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Everything you need to know about fractional CFOs

Posted by Neha De

April 13, 2022    |     6-minute read (1045 words)

A chief financial officer holds the top senior finance position in the organization. They are responsible for overseeing the finance department and are often considered a trusted advisor to the chief executive officer.

A fractional CFO, also known as a virtual CFO, is increasingly becoming popular for companies to use. They are a fully qualified CFO who is available on retainer or a part-time basis. A fractional CFO can work from an office or remotely, depending on the specific needs of the company that hires them. 

When a firm is expanding quickly but does not have the budget to hire a full-time CFO, a fractional CFO may be just what the company needs to power forward. With a fractional CFO, a small business owner can access high-end knowledge and expertise at just a fraction of the cost. 

How a fractional CFO can help a company

Most fractional CFOs have experience working with several different organizations and industries that have unique challenges. This allows them to assist entrepreneurs and small business owners in both understanding and improving the financial well-being of their company.

The benefits that a fractional CFO can bring to small- and medium-sized businesses are essential to growth. Here are the top five benefits of outsourcing CFO services that can help enhance the financial health of a company:

1. Establishing a solid financial foundation – The best way to prepare for the growth of an organization is ensuring that its finances and financial foundation is solid and can sustain the growth of the company. Without a solid financial foundation, especially while growing a business, a business can be put at serious financial risk.

2. Assistance with short- and long-term planning – Every business needs to build financial plans that offer direction and growth. A CFO is well qualified to analyze high level financial scenarios and can devise diversified plans that can help entrepreneurs make smart business decisions.

3. Aid in managing growth – It is especially important when a company is in its growth stage that the growth be managed meticulously, as growing very fast can pose a risk to the business. An expert CFO can guide business owners through the growth stage and ensure they have enough capital to support the business, especially through that stage.

4. Provide support with audits – It can be unnerving for entrepreneurs to go through an audit and hence, it can be beneficial to have an expert assist and advise them. A fractional CFO can take over that function and answer any questions the auditors may have. An audit is more likely to go smoothly with fewer problems if a professional is in charge.

5. Offer strategic financial advice and planning – When raising capital for the company or a specific project that requires financial advice, the expertise of a CFO can come in handy. A CFO can help identify various blind spots in a company and get entrepreneurs to look at different angles of an important investment decision that they need to make.

Things to remember before hiring a fractional CFO

Different business owners may have different goals for hiring a fractional CFO. Check out some things that every entrepreneur should consider to find the best fit before hiring a fractional CFO: 

Business financial goals – Define the financial goals that you want your fractional CFO to meet and set parameters to measure their success. Prepare a list of the tasks and responsibilities you want your fractional CFO to perform, and stay informed of the efforts and initiatives taken by them.

Aligned experience – Business owners hiring a fractional CFO should consider someone with relevant experience in their sector or industry. They must ensure that the CFO’s experience lines up with the type of challenges or initiatives their organization is undertaking. Ensuring this can help you find a fractional CFO who has better market awareness, competitive analysis and contacts within the industry.

A fractional CFO with industry-specific experience will be accustomed to how things work in your industry, including workflows, laws, regulations and requirements. Make sure the chosen CFO has the right expertise and knowledge to create a significant beneficial impact on your business.

Qualifications – Entrepreneurs need to do their due diligence to ensure that their fractional CFO has the required experience, knowledge and expertise to perform well. A fractional CFO should have experience in accounting, finance or business management as well as up-to-date knowledge of current financial and accounting ERP systems. Ensure that you check each prospective CFO’s qualifications so you can better understand their work history and education.

Fee structure – Some engagements require a fractional CFO to spend fixed days or weeks in a client’s office. Other arrangements are virtual or involve remote work. Some CFOs charge on an hourly basis, while others charge a flat fee per project. Ensure that you discuss all terms and conditions while hiring a fractional CFO to avoid any hidden costs at the end. 

In addition, ensure that your fractional CFO has the time and attention to dedicate to your company.

Background – Check whether the potential CFO works alone or has an accounting or finance team to support. A fractional CFO who is part of a financial services providing company may offer better service continuity that is less dependent on individuals. They will also have a team of experts who can work on your issues.

Ask your prospective fractional CFO about their practices and how they will handle the unique financial complexities of your business. A CFO with a proven track record typically has reviews or case studies available to verify their level of service, so make sure you refer to those reviews.

Client requirements – Businesses have different options for selecting a fractional CFO, but they should consider clients’ expectations and needs before the selection process. It can be helpful to have a clear picture of what the customers want that individual to deliver.

Cultural fit – A fractional CFO offers a uniquely valuable perspective to the company executives. Therefore, when looking for a fractional CFO, find out whether the candidate can fit in with your company culture. The CFO should be highly professional and trustworthy. 

Before you sign the contract, make sure you have a clear picture of the timeline of events and the specific deliverables to expect from your fractional CFO.

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