It’s the job title that’s increasingly creeping into our financial conversations: Fractional CFO
. But what is it, exactly?

You may already be familiar with a chief financial officer (CFO)—that’s the person tasked with managing a company’s finances. That includes tracking cash flow and reviewing corporate financials to monitor the health of a company, as well as making recommendations about how best to plan for the future.

Most CFOs have a finance, accounting, or business background, including experience in management. But that combination often comes with a price tag, making hiring a full-time CFO—especially for small-to-midsized businesses—financially difficult.

That’s where a fractional CFO can make a difference. A fractional CFO isn’t a full-time permanent employee, but instead works for the company on a part-time or retainer basis, tackling specific goals like increasing profits, or working on a specific project like preparing for a merger. They can bring high-level financial expertise to the table—and, in some cases, years of experience.

Fractional CFOs can assist with everything from accounting to financial reporting to budgeting. They may help negotiate contracts with vendors and reevaluate office space and leases, particularly helpful as many employees opt to remain remote. They may also help companies secure—or pay off—loans or establish alternative compensation structures for key employees.

Healy Jones, VP of Financial Strategy at Kruze Consulting—a New York CPA firm specializing in startup accounting and finance—notes that fractional CFOs can help companies with financial and strategic vision, growth, and pricing. They may also be used to implement new systems, raise capital, or plan for a merger or acquisition. Those are areas where small-to-midsize businesses can particular benefit since founders may spending time on day-to-day operations and not have time to devote to long-term planning.

Having a fractional CFO on board can also help put processes in place to benefit the company when the unexpected happens. For example, Jones noted that when Covid hit, it helped to have alternative scenarios planned out. Ditto for strategies to cope with rising inflation over the past few years.

Some fractional CFOs, says Jones, may have a regional focus. Others may work in a niche industry like biotech, software, or e-commerce which might have certain funding requirements or accounting strategies that are a little more complicated. For example, the research and development credit can be particularly helpful for some companies if they understand the often-complex related tax rules, while companies seeking venture capitalists often benefit from an accrual basis, as compared to cash basis, accounting. That kind of institutional knowledge isn’t something you would necessarily expect from a founder. But having an executive on board who understands the challenges that may be specific to particular industries and how to read and utilize the accompanying metrics can help drive the company forward.

That means that fractional CFOs don’t come cheap. Expect to pay between $250 and $500 per hour, says Jones. But remember, the cost isn’t a full-time, permanent expense. It’s typically on a part-time basis—a few hours per week—or a more regular schedule for the duration of a project. Jones suggests that a sweet spot for many, that schedule may be a few days per week with the company on a recurring basis.

If you’re planning on retaining a fractional CFO, timing is critically important. For example, Jones suggests that if you’re going to fundraise, it’s essential to bring on a fractional CFO at least three months in advance. That will allow time to fine-tune revenues and conduct appropriate due diligence—a must for funding.

Other timing may depend on what you’re looking for, and may be predicated on the shape of your existing finances. Having good financial statements is the key to growing a company. While a fractional CFO might take on that as part of their services, you may also choose to keep your accounting and bookkeeping separate. Often, the more eyeballs you have on your finances, the better.

However, a fractional CFO isn’t a free pass for the company’s Chief Executive Officer (CEO)—it remains the CEO’s job to review the company’s financial statements and issue key approvals. That includes reviewing bank statements and tax returns. “You’re not going to give that up,” warns Jones.

If you’re ready to take the plunge, choosing the right person can be intimidating. You’ll want someone with experience in the industry and references in the business, but, Jones says, not with a direct competitor.

A Big Four resumé is not super necessary, according to Jones, but some Wall Street experience can be helpful. The same applies to a Master of Business Administration degree, or MBA—it can signal a level of education that can be valuable, but it’s not a deal-breaker. For Jones, the most critical piece is professional experience. You want someone who understands your company, he explains, including the stage the company might be in. Are you early growth? Ready to merge? Looking for funding? The needs at a particular stage can be fairly specialized, making someone who has guided companies through similar waters valuable.

Finding a fractional CFO doesn’t have to be a full-time job. You can seek one from a reputable company with those connections—like Kruze, Jones’ company—or you can do your own legwork. If you’re looking on your own, Jones recommends checking out LinkedIn or asking your peers or those in similar industries who they might recommend.

Also a good resource? Your funders, including venture capitalists, lenders, or banking. They likely have a stable of candidates that they’ve worked with in the past that they know and like. And don’t forget your advisors, including accountants, bookkeepers, and lawyers—they may have been involved in transactions anchored by a fractional CFO that they’re willing to recommend.

The key is not to be intimidated by the title. While we may have once associated CFOs with multi-million dollar enterprises, that’s no longer the case. Today’s companies realize that growth doesn’t have to be all or nothing—incremental resources from financing to equity—can be often be divided into manageable pieces. Now, we know that it can also apply to corporate leadership.

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