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Is A Fractional CFO Right for Your Business? Roles, Benefits, and Costs

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Is your business experiencing significant growth or changes and in need of some financial advice, but not quite ready to hire someone full time?

Maybe, you’ve heard about fractional CFOs and wondered if they could help your business?

Perhaps you’ve never heard of them, but are eager to find out more. You’re in the right place!

When understanding whether a CFO is right for you and your business, we need to look closely at their function and responsibilities as well as the benefits and drawbacks of bringing them on board.

We also need to understand whether they will bring measurable value to your team with tangible results. In this article, we’ll examine all these factors, looking at:

  • What a Fractional CFO is
  • The various roles and responsibilities of a Fractional CFO
  • The benefits of hiring a Fractional CFO
  • The disadvantages of hiring a Fractional CFO
  • The cost of hiring a Fractional CFO
  • How to choose the right Fractional CFO
  • How to know whether you will benefit from a Fractional CFO.

Let’s get into it!

What is a Fractional CFO?

A fractional CFO is an outsourced financial expert hired by a business for a specific period to offer advice on financial matters such as financial systems, cash flow management, or strategic planning.

They are an effective solution for companies that do not require or cannot afford a full-time financial team, providing specialized assistance over a designated timeframe and serving as a cost-efficient alternative to a full-time hire.

The Roles and Responsibilities of a Fractional CFO

Let’s take a closer look at the specific roles and responsibilities of a Fractional CFO and in what areas they can provide assistance:

1. Financial Strategy and Planning

One area Fractional CFOs are equipped to provide expertise in are financial strategies and planning for your business.

Strategic financial planning involves identifying the goals of the business and making a tangible plan for how to achieve these goals.

Part of this process will involve identifying current challenges in the business, identifying what the key performance indicators in the business are to track success, as well as planning for any unexpected events.

It would be a mistake for a business to hand the responsibility of financial planning to accountants, as they are generally not equipped to deal with financial strategy and planning.

Financial strategy and planning is an area of executive decision-making, which can therefore be adequately handled by a Fractional CFO.

2. Financial Management

A Fractional CFO will also oversee the financial management of the business. Financial management refers to overseeing the financial resources of the business.

This may involve making investment decisions, net profit distribution decisions, and overall financial decisions. 

The Fractional CFO will therefore oversee the distribution of funds, oversee investments, and ensure an adequate supply of funds.

3. Compliance and Taxation

Tax and compliance is also an important part of the role of the Fractional CFO.

Some issues in this arena are dealing with changing regulations, as well as ensuring compliance with international rules and regulations if applicable.

This will also involve maintaining compliance records and streamlining tax procedures.

Having a Fractional CFO assisting in this area may save your business a significant amount of money long term.

Non-compliance cost US businesses $4 million in 2020, which is twice the amount it would cost to ensure compliance.

4. Stakeholder Communication and Support

Another role of the Fractional CFO is to communicate with investors.

Fractional CFOs will be able to communicate clearly with investors as to how the business is doing financially.

Therefore, having a financial expert on board who can explain financial decisions to investors provides confidence and increases communication flow.

5. Team Leadership and Management

Lastly, an important role of the Fractional CFO is to work closely with the CEO of the business.

This means the Fractional CFO is part of the executive team and works alongside the CEO to manage and lead the team.

Choosing a Fractional CFO who has management experience (such as serving on boards) is therefore beneficial as this means they will have a good understanding of the implications of management decisions on a larger scale.

The Benefits of Hiring a Fractional CFO

So what are the benefits of hiring a Fractional CFO? Let’s take a look at some of the advantages of hiring a Fractional CFO over a full-time CFO:

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1. Cost Efficiency

One benefit to hiring a Fractional CFO is that it is more cost-efficient than hiring a full-time CFO.

 Hiring a full-time CFO is estimated to cost approximately $250,000 in the US annually in salary and additional bonuses.

When hiring a Fractional CFO, you are able to save money on bonuses as well as on lengthy hiring and onboarding costs. 

In addition to this, there is always a risk that the individual you hire is not the right person for the job.

If you have hired a full-time CFO, this will be more costly for the company than if you have hired a Fractional CFO for a specified time period or project.

2. Flexibility

This leads to another benefit of a Fractional CFO: they provide a level of flexibility for your business where you do not have to commit to onboarding someone long-term!

Fractional CFOs can be hired on a project-by-project basis for a specified period of time or on a more long-term arrangement. 

Therefore, they are flexible to meet the specific needs of your business in a way that hiring an employee will not be.

This means that as your business needs to change, a Fractional CFO can more readily adapt to your requirements.

3. Expertise

By definition, Fractional CFOs are high-level financial experts and have expertise across a variety of industries. 

A Fractional CFO also usually belongs to an accounting firm with a vast degree of other expertise and resources.

Therefore, if businesses encounter more unique challenges, the Fractional CFO is able to draw on the expertise and resources of other individuals in the firm to assist the business.

4. Outside Perspective

This leads to the next benefit of hiring a Fractional CFO: they offer an external perspective that may bring your business fresh and profitable insights!

In addition, Fractional CFOs will be able to offer you unbiased advice and honest opinions as they aren’t an internal part of the company.

This unbiased advice will likely be superior and more accurate than someone who is an employee of the business.

Some Potential Drawbacks (or Things to Consider)

Now, let’s look at some of the possible drawbacks of hiring a Fractional CFO and what you might need to consider before you make the final decision:

1. Lesser Involvement than Full-Time CFOs

One drawback is that a Fractional CFO will possibly be less involved in the business than a full-time CFO.

As a Fractional CFO is only working for the business for a set amount of time, they arguably won’t be as engaged in the business as an individual who has been onboarded long-term.

However, this won’t necessarily be the case, and choosing the right person at the onboarding stage can help mitigate this possibility.

2. Confidentiality Concerns

In addition, the risk of confidentiality breaches is potentially higher if you are hiring a Fractional CFO who isn’t part of the company.

As the individual is only working for your business for a specified period and may work for other companies, the risk of information sharing with competitors is a valid concern.

 However, this is not a likely scenario, and ensuring you are onboarding the right person will again reduce this possibility.

There are also other steps you can take to mitigate this risk, including outlining legal consequences in the face of confidentiality breaches, as well as restricting access to company technology.

How Much Do Fractional CFO Services Cost?

At this point, you might be wondering just how much Fractional CFO services will cost you!

This is a factor that is worth discussing with the individual during the hiring process, as costs may differ greatly.

Some Fractional CFOs charge per hour, while others charge for a specified period (e.g. weekly, or on a project-based schedule).

However, hourly rates for a Fractional CFO are estimated to start at around $125 per hour.

Fractional CFOs are also estimated to work approximately 22 hours per week. However, this can also differ – usually varying anywhere from around 10 to 40 hours.

How to Choose the Right Fractional CFO For Your Business

An important point to consider is how to choose the right Fractional CFO for your business. Let’s examine the factors you should consider before making your decision:

1. Industry Experience

If you’re hiring an expert for financial advice, you’ll want to make sure they have sufficient expertise in your specific industry, with tangible results to show.

Experience in other industries in addition to their chosen field is desirable, as this means they will likely have a broader perspective.

A Fractional CFO should also be able to work well across all departments in your business such as marketing, sales, and operations.

In addition, you’ll want to ensure that they have adequate experience as a Fractional CFO, as opposed to only as a full-time in-house CFO.

These two roles require differing skill sets, with Fractional CFOs needing to have processes and methods in place that are able to translate across different industries.

2. References and Track Record

You’ll also want to check the references and track record of the individual you are hiring.

This means finding out whether previous businesses they worked for obtained positive measurable results, which will then give you confidence in their ability.

Finding out how someone has performed in the past will give you a strong indication of how they will likely perform in the future!

3. Alignment with Company Culture

Lastly, it’s important that the individual you hire is a right fit for the company as a whole.

You want to ensure that they are able to communicate well with the existing team and the current culture.

As the Fractional CFO is part of the executive team, they need to be able to gel well with the existing team and provide leadership that is in line with the existing values of the business.

When To Know When You Need a Fractional CFO

In light of all of this information, how do you know when your business could benefit from a Fractional CFO?

Good indicators are when your business is in need of specific financial advice (perhaps in the face of a significant amount of growth), when making a significant change, or when you need high-level specific financial advice for a certain project.

Fractional CFOs are also a good idea for your business if you don’t quite need a full-time financial advisor or cannot afford one.

In this case, a Fractional CFO is a cost-effective choice. Additionally, if you are after flexibility, then a Fractional CFO is a good fit for your business.

Final Thoughts

To wrap things up, a Fractional CFO can be a great addition to a lot of businesses.

They provide high-level financial expertise, and are highly adaptive as well as cost-effective.

Fractional CFOs cover a lot of ground in terms of financial expertise, from financial strategy and planning to financial management responsibilities – as well as overseeing tax and compliance issues!

When deciding whether a Fractional CFO is right for your business, you’ll need to consider the benefits such as flexibility and cost-effectiveness as well as the downsides such as confidentiality risk and potentially lower levels of engagement.

Lastly, to ensure you hire the right Fractional CFO for your business, make sure you look for industry-specific expertise and a proven track record of results!

Sources

The sources we reviewed to write this article.

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