Is A Fractional CFO Worth It?

Small business owners who have never worked with a good fractional CFO may wonder whether they are worth the expense. Having the right team at the right time is critical to running a successful business – but is this the right time for you? Using my experience with 200+ small businesses at CFOshare, here are the situations where I have seen a fractional CFO provide significant value and those where they did not.

Why use a fractional CFO?

Fractional CFOs are most valuable for growing small businesses under $50M in revenue, facing uncertainty and risk. Typical businesses that meet this criteria include:

  • Small businesses planning growth
  • Startups raising outside capital
  • Businesses preparing for exit or acquisition
  • Companies with profitability challenges, low cash, or other forms of distress

Managing growth

Growth involves high uncertainty and risk, which fractional CFOs manage through best practices like budgeting, financial forecasting, and variance analysis. These tools facilitate cash flow management and anticipate blunders that could cost the organization hundreds of thousands of dollars.

Fractional CFOs keep you accountable for performance. CEOs and entrepreneurs tend to be overly optimistic, throwing good money after bad with the hopes that performance will improve (sound like someone you know?) Good financial management means grounding the organization in data and balancing the executive team’s optimism with skepticism.

Working with multiple small businesses also brings macroeconomic insight into what other small businesses are experiencing. A part-time executive gives your business perspective and intel from outside the organization. At CFOshare, we have an economic insights team committed to keeping our CFOs informed of the latest trends, predictions, and business strategies.

Collaborating with a financial team of experts.

Fractional CFO agencies often deliver a team of financial professionals rather than a single individual. An accountant, an analyst, and a project manager should support your part-time CFO in a full-service engagement. This team ensures you pay an affordable blend of hourly rates rather than waste a CFO on mundane tasks they may be overqualified to perform.

Preparing for exit

Selling your business means putting your best face forward. Part-time CFOs will help determine your exit readiness by:

  • Evaluating Your Quality of Earnings
  • Valuing your business using industry data
  • Coaching you on the best tactics to sell your business
  • Sitting in on management meetings to professionally address buyer concerns and questions.

Selling your business without a fractional CFO is possible but typically means a lower payout or worse terms.

Your business is distressed.

Downturns are normal in business, and companies rarely recover by following the same strategies and tactics that got them there in the first place. In other words, “selling more” is rarely a successful solution.

Due to their broad experience, Fractional CFOs have navigated dozens of downturns caused by various causes. Consulting with a part-time executive helps your business pivot in the right direction and recover faster than figuring it out alone.

Reasons to avoid fractional CFOs

Fractional CFOs are not for every small business. Many businesses are burned by hiring a fractional CFO for the wrong reasons. Common traps to avoid include:

  • Hiring a CFO to clean up your books.
  • Hiring a part-time CFO to pitch investors for you.
  • Outsourcing investor pitches to your fractional CFO.
  • Expecting a fractional CFO to be on-site all the time.
  • Hiring a CFO to manage a profitable lifestyle business.

Do not hire a fractional CFO to clean up your books.

Part-time CFOs are overqualified and overpriced for routine bookkeeping duties. Cleanup of accounting systems should be performed by fractional controllers or accountants, not CFOs. Anyone marketing themselves as a fractional CFO but performing bookkeeping duties is either over-charging or using the wrong title for themselves.

Do not outsource investor pitches to your fractional CFO.

It is illegal for contractors to solicit investors on your behalf unless they hold an investment banking license (which is uncommon for Fractional CFOs.) Part-time CFOs may support you by developing pro forma financials, building pitch slides, answering investor questions, and coaching you on your pitch. However, any Fractional CFO willing to pitch investors in your place does not understand federal investment regulations.

Do not hire a fractional CFO expecting investor connections.

Although fractional CFOs are connected to many investors, these connections are perks, not benefits. Small businesses seldom land investors through their part-time executive connections, making the ROI very low. Instead, you should vet your fractional CFO based on experience and success supporting owners during an investment round.

Do not expect a fractional CFO to be on-site all the time.

Although some on-site time is always valuable, the best fractional CFOs work remotely, often 100% of the time. Good part-time CFOs are excellent remote collaborators and highly organized in their home offices. They do not waste your billable hours driving through traffic.

Do not hire a fractional CFO to manage a profitable lifestyle business.

Fractional CFOs have little to offer a business that is coasting through profitability. Successful lifestyle businesses instead need efficient accounting processes with solid controls to avoid fraud and report changes to profitability, if any. A fractional CFO is overqualified to perform such duties.

Are Fractional CFOs worth it for your business?

Don’t miss out on the benefits that a fractional CFO can bring. Take the first step towards maximizing your financial potential, and schedule a conversation with us now!

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