The Rise of the Fractional CFO
Running a business from the ground up can be both overwhelming and rewarding. For a startup CEO, it's imperative that the business continues on the success trajectory by closing all loopholes for failure. One way to do this is to ensure there is proper financial management from the very beginning. Many businesses are hiring financial professionals to help manage their financial and accounting functions as they scale operations.
Moving into the future, more businesses will show a strong interest in hiring fractional or part-time (Chief Financial Officers) CFOs. This is happening against the backdrop of a 27% increase in the resignation of full-time CFOs from 2019 to 2020.
Fractional CFOs are an excellent option for startups that have not grown enough (revenue-wise) to hire a full-time CFO, as they can effectively enable the startup CEO to expend their energy on other areas of their business.
Are you wondering if hiring a fractional CFO for your growing business is a wise move? Below we break down what a fractional CFO can do for you.
What is a Fractional CFO?
The Chief Executive Officer (CEO) is the highest-level person who oversees the financial operations and financial management of a company, including the business strategy and performance.
A fractional CFO has a wealth of CFO knowledge and experience but works part-time or contractually. They also work remotely per hour or per project basis. They are a good fit for any growing startup or early-stage company whose financial processes demand high-level expertise beyond the capacity of a typical accountant.
Fractional CFOs can perform a range of duties, such as:
- Cash flow management
- Analysis of growth strategies
- Overseeing audit and tax preparation
- Managing company books
- Assist in mergers and acquisitions
- Financial forecasting and budgeting
With the rise of part-time and flexible work, fractional CFOs have the flexibility to offer their services in more than one start-up. This means a growing business can easily access fractional CFOs who fit their budget and can provide the necessary expertise to expand.
Who Should Work With a Fractional CFO?
When companies experience fast growth, it can be both exciting and daunting. However, if a rapid boom in business is not well managed, it can cause significant headaches, such as pressure to hire extra staff as well as cash flow problems. At this stage, companies are usually pushed to hire a Chief Financial Officer to help move along with their increasing financial responsibilities and demands.
In this case, startups and early-stage companies look for fractional CFOs who can not only handle complex financial tasks but fit into their budget, as opposed to full-time CFOs.
Without a doubt, business owners should take advantage of fractional CFOs as they have the financial acumen and tested experience of working with different industries. In general, fractional CFOs may prove useful if a business needs to:
- Expand business operations: When a business is poised to grow, there are many moving parts to consider. This includes hiring new staff, implementing new regulations and tax obligations including sourcing extra funds. A fractional CFO is someone who has experience working in high stake situations, so they can help through such a transition.
- Raise capital: Fractional CFOs are capable of working with banks, lenders, and investors to obtain much-needed finances for a business. Since they work hand in hand with the person running the startup, they clearly understand the financing needs and will help prepare financial reports that improve chances of funding.
- Perform budgeting and financial forecasting: With business owners filling in many shoes to run smooth operations, tasks such as financial forecasting and budgets can be a challenge. A fractional CFO is capable of determining short-term and long-term financial indicators to come up with financial models and plans which will mitigate any risks to the company. The business can also improve its budgeting as the fractional CFO can analyze its cash flow movements and pinpoint areas to cut down costs.
- Formulate and execute business strategies: An experienced fractional CFO can help a business list down goals and transform them into a working business strategy. They can leverage data to generate reliable financial reports and statements.
What Are the Advantages of Hiring a Fractional CFO?
1. Specialized Financial Help
A fractional CFO brings the skill set of a full-time CFO except on a contractor or per-fee basis ranging from forecasting and budgeting to internal controls management. Given that they have worked with multiple industries with challenging work environments, they can effectively help startups ease over the hurdles they face.
2. Time and Cost savings
As the fractional CFO handles complex financial tasks, the business owner can dedicate their time to other responsibilities. Hiring a CFO on a part-time basis will cost $72,000 to $144,000 annually compared to a full-time CFO who earns between $300,000 and $400,000 per year.
3. Keep Company Finances in Order
A successful business requires its accounting systems and tax planning to be airtight and functional. With the help of a fractional CFO, the business can avoid running down the operations due to missed tax deadlines or misappropriated cash flow.
4. A Vital Business Partner
Fractional CFOs offer a scope of services and not simply budgeting and forecasting. Depending on a business's needs, they can raise capital, offer business advisory services, guide on merger and acquisition activities, and maintain smoother internal control systems. Essentially, a fractional CFO is an all-around strategic asset for a company that wants to stand out from the competition.
5. Improved Relationships With Investors and Other Stakeholders
Every business needs to have positive relationships with its customers, vendors, banks, lenders including investors for its reputation and growth. A fractional CFO can step in to create and maintain these relationships as they tend to have preexisting network connections.
For startup owners, it's vital to choose a fractional CFO with whom they have a good rapport, is trustworthy, and has a proven track record.
Key Takeaway
Overall, the input of a fractional CFO to a business is valuable as they help make tough financial and business decisions. Their involvement allows business owners to have confidence in managing positive cash flow, reducing business risks, and instilling trust in their stakeholders about the future success of the business.
With the rise of global remote work, there are so many opportunities to scale your startup globally without needing multiple legal entities. You can hire and manage talent in other countries in an affordable way via an Employer of Record (EOR) like RemoFirst. You can request a demo today and start hiring globally tomorrow.
If you are a fractional CFO and would like to partner with RemoFirst, please reach out to partners@remofirst.com.
