What is a Fractional CFO & How Do CFO Services Work?

What is a Fractional CFO?

A fractional Chief Financial Officer (CFO) is a part-time resource with extensive industry experience that is contracted or retained for strategic financial services. Leveraging a fractional CFO allows growing businesses to tap into C-level financial expertise without incurring the cost of a full-time CFO’s salary, benefits and bonuses.

A fractional CFO may be an independent consultant or an employee of a CFO firm. In either case, a good fractional CFO will have previously served as a full-time, in-house Chief Financial Officer, or if not given this title he/she would have held the most senior financial position inside of an organization and managed a team of subordinates. This means the CFO resource not only brings financial expertise, but also the C-level communication skills and business acumen needed to work successfully within organizations to define business goals and steer the finance organization towards them.

A well-staffed CFO firm will cover all the finance bases, giving business leaders access to an entire suite of skills and knowledge, custom fit to their growing company.

Tip: Deciding whether to go with a firm or an independent CFO? Read our small business tips to help weigh these two options.

What does a fractional CFO do?

A fractional CFO helps guide forward-thinking financial strategy as businesses hit key growth milestones and are faced with increasingly complex decisions. A fractional CFO ensures business leadership has access to accurate financial reporting and performs analysis of that data needed for confident decision making.

Examples of fractional CFO activities include:

• Cash Flow Analysis & Management
• Establishing Financial Health KPIs & Reporting
• Forecasting & Modeling
• Acquisition Analysis
• Large Capital Purchase ROI Analysis
• New Location / Market Expansion Analysis
• Client / Job Profitability Studies
• Vendor Cost Analysis
• Audit Support
• Hiring & Resource Management
• Budget Preparation
• Financial Systems Implementation

What are the benefits of using a fractional CFO?

The key benefits of using a fractional CFO service are:

• Cost-effective access to strategic financial resources (vs. full-time CFO) – A fractional CFO can help to improve cash flow and profit margins for the business at a much lower cost than hiring a full-time CFO. In most cases, a small growing business could not justify the cost of a full-time CFO, making fractional CFO services the only cost-effective option.
• Informed decision making & business planning – Fractional CFO services empower business leadership to manage growth by unpacking the meaning of financial data and providing financial clarity. This equips business leaders to make data-backed decisions with lower risk for sustainable growth.
• Improved cash flow management & profitability – From helping a business improve its collections and payables processes in order to improve cash flow — to analyzing expenses to cut unnecessary spend, a fractional CFO can change the trajectory of a business’ financial future.

Do I need CFO services?

If the business can’t afford the $200k+ price tag of a full-time CFO but needs support with cash flow management, establishing KPIs, reporting accuracy and better-informed financial decision making, a fractional CFO service might be the right solution.

Below are a few key indicators that a growing business could benefit from fractional CFO services:

• Financial complexity and high transactional volumes
• Greater than $2 million in annual revenue (there is no ‘magic’ number, but this is a good rule of thumb)
• Known problems with financial health (eg. a lack of cost control bleeding dollars despite a healthy revenue stream)
• A specific project, such as a large capital purchase (The fractional CFO resource can not only help to determine if the purchase can be responsibly made, but the ideal timing for the purchase as well.)
• A specific event, such as an audit (Yes, the CFO can help to manage communication with auditors on the business’ behalf as well.)
• Frustration or excessive time spent by the owner (owner is working in the business vs. on it or frustrated with lack of reporting, managing by gut feel, or work/life imbalance)

How do fractional CFO services work?

Will I pay the fractional CFO monthly or by the project?

A fractional CFO agreement can look very different based on the business need. Some businesses may only need project-based support with financial analysis for a point-in-time event or decision, while others may be looking to fully outsource the strategic financial function. In the latter case, this may be a monthly engagement that continues over many years. Fractional CFO pricing starts at around $600/month for a very basic consulting engagement. On the high end, a CFO service can cost $10,000/month or more.

Who will the fractional CFO work with?

In some cases, the business may have an in-house accounting team that works closely with the fractional CFO. In other cases, the fractional CFO service provider may also offer accounting services and fulfill both the strategic financial and accounting functions.

In most cases, the business using the CFO service will not also have an in-house CFO. However, there could be cases where a business with an in-house CFO may bring in external support for heavy lifting with big projects or events, such as an audit.

How involved will the fractional CFO be day-to-day?

The level of access to the CFO resource(s) and day-to-day involvement will depend on the engagement. A smaller engagement may include just 1 or 2 calls with the CFO per month, while a larger engagement might allow unlimited support and access. In larger engagements, the fractional CFO may also be very involved with strategic financial relationships (ie. vendors, suppliers, banks, auditors) and frequently sit in on leadership meetings. Some businesses will prefer to contract virtual CFO services, meaning that the meetings and interactions will occur exclusively online or via phone, rather than meeting with the CFO(s) in person.

What are the stages of a fractional CFO engagement?

A fractional CFO engagement may begin with the completion of a financial scorecard to benchmark the finance organization’s health. From here, a good fractional CFO service should support in creating KPIs and a roadmap to work towards that aligns with overall business goals. On a monthly basis, the fractional CFO may provide a list of agreed-upon services, for example, support calls, reporting, cost-benefit analysis and preparation of various financial documents. All of these services should support in achieving the ultimate goal of low-risk, efficient business growth.

Ready to speak with a CFO?

Lucrum Consulting offers complimentary CFO consultations. During the no-commitment consultation, you’ll have the opportunity to ask more questions about how fractional CFO services work and meet one of our CFOs.