What Is a Fractional CFO and Do I Need One?
A confirmation email has been sent to your email.
If you're a startup founder preparing to fundraise, have started generating significant revenue, or are planning for an IPO, it's time to consider hiring a chief financial officer (CFO). A CFO heads the finance department and develops and implements financial strategies that keep a company growing. However, a full-time CFO is probably too costly until you have hundreds of employees. That's when hiring a fractional or part-time CFO might be a better option.
What Does a Fractional CFO Do?
A fractional CFO is a senior finance professional who manages the critical strategic financial analysis startups need to succeed, including:
- Helping to identify and track key performance indicators that are important for understanding a company's financial health
- Creating and managing the company's annual budget
- Forecasting revenue and expenses, to help inform business strategies
- Developing and supporting fundraising strategies
- Managing a company's cash runway and spend
- Reviewing vendor contracts and offering advice during negotiations
What Does a Fractional CFO Not Do?
Just like a full-time CFO, a fractional CFO can help the company’s management make strategic decisions, backed by metrics or financial insights. But a CFO generally isn't involved in day-to-day accounting or bookkeeping. Instead, those are typically managed by an external service provider, or an in-house team.
When Should You Hire a Fractional CFO?
A good time to hire a fractional CFO is when your company is:
- 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. So, if you're preparing to raise a round in the next three to six months, a fractional CFO should be on your radar.
- Needing a clearer picture of the future. Bookkeepers and accountants can help keep your business’s historical financial transactions organized. A fractional CFO analyzes your historical financial reports and uses their industry expertise to help forecast and model your business’s future.
- Needing financial systems that will grow with your business. A fractional CFO can suggest financial management systems and a financial stack that you can implement with long-term growth in mind. Getting the proper framework could help your company save time and money later.
How to Hire a Fractional CFO
Fractional CFOs, also called outsourced CFOs or virtual CFOs, can be hired as individuals or as a team of CFOs who provide CFO services. When looking at an individual or team, be sure their experience and background match your company's needs. Some questions you may want to consider asking a potential fractional CFO include the following:
- Have you helped similar companies with the same goals or challenges as our company?
- Are you familiar with our company's business model and the standard critical metrics in our industry?
Building Your Finance Team
It's never too early to hire a fractional CFO. Pilot's CFO Services team works with many clients that have yet to launch or have any revenue. The flexibility of the fractional CFO engagement, whether it starts at five hours or goes up to 25 hours a month, allows a CFO to help set up your startup to succeed in any climate and to be there across the early stages of the company. In addition, their role will continually evolve in nature and depth of engagement as your company scales, which increases the probability of future success.
Now is the time to reach out to a CFO to help your company prepare for the uncertainty of 2023 and set your business up for success in any economic climate. Book a 1:1 CFO Office Hours session where you can connect with a CFO to ask questions about the current macroeconomic conditions, your company's operating strategy, and more.