Everything you need to know about becoming a Fractional CFO

A fractional CFO is a financial strategy professional who works with businesses part-time. They provide the same services as a full-time CFO but on a short-term basis. An experienced CFO, such as a financial professional, can help businesses, especially startups, make better decisions and develop strategies for long-term success. They can also guide the organization's board of directors and other finance professionals. With their expertise, they can help businesses make sound financial decisions that will benefit them in the long run.

Why do startups hire a fractional CFO?

Unlike a company that hires a full-time CFO in a corporate setting, a fractional CFO is not a part of the company as opposed to a staff member of a company. When it comes to startups, they benefit from hiring a fractional Chief Financial Officer who provides expert financial services on a contract-to-contract basis or project basis. Usually, a startup hires them at a stage when CFO services are needed, and they are dismissed when they’re not required.

The majority of the time, fractional CFOs work with multiple startups team. Contrary to full-time CFOs, who continue to work for the company as employees with all the benefits and duties. A part-time CFO is cost-effective and necessary for companies, especially regarding raising capital, equity funding, overall management of resources, business decisions, or overcoming strategic challenges. The responsibilities of a CFO impact every department within a company.

Services fractional CFO services offer to startups

The role of a CFO is vital to any rapidly growing business, including startups. The scope of services and support that a CFO can genuinely change and enhance the value of a company. The following are services and responsibilities that are expected from a fractional CFO:

  1. Financial consulting

As companies begin to grow, so do their finances. It becomes difficult to conduct accurate reporting and to account for each finance. This is the most prominent role of the fractional CFO. The fractional CFO must provide analysis and manage the company’s wealth.

Sometimes the fractional CFO is hired to sort very complex financial transactions. For instance, auditing a startup that has existed for a few years becomes too complicated for a mere accountant. In this case, the services of a CFO are required.

  1. Optimizing internal processes

Internal processes assist in implementing strategies to create operations that will translate to the company’s performance. These processes would be broken down to the most minor financial transactions by the experienced fractional CFO.

These transactions and financial reporting are then analyzed and optimized by the CFO so that the processes are carried out successfully without wasting company funding.

  1. Raising capital

Growing startups need to raise capital to afford the luxury of having an in-house CFO simply because it could be over their budget. Paying another Chief ranked employee might be too costly for a young business as they already have to set aside funds for the CEO.

The fractional CFO assumes an otherwise vacant position in the company. Without the input of a fractional CFO, a company could suddenly go bankrupt because of a lack of proper financial strategies—a service provided by the fractional CFO.

  1. Restructuring an organization

To restructure a company, you need an individual who can optimize your company’s capital structure and cash flow. The CFO has to be able to improvise and adapt a company’s operations to fit the new vision during restructuring. CFOs are also actively involved in internal processes.

  1. Navigating company audits and financial transactions 

As the company grows and expands, auditing becomes a necessary part of the business operation. This is not only done to understand the company’s financial behavior or ensure its economic well-being. There comes a time when auditing becomes legally mandatory.

Audits inspect every financial transaction the startup makes, including cash flow, taxes, purchases, etc. These inspections are usually very detailed, and many startup founders don’t have the experience to traverse this process.

Hiring a fractional CFO with experience in doing these things would make this process seamless for the company.

  1. Budget allocation and financial decision making

Fast-growing companies usually need help deciding where money should be best spent. For instances where the company is chasing an acquisition, the CFO has to analyze the project and make decisions during high-intensity periods in the business year.

  1. Financial growth

The fractional CFO allows the company staff to focus on other critical revenue-generating tasks. At the same time, they handle the financial processes that would have proven too difficult for the average team.

This division of labor ensures that all parties operate at their maximum and focus on tasks that better suit their expertise. This specialization increases overall productivity guaranteeing the company’s steady growth.

Which business would need a fractional CFO?

Fractional CFOs are highly skilled individuals whose skills can determine the fate of a company. They play a crucial role in the development of a startup's finances. Despite the importance of the services of fractional CFOs and the fact that these professionals tend to work for all kinds of businesses, the need to hire one depends mainly on where you are in your business, as well as other long-term goals.

CFO, a fractional one, can handle the complexities of selecting prospective investors and provide paperwork that will boost investor trust, even for organizations that don't know how to approach possible investors.

Other people who might need to hire a fractional CFO include persons going through the auditing process, persons looking to create short or long-term financial goals or small business owners who have too much responsibility and are looking to delegate the financial aspect to someone else.

Key takeaway

The fractional CFO is an experienced finance professional that offers services that are not easily sourced. It is a niche profession that dictates every financial action the company takes, much like a controller for financial decisions.

The fractional CFO is an affordable solution for a company’s complex financial undertakings. They offer a wealth of experience in helping the company sort through a tedious yearly audit, monitoring acquisitions and projects, performing due diligence, and preparing company financial documents related to a merger in hopes of reaching future monetary goals.

When the company grows tremendously, they usually reach a point when it becomes more sensible to employ a permanent CFO instead of an interim CFO. However, using the services of fractional personnel is excellent for growing businesses like startups.

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