7 Benefits of a Fractional CFO For Your Business
One of the increasingly popular trends in the e-commerce industry revolves around hiring fractional CFOs. The CFO, or the Chief Financial Officer, acts as the backbone of every business by keeping the bloodline of finance flowing. This allows the organization to leap, sprint, and achieve its goals efficiently.
What is a Fractional CFO?
A fractional CFO is a part-time CFO generally hired by startups and small-scale businesses on a contractual basis. The primary aim is to share their expertise in strategic financial planning and handle the company’s financial operations and cash flow management. In most cases, fractional CFOs work with more than one startup, unlike full-time CFOs, who stay employees of the firm.
Fractional CFOs are fully qualified CFOs available part-time, typically working remotely or in the office. Hiring a qualified CFO with at least ten years of experience is essential.
What Does a Fractional CFO Do – Benefits of a Fractional CFO?
A fractional CFO might be a better solution when your business is booming, but you can’t make room in your budget for a full-time CFO. It is a very budget-friendly way to avail of the essential services, and you can make a customized plan to your particular needs.
A modern Fractional CFO is a multi-disciplined asset that:
- Creates financial team and processes
- Undertakes financial analysis and collaborates with frontline team strategies to properly understand revenue and price opportunities
- Oversees change situations, including management reorganization and turnarounds
Like a full-time CFO, a fractional CFO offers the same skills and simultaneously provides flexibility and cost advantages to smaller companies. Some of the main areas where a fractional CFO can help include:
Providing Accounting and Transaction Support
Factional CFOs oversee payroll and other accounts to ensure that everything is accurate, up-to-date, and taken care of on time. Additionally, they maintain mistake-free financial statements that closely follow reporting standards. Lastly, they also advise business owners and managers on how to maximize cash flow and improve capital structure.
Fractional CFOs help small businesses budget and plan cash flow to balance their expenses and income easily. Preparing these documents helps organizations compare real-time performance with expected performance. This consequently helps maximize recourse utilization and reduces room for errors.
Making Financial Preparations
Fractional CFOs also help businesses prepare for any upcoming financial challenges. They do this by identifying and capitalizing on their revenue streams and ensuring their accounts comply with the latest regulations.
Helping with Complex Decision-Making
High-growth businesses usually find themselves having to make complex decisions about cash expenditure. When assessing whether or not to pursue an acquisition or tweak distribution channels from retail to digital, a CFO can help. This allows an organization to properly evaluate a project and make more well-informed decisions during time-sensitive and intensive periods.
Optimizing Internal Processes
Internal processes act as a glue that holds strategy, operations, and results. A fractional CFO understands every step’s contribution and cost and optimizes them. One of the primary duties of a CFO is to examine all processes clearly and understand their financial contribution to cash flow and profitability.
Assisting the Management with Important Decisions
Board members, specifically during a venture, require many essential insights. During such times, a fractional CFO can participate in board meetings and bring a new perspective.
7 Key Benefits of Fractional CFO for Your Business
Business owners often wonder whether they should hire a fractional CFO or not. Here are the top 7 advantages of hiring a fractional CFO if you are on the fence.
Perhaps the most recognized benefits of fractional CFO service is that it’s highly cost-effective. You can benefit from the experience, training, and qualifications of a CFO at a fraction of the price. This is especially beneficial if you are a small company or don’t have the budget to hire a full-time CFO.
2. Take Advantage of Comprehensive Experience/Perspective
Often, fractional CFOs have experience working as full-time CFO. They may also have experience working with a range of businesses part-time. This allows you to benefit from new perspectives and a solid breadth of knowledge. Having someone on your team who can bring that kind of strategic insight to your current processes can be invaluable.
3. Benefit from Increased Flexibility
Using a fractional CFO, you can customize the support level based on your company’s needs. You can ask for increased support at crucial times and then rivet to a more consistent level for the long term.
4. Prevent Bankruptcy
One of the main reasons startups fail is running out of cash. A fractional CFO can help your business have a solid grasp on finances and cash flow, thus preventing unexpected liquidity issues. Moreover, a qualified CFO can also assist with debt management and fundraising. Due to their financial insight and strategic understanding, they can professionally analyze negotiated numbers and help the business make important investment decisions.
5. Little to No Need for Direct Management
Like an outsourced professional, a fractional CFO generally requires less direct management or supervision from the hiring company. Since they introduce fresh knowledge and skills, the activities can be typically conducted with minimal guidance. In a company that is experiencing rapid growth, managing personnel and teams can quickly become time-consuming and convoluted. Having an experienced figure that requires less supervision can release the management from added responsibilities.
6. Increase Productivity
Recruiting a fractional CFO can positively influence a company’s productivity level. It frees the management to focus on other high-value business areas. A part-time CFO can also handle administrative responsibilities like insurance, human resources, legal compliance, and stakeholder relationship.
7. To Solidify the Company Image
If you have plans to expand your business, you will most likely require funding from banks and investors. You must create a solid business image to acquire the needed capital successfully. A fractional CFO can identify your company’s problem areas and create a strategic financial strategy accordingly. This will assure private funders and bank loan officers that your organization’s financial health is in good shape.
Factors to Consider when Hiring a Fractional CFO
By now, it is pretty clear that fractional CFOs can be a valuable asset for companies, especially small to medium-sized ones. However, the success rate primarily lies in your choice of CFO. Before you begin your quest for the ideal fractional CFO, here are a few factors to remember.
The right fractional CFO must have experience related to your specific industry. If your business is a startup, you will want to look for a CFO with experience working with other startups. This will help them understand the unique needs of your company. Look at each candidate’s entire portfolio, read their customer testimonials, and take the time to interview them. Ask questions such as:
- How many companies/startups have you helped? How recently?
- What are some of the most significant difficulties you have helped businesses with?
- How large was the most significant funding round you have supported, and how did you do it?
- What type of growth did your past clients achieve?
Areas of Expertise
Every business has different needs and unique challenges. Before hiring a fractional CFO, carefully analyze your company’s distinct needs, and see if the expertise and experience of your selected candidate fit those needs. Take into account your company’s current and future needs. In general, a fractional CFO should have expertise in the following areas:
- Strategic planning
- Cash flow management
- Cap table planning
- Fundraising support and strategy
- Investor/board support
- Acquisitions and mergers
Network and Connections
When successfully expanding a small business, it is about what you know and who you know. Besides bringing new skills to the company, a fractional CFO should also introduce quality relationships. It is essential to ask your CFO candidate about their existing network and connections. Do they have good relationships that will help you land the best investors? Which companies have they worked with in the past? Will these firms be a good fit for your company’s investment needs?
Relationships are an essential currency, without which your credibility will significantly suffer. A reputable fractional CFO with an impressive record should have lots of contacts. If they don’t, that might be a red flag.
A fractional CFO must communicate with the management and other team members to convey important information. To perform these tasks effectively, a CFO must have strong leadership capabilities and experience in leading teams.
Logical and Honest Personality
Logic is the most essential quality for becoming a professional CFO. This is because they are liable for overseeing an organization’s financial aspects. Moreover, since businesses can’t rely on an untrustworthy person, honesty is also an integral quality.
A fractional CFO can bring tremendous value to your business without breaking the bank. Since they work part-time, you can benefit from substantial savings while efficiently reaching your financial targets. If you were unsure about hiring a fractional CFO, now you know. Do a thorough research and background check before selecting an interim CFO and study their services carefully.