Fractional or outsourced CFOs provide a valuable service to companies in certain stages, experiencing brand new issues. As you grow, you meet challenges that nobody on your team has dealt with before: broken processes, more complex reporting needs, and strategic decision making that requires “been there, done that” experience.
These are all signs that you might need a CFO with executive leadership experience. But that’s a big step. Any new C suite member requires long-term commitment on both sides, and the search can be lengthy and costly.
Which is where the fractional CFO comes in. They offer the experience and skills you need quickly, without the risk of making the wrong senior hire.
This article explores the role itself and what it should deliver, how to know what to look for, and what to demand of them when you bring one on board.
What is a fractional CFO?
A fractional CFO is an experienced finance professional who works on a part-time basis – per contract or project – rather than the traditional full-time schedule. They offer strategic financial and operational support to companies that don’t require or aren’t prepared for a full-time CFO or additional headcount.
They serve two main purposes:
- Fill a temporary expertise gap in a company’s finance function during critical phases such as growth and scale-up, expanding to new business ventures or systems implementation
- Offer smaller companies without a CFO the benefits of experienced financial leadership at a fraction of a full-time role cost. This arrangement allows businesses to gain from top-tier finance expertise without the commitment to a full-time headcount.
Crucially, this is different from an outsourced accountant. Fractional CFOs only justify their contribution if they stand apart from regular accountants or bookkeepers, and not solely focused on routine compliance or back-office tasks like bookkeeping and tax filings.
Instead, their role is proactive, working at the frontline of a business to bolster operations and drive strategic initiatives.
When to bring in a fractional CFO
In today’s fast-paced business world, finding highly skilled professionals who can partner effectively with business owners and executives is increasingly challenging. You’re not only looking for a Certified Chartered Accountant or CPA who brings strong experience in managing day-to-day financial tasks, but someone who has also participated in scaling high-growth businesses, supported the strategic side and led transformative projects.
These profiles are scarce. Not every finance professional has had the opportunity to gain frontline experience. Many have backgrounds primarily in traditional accounting, controlling and reporting – tasks that either have been partially automated with modern software solutions or are heavily technology-enabled and don’t require the same level of manual intervention as in the past.
This scarcity has driven up salaries, especially for scale-ups or businesses undergoing transformation. To attract or retain such talent, companies often find themselves competing to offer high annual salaries, costly perks and, in some cases, equity.
Regardless of the industry and business size, the most common gaps were:
- Skill set limitations: This is due to the finance function focusing traditionally on transaction recording, controlling and reporting, with limited experience in strategic and front-line operations. This results in finance professionals having a strong technical background in accounting, but skills limitations on broader business strategy.
- Cross-collaboration culture shortage: This isn’t exclusive to the finance function. Many companies operate in silos where there is limited collaboration between different business areas.
- Efficiency problems: As businesses evolve, it’s natural for their volume and workload to increase. But the finance headcount doesn’t increase with expansion. This leads to a bottleneck where, unless the department is transformed with adequate tools and modern systems, the senior finance roles may find their time increasingly consumed by routine tasks limiting their involvement on the strategic side.
These are the main reasons why your existing finance team members may not be ready for the step up to CFO, even on an interim basis. At the same time, the business may not be ready for a full time CFO and the associated salary, equity, and authority they require.
In this case, a fractional CFO is the perfect bridge. The right person brings a wealth of expertise and experience from working with a wide range of clients. But your commitment to each other is limited, and you can afford to dive in more quickly.
What to expect from a fractional CFO
Onboarding any C-level executive – temporary or not – is always complicated. To help decision-makers overcome these challenges and fill the expertise gap, here are six things a strong fractional CFO or part-time Finance Director should do.
These tips will be helpful for all kinds of businesses, whether you are an early-stage startup, a high-growth Series A+ or an established SME in a competitive environment.
- Emphasize systems transformation
In an era dominated by cloud computing and AI, having a finance department skilled in system utilization and transformational finance is crucial. You need a team that is not just knowledgeable but also experienced in modern financial systems.
In a previous article, we discussed how implementing a business intelligence tool can automate up to 70% of the time spent on management reporting in a typical finance department and solve the data-silos issue. This is just one example of the kinds of improvements a fractional CFO can make.
Look for someone experienced in diagnosing poor systems and software, and who can upgrade your current finance tool stack.
- Maximize efficiency and level-up performance measurement
As you streamline your processes with suitable systems, your fractional CFO must use the time saved to provide valuable insights from your financial and operational data analysis.