Many small businesses, when they launch, tend to overlook complex financial issues, focusing instead on profit and loss, rudimentary balance sheets, and other basics. Yet a more holistic and strategic approach to finance is crucial for evolving a firm into a sustainable, mature entity, especially when aiming for external funding or rapid growth. This article, authored by Jeremy Flint, highlights the role of a “fractional CFO” in supporting such financial capability within small to medium sized businesses.
A fractional CFO performs the same role as a full-time CFO, which involves overviewing financial operations within a company, but they also have input on broader business operations, for example advising on marketing campaign spending or manufacturing costs. As implied by the term “fractional”, they serve multiple companies, and their level of involvement can vary depending on specific requirements.
A fractional CFO first conducts a comprehensive review of the existing financial functions of the firm. They also make regular follow-up reviews. They can help in managing a business budget, preparing future cash flow models, and providing critical documents necessary for securing third-party funding. They can also assist in aspects of bookkeeping and payroll, an area where even automated systems can benefit from the expertise of a seasoned professional.
According to Flint, if a business is considering hiring a fractional CFO, it likely already has identified problems or inefficiencies that a fractional CFO could mitigate. Other conditions that suggest a business might need a fractional CFO include company size (if it’s larger than five people), complicated financial operations, or being in a phase of expansion.
The feasibility of a part-time CFO role has been enabled by digitization. It allows professional CFOs to offer their services remotely, provided they have access to the necessary documents, software and business functions.
Potential benefits of hiring a fractional CFO include: improved cost efficiency compared to hiring a full-time executive, enhanced legitimacy when seeking external funding, process navigation, bringing in-depth business experience, and providing flexibility. Hiring part-time help is generally simpler than cutting a full-time position, which might entail severance pay, unemployment insurance, and possible litigation.
Before hiring a fractional CFO, businesses should prepare a list of key considerations such as shared values and ethos, alignment with the CFO’s skills, professionalism, honesty, and cost expectations. Fractional CFOs can be sourced from professional networks, through CFO agencies, or freelance sites.
In conclusion, for companies that do not yet need a full-time CFO, fractional CFOs can provide customized, in-depth assistance across financial functions, supporting company growth and development. A fractional CFO can also guide existing financial teams, providing insights into current and future accounting trends and technologies, including automated and AI-enabled solutions. If a company is even considering a fractional CFO, Flint concludes, then it is the right time to hire.
