Why Fractional CFOs Will Gain Traction in 2023

 
A budding business must make efficient use of its finite resources to generate profit.
 
However, the larger the business grows, the harder it becomes to maintain efficiency, especially if you lack the financial experience and expertise needed. This issue is why every mid-sized to large company eventually hires a CFO—a financial veteran who  has  the requisite skills and knowledge necessary to steer the company down the proper course.
 
And therein lies the historical problem that so many early-stage business leaders have encountered: While practically every company would benefit from the services of a CFO, few of them are able to afford, let alone attract, a high-quality, full-time CFO.
 
But the emergence of outsourced accounting has disrupted this paradigm, empowering even small companies to enjoy many of the benefits of having an experienced financial leader at the helm at a much earlier stage. 
 
Here is why 2023 is primed to be the year of fractional CFOs.
 

What Is a Fractional CFO?

 
Fractional CFOs, or outsourced CFOs, are contracted to work part-time for a business on an ongoing basis. Typically, an experienced CFO will provide ad-hoc services to several companies at once.
 
As a veteran of the financial industry, their job is to dive deep into the company’s financial records in order to better gauge its financial health and market position, particularly through the lens of the company’s goals.  
 
While an outsourced CFO may be asked to perform and provide oversight for various finance and accounting tasks, most companies will hire them at a critical business juncture for a specific purpose, such as preparing for an audit.
 
Ultimately, their charge is to act as the company steward—ensuring that financial issues do not hinder business operations and that every strategic opportunity is fully considered. In that regard, their primary directive is to manage and monitor the accounting and financial planning and analysis (FP&A) teams. To that end, they will oversee  various essential business activities , including:
 

• Cash flow management
• Data analysis
• Financial forecasting
• Financial strategy
• Fundraising
• Record keeping
• Reporting to stakeholders
• Risk management 
• Transactions
• Treasury

Why Is The Fractional CFO The Future Business Model?

 
There are several factors contributing to the rise of the fractional CFO, but four have been particularly influential.
 

#1 Pandemic Fallout

 
The aftershocks from the pandemic are still rippling throughout various industries. While we do not yet know the full ramifications, we can say for certain that COVID altered the way businesses operated from both an operational and a strategic standpoint.
 
For one thing, it accelerated an already ongoing market trend where agile companies—especially startups—increasingly embraced outsourcing as a viable cost-reliance strategy. In many instances, it helped to eliminate bottlenecks that arose because of the ongoing crisis.
 
And now, with all signs pointing to a  recession looming  over the horizon, business leaders are under more pressure than ever to prudently invest their spend—even (or especially) when it comes to the C Suite.
 
With many businesses transitioning to a hybrid work model, it has become quite evident that many companies could operate just as efficiently, if not more so, remotely—at least in some capacity. As a result, business leaders feel less need to keep all operations in-house.
 

#2 Cheaper to Hire

 
Such market shifts have altered deeply entrenched perceptions regarding the standard work model. Because, now, given the option between hiring a remote full-time employee or hiring a remote outsourced service provider, a growing number of companies are opting for the latter.
 
Why is that?
 
Because it is cheaper. And that is not just because their services are provided on an ad-hoc basis. Even a “full-time” fractional CFO would still be cheaper than a full-time internal CFO hire.
 
Put simply, hiring internally is expensive.
 
For example, consider the cost of hiring a new CFO.
 

1. Recruiting  – First, you have to search for a pool of qualified candidates, interview your top options, and select the candidate—all of which accrue hard and soft costs.
2. Onboarding  – After the  right  person is hired, they still may need to go through onboarding and training.
3. Hiring  – In addition to paying their monthly salary, you must also provide benefits, pay taxes, provide equipment, and a place for them to work.   

 
These are just a few of the costs involved. And it does not account for the resulting fallout should the new CFO be a bad fit.
 

#3 Flexibility

 
Many growing companies do not have enough work to justify paying a full-time CFO their hefty salary. Or, they may have a three-month project that requires a CFO’s total attention but then hit a lull following its completion.
 
In either instance, a full-time CFO would cost more than they are worth. And this would not just negatively impact the company’s coffers, it would also be a waste of its valuable resources, seeing as a valuable tool is just left sitting on the sidelines. 
 
But, using a fractional model, a business can pay for what it needs and nothing more.
 
This enhanced flexibility is especially advantageous for a company whose success depends on being agile and responsive to market conditions. With an outsourced CFO at their disposal, they are better positioned to cut back or add hours depending on their immediate needs.
 

#4 The Role of the CFO Is Changing

 
As Deloitte  notes, traditionally, the role of a CFO was limited largely to acting as a steward of the company’s critical assets, and an operator of its accounting and financial planning.
 
But the role has evolved alongside the modern business landscape. Due to market forces, CFOs have had to shoulder greater responsibilities, which is why they also now act as the catalyst and strategist:
 

• Catalyst  – The CFO stimulates growth, executes change, and balances risks.  
• Strategist  – The CFO takes the helm of strategy planning, helping to guide the company’s future course, providing financial leadership, and ensuring that the business and finance strategies are aligned.

 
A fractional CFO is better prepared to handle a quicksilver business environment. Instead of working with one or two companies for decades, a fractional CFO will enjoy the benefits of working with scores of businesses over the same period.
 
This multifaceted experience has acted as a gauntlet that hardens and prepares them to move swiftly and decisively in response to market conditions and opportunities.