What is a fractional CFO?
A fractional CFO is a part-time CFO for small companies. It is a cost-effective way for small businesses to utilize professional finance and accounting without the commitment of a full-time employee. Thanks to cloud-based bookkeeping, fractional CFOs have recently become accessible to even the smallest companies.
Why would I hire fractional CFO services?
There are many reasons a small business would benefit from professional financial strategy. These include:
- You are too busy to perform bookkeeping and accounting.
- Forecasting has become too complex or too stressful.
- You are entering a new market or pursing vertical integration.
- You are pivoting your business plan and results are yet uncertain.
- You are bringing on new equity partners.
- You are raising outside equity capital, or
- You just closed an investment round and need to manage cash smartly.
- Growth is limited by cash tied up in inventory or receivables
- You want to get new debt or refinance old debt.
- You are thinking about merging or acquiring another business.
There are many more reasons to enlist fractional CFO services, so it’s best to discuss with an advisor, your board of directors, or a finance professional.
What fractional CFO services do small businesses need?
Part-time CFO services perform all the same functions as a full-time CFO. These include:
- Routine bookkeeping and month-end accounting
- Forecasting cash, revenue, expenses and profit
- Annual budgeting
- Monthly budget vs. actual analysis
- Strategizing with management and providing financial expertise
- Negotiating debt arrangements
- Maintaining relationships with banks, lenders, and investors
- Analyzing customer acquisition costs and lifetime values
- Working with CPAs on annual tax filings
- Performing due diligence and valuation on business acquisitions
How do I choose a fractional CFO?
Here’s some tips for hiring a part time CFO:
- Look for an expert in your industry. Manufacturing, transportation, distribution, real estate and construction are very financially complex and require a specialty fractional CFO. SaaS, retail, and consulting services are simpler but still deserve an experienced professional.
- Attend workshops. This gives you an opportunity to learn the part time CFO’s style before paying for services.
- Interview three fractional CFOs. Get a feel for their style:
- Do they seem like a team player, or just a contractor?
- Do they listen to you and understand your business?
- Are they recommending a custom service list, or putting you in an “off the shelf” product offering?
- Ask for referrals. Any experienced professional can provide these.
How much do fractional CFO services cost?
It will vary for each business. There is no “one-size-fits-all” solution. Part-time CFO services are typically priced $150-$500/hr. What you don’t know is how many hours a fractional CFO will quote you. Individual efficiency and quality vary quite a bit, which affects your overall cost.
Major factors that affect your overall cost are:
- Your business size. Larger businesses require more work and have a higher cost.
- The complexity of your balance sheet. Inventory, deferred revenue, or multiple bank accounts add bookkeeping work and increase cost.
- The potential impact of financial strategy. Brokering a big debt deal, helping raise equity funding, studying your gross margins, or analyzing your cost of growth could make or break your business. Therefore, a part-time CFO will put in more work and careful attention.
- The services you select. Many small businesses already have a bookkeeper or accountant. In that case, a fractional CFO will focus on strategy and forecasting, lowering your costs.
- The team behind your CFO. A CFO with a team to delegate work to will be less expensive than an individual.
Good fractional CFO consulting will not overburden your company with services you do not need. As you shop for fractional CFO consulting services, check if you are being quoted the right amount of work or if instead you are being quoted excessive and unnecessary tasks.
Want to speak to a fractional CFO?
Contact us here to see if your business would benefit from part-time CFO services.