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What Is a Fractional CFO and Do I Need One?

What Is a Fractional CFO and Do I Need One?

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Pilot Team
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Published: 
June 28, 2022
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What Is a Fractional CFO and Do I Need One?

Founders often spend years managing their companies’ operations, marketing, and finances. However, your company’s needs will change as it grows, and there comes a point when you’ll want to hire dedicated experts and leaders. 

A chief financial officer (CFO) will head the finance department, and they can develop and implement financial strategies that keep your company growing. But for an early-stage startup, a full-time CFO might be overkill—and a great CFO can be an incredibly expensive hire. That’s where a fractional CFO comes in. 

What Does a Fractional CFO Do?

A fractional chief financial officer is a senior financial professional who offers high-level financial analysis and advice. Working with a fractional CFO can give you the leadership and insights that you need to manage your company’s finances or prepare for an upcoming funding round. However, you can hire a fractional CFO on an hourly, project, or subscription basis rather than taking on the large and long-term cost of a full-time hire. 

A few examples of fractional CFO services include: 

  • Help identify and track key performance indicators that are important for understanding your company’s financial health
  • Create and manage the budget
  • Forecast revenue and expenses
  • Review vendor contracts and offer advice during negotiations
  • Develop and support fundraising strategies

As with a full-time CFO, a fractional CFO can also explain the significance of these financial insights and metrics to the company’s leaders so they can make strategic decisions. But a CFO generally isn't involved in day-to-day accounting or bookkeeping services. Those may be managed internally, outsourced to a service provider, or covered by a combination of the two. 

Why Hire a Fractional CFO?

Many startups can benefit from the guidance and support that a CFO offers. But they might not be in a position to hire a full-time CFO—the median total compensation for startup CFOs is over $300,000.

Often, a fractional CFO is brought in to address a particular financial goal or challenge, such as when:

  • You’re raising money. The months leading up to a new funding round can be particularly hectic. A fractional CFO can help founders understand the pros and cons of different funding options, create financial reports, assist with pitch decks, and answer investors’ questions. 
  • You struggle with cash crunches. Managing cash flow can be vital for a business’s survival. If you find yourself struggling, a fractional CFO may be able to suggest ways to smooth your cash flow and improve profitability. 
  • You don’t have a clear picture of the future. Bookkeepers and accountants can help keep your business’s previous financial transactions organized. A fractional CFO can use your financial reports, competitive analysis, and their expertise to help forecast and model what your business’s future will look like. 
  • You need financial systems that will grow with your business. A fractional CFO may be able to suggest financial management systems and a tech stack that you can implement with long-term growth in mind. Getting the right framework set up early could help you save time and money later.

How to Hire a Fractional CFO 

Fractional CFOs are also sometimes called outsourced CFOs, or virtual CFOs if they only work remotely. You can find and hire an individual who offers these services as a contractor. There are also companies that specialize in matching businesses with fractional CFOs, or who have a team of CFOs that you may be able to engage. Additionally, look into companies that offer a range of back office support, including bookkeeping, accounting, and tax preparation.

When comparing options, consider the individual or business’s experience and how it relates to your needs. For example, you might have an opportunity to hire a fractional CFO who ran a successful multinational public company for years, but their experience won’t necessarily translate into helping you prepare for a Series A.

Some of the questions you may want to consider or ask are:

  • Have they helped similar companies with the same goals or challenges?
  • Are they familiar with your business model and the key metrics that are common in your industry? 
  • Will you be working with them one-on-one, or will there be a team working with you as your fractional CFO service?

You’ll also want to interview candidates and service to make sure they’ll be a good fit with your leadership team. 

Building Your Finance Team

Hiring a full-time CFO rarely makes sense for early-stage startups. At first, founders may take on many of the financial tasks themselves. As your company grows, hiring a third-party bookkeeper or accountant is often a requirement, and some companies choose to bring one or both these responsibilities in house. 

A controller is often the next hire or contracted service. Controllers lead the accounting and finance teams and help set your company’s accounting principles and internal controls. At some companies, the controller also offers the types of strategic and forward-looking guidance that generally comes from a CFO. 

You might decide to bring on a fractional CFO once the budgeting, forecasting, and analysis becomes too complex or is taking founders’ attention away from other tasks. It might make sense to hire a CFO if you’re planning on going public in the next few years, or if you’ve raised hundreds of millions of dollars. But, in the meantime, you could try to keep costs down by working with a fractional CFO on a monthly or annual basis.

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