businesses use this financial information to avoid costly mistakes.
  2. Cost-Effective Expertise
    A fractional CFO can bring substantially all the benefits in terms of skills and knowledge of a full- time resource, at significantly less cost.
  3. More time for owners
    Hiring a CFO to perform the financial and administrative functions of the business, frees up the business owner so they can focus on other value-enhancing aspects of the business.
  4. Obtaining of capital
    Running out of cash is one of the top reasons why startups fail. Besides having a tight grip on company finances and cash flow management, a growing company will need capital injections to grow or to sustain operations in a downturn. Fractional CFOs can assist with fundraising or with debt (e.g., negotiating bank loan terms).
  5. Budget creation and allocation
    Budgeting’s primary function is to ensure an organization has enough resources to meet its goals. High-growth companies often find themselves in the position of having to decide where cash is best spent. A company that does not yet have a full-time CFO can utilize a fractional one to evaluate the project and support decisions during intensive, time-sensitive projects.

There are several other areas in which expertise of a fractional/outsourced CFO can be used, such as optimization of internal processes and controls, greater perspective, filling a temporary leadership role (acting as interim CFO) and other, but most important areas have been stated above.

Companies should consider engaging a CFO, whether fractional or full-time, when the size and complexity of revenue begin to overburden the owner or the existing finance team (or accounting department). Often, at this stage, companies may not be complex enough to require a full-time CFO or have the budget to justify one. A fractional CFO is a more cost-effective solution for meeting needs as they arise.

To summarize, a fractional CFO brings all the benefits of a full-time resource, but at a fraction the cost. They work for an agreed-upon amount of time and on an ongoing basis. Perhaps the two biggest benefits, however, are profit and cash flow optimization as well as how the CEO can transfer the financial and administrative burden to the fractional CFO, and thus free themselves to work on other critical aspects of the business.