The Growing Trend of Fractional CFOs – An investment Worth Making
Since the pandemic, there has been a growing trend where small and medium size businesses are hiring fractional CFOs to plan and expand their businesses. In fact, the Wall Street Journal published an article on part-time CFOs and how it is heating up, particularly in the start up scene.
This article will explore the role of a fractional CFO (compared to full–time) as well as the importance of bringing one on.
Table of Contents
What is the difference between a CFO vs an Accountant?
Typically, when a business starts, they need to hire a bookkeeper and an accountant.
The job of the bookkeeper/accountant is to ensure they track all bank and credit cards statements, and all other account records of the company. After tracking, they will prepare the financial reports that will summarize the situation for the stakeholders. The role is more “backward looking” to provide insights as well as to ensure compliance, like filing tax returns.
A CFO, on the other hand, handles more of the strategic items and is more “forward looking.” They will work with the management team to craft a plan to obtain and realize the goals/objectives of the business. A CFO will also work on strategic initiatives and projects, including financing, operational improvements, forecast/budgeting, incentive, and stock option plans, liaising with stakeholders/board members and mergers + acquisitions.
If you are looking to expand or scale your business, it is immensely valuable to bring on a CFO to craft a plan and review your results against the plan. They will look at your finance from a holistic view to optimize your costs and maximizing your returns. In the long run, the CFO helps minimize risk and ensure business profitability.
What is a Fractional CFO?
A fractional CFO is experienced CFO who provides services for organizations in a part-time, retainer, or contract arrangement. The number of days worked will really depend on the project and the needs of the business. This offers a company the expertise of a high-end CFO without the full-time cost and increased flexibility.
Typically, this type of CFO has performed, expanded many businesses, and have a track record of success. They might even have been exposed to a variety of industries (i.e., technology, retail…etc.).
When should you hire a Fractional CFO?
The following are three common reasons why a business will hire a CFO:
1. Need for Developing a Strategic Plan and Tracking Progress.
If the company is preparing a strategic plan with goals/objectives, this would be the best time to bring a CFO in. The CFO will be able to provide more guidance to determine if the plan is realistic and reasonable. The CFO will then build a complimentary forecast/budget (which aligns to the strategy). With this forecast/budget, it will be easier for the company to track progress against plan.
2) Growth in the business
When your business is growing, a CFO is important to help you establish best practices. They help you set up the foundation of the accounting system so that it can manage the additional workload. When you expand into other countries, a CFO will be able to help you navigate the complex entity structure/set up and taxes. Finally, a CFO tends to wear multiple hats and can help oversee other department initiatives, like Law, HR, and Operations.
3) Have Stakeholders
When you have a number of stakeholders (i.e., board/investors) that require regular reports and updates, it is important to hire a CFO to liaise and meet the reporting requirements. In fact, if a company obtains a loan from a bank/creditor, it is generally required for the company to go through an audit. A CFO will be able to oversee this project and ensure a smooth audit.
With the current economic environment, it is more important to partner with a CFO. Initially, companies might want to hire a Fractional CFO for some flexibility. Additionally, Fractional CFOs will help navigate during these complex times, and help companies come out much stronger. As this is a trend that will not go away anytime soon, business owners and CEOs should really consider this as part of their strategy.
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