What is a Fractional CFO? Does My Business Need One?

Your company is on the ascent. However, new challenges are part and parcel of the growth process, and you will need as many tools as possible to help you overcome hurdles as you scale.

A finance professional is one of the most important people to have in your corner as you expand. But, if your business cannot afford a full-time accountant yet, consider a fractional CFO. 

What is a fractional CFO? Here, we break down everything you need to know about fractional CFOs, the benefits and drawbacks of enlisting one, and some common scenarios that might demand their expertise.  

Fractional CFOs: A Brief Overview

The Chief Financial Officer (CFO) is the highest-ranking accounting expert in a company’s structure—so, what is a fractional CFO?

A fractional CFO performs CFO duties on a part-time basis, or they are on retainer for as-needed work. They almost always provide off-site assistance, working with a financial services provider to lend their accounting expertise to various businesses. 

Full-time, in-house CFOs perform myriad tasks, and fractional CFOs do the same. Some of their common duties include:

• Financial advisement and goal-setting
• Routine bookkeeping tasks
• Financial forecasting or projections
• Assistance during audits
• Tax preparation
• Financial staff recruiting support

Benefits of Hiring a Fractional CFO

Hiring a fractional CFO can provide numerous advantages:

• Time saved on financial tasks – Your time is valuable—when a fractional CFO performs the heavy lifting for your company’s finances, you can free up time for other responsibilities.
• Money saved on overhead – Whenever you save time, you save money. When you commit less of your time to overhead tasks (like bookkeeping), you will have more time to spend building products or providing services—core efforts that increase your revenue. 
• On-call expertise – Leaders generally fulfill multiple roles when their businesses start scaling, including accounting. At a certain point, however, the tasks become too time-consuming or require dedicated financial expertise to manage properly. A fractional CFO will always be able to answer your questions and assuage your concerns.

If your business is just starting to scale, you might not have the cash to hire a full-time (or even part-time) in-house employee. When you hire a fractional CFO, you can get the help you need with a reduced financial commitment. 

Drawbacks of Fractional CFO Services

Hiring a fractional CFO has its disadvantages, but their impact depends on your operational model and are unlikely to pose issues for most organizations or your fractional CFO’s activities:

• They work off-site and virtually – Depending on your tech literacy, operations, and the business’ current investment in supporting remote work, you might not be ready to embrace completely virtual accounting services yet.
• They work for multiple companies – Fractional CFOs work part-time for multiple businesses, so you are unlikely to get one all to yourself. This means you need to plan most outsourced responsibilities in advance. Alternatively, their robust contact lists can be beneficial for networking purposes.

6 Reasons to Enlist a Fractional CFO

Now that we have answered a crucial question—“What is a fractional CFO?”—let us explore six reasons why your company might be ready to hire a financial expert. 

#1 Your Business is Growing

If your operations are starting to take off, you are likely brainstorming new ideas for continued growth. However, maintaining high-quality financial procedures as you expand will become increasingly important. 

While your business scales, a fractional CFO can help you:

• Establish short- and long-term financial goals
• Create streamlined accounting processes
• Prepare documents and literature to share with potential investors
• Promote audit readiness
• Incorporate or change your legal status
• Forecast or project your financial future

#2 You Want to Build Efficient Accounting Systems

If you are a small business owner, you likely wear many hats—you perform HR duties, manage operations, market and advertise, and perform the minimum financial functions needed to keep the lights on. 

When you grow, so will your need for a scalable, effective accounting system—a fractional CFO can help you build an airtight, transparent process and infrastructure for recording transactions, paying employees, tracking spending, and more. 

#3 A Capital Raise Is on the Horizon

A fractional CFO can be invaluable for companies anticipating a capital raise. Why?

• They help prepare your books for investor review – When you reach out to investors, they will likely want a birds-eye view of your current financial operations, overall financial health, and projections for future profits. Fractional CFOs can help you prepare documents that will increase investor confidence.
• They manage investments – A fractional CFO can help you process the funds you receive from investors, create a plan for dividing the funds between different projects, and disburse dividends to stakeholders.
• Connecting you with good investment partners – Fractional CFOs who have helped businesses like yours secure capital can provide insight on firms or angel investors to approach.

#4 Your Business is Being Audited

There is no way around it—audits are generally unpleasant. But, a fractional CFO can help you bear the burden of a tax audit throughout every phase of the entire process:

• Notification and response
• Document preparation
• Virtual or in-person interviews
• Audit conclusion
• Systems or records modifications

During the audit process, you may seek representation from a legal or finance expert—a fractional CFO can help you respond to requests and questions in your best interest, appeal requested modifications and fines when necessary, and generally streamline the audit process.

#5 You Want to Change Your Company’s Legal Structure

While industry norms are different across multiple sectors, you may have started your business as a Sole Proprietorship or a Partnership. 

But, as your business expands, you may decrease your tax liability or streamline your financial reporting procedures by changing your company’s legal structure. A fractional CFO can help you by:

• Consulting on your legal structure options
• Completing the paperwork and forms required for submission
• Changing internal accounting systems to reflect legal structure changes

Or, if you have yet to incorporate, a fractional CFO can help you complete the entire process. 

#6 Financial Forecasting Has Become Complex

Financial forecasting can help you set short- and long-term goals, make responsible accounting decisions, and share your predictions with potential investors. 

But, financial forecast documents come in all shapes and sizes, and the forecasting method you use determines how thorough, nuanced, and accurate your projections will be. 

Business owners can complete simpler projections on their own, like:

• The straight-line method, which calculates potential growth based on one constant growth rate
• The moving average method, which estimates growth based on average growth during individual periods

These methods, however, provide limited data. A fractional CFO can help you prepare financial forecasts that consider multiple variables, changing growth rates, expected market conditions, and more.