What is a Fractional CFO? Small Business Guide » Small Business Bonfire

 | 
January 18, 2023
UPDATED: 
January 18, 2023


As a business consultant, I’ve had the pleasure of working with many small businesses and helping them to leverage the power of Fractional CFOs.

Fractional CFOs are highly experienced financial professionals who can quickly assess your business’s financial needs and determine what strategies will best serve your goals. It’s the perfect solution for small businesses looking to get financial insight and guidance without the hassle of hiring a full-time CFO.

In this guide, we’ll provide an overview of what a fractional CFO is and how it can help your business grow.

What is a Fractional CFO?

A fractional CFO is a financial expert who works on an as-needed basis to help your business reach its goals.

They come with the same level of expertise you would expect from a full-time CFO but at a fraction of the cost and time commitment.

Fractional CFOs are typically experienced in the field and can work remotely or on-site, depending on the company’s needs.

They can bridge the gap between what an experienced executive team offers and what a small business is limited to due to a lack of personnel or experience.

They may also provide advice on how to do the following: 

  • Reduce costs
  • Maximize resources
  • Increase efficiencies
  • Streamline operations
  • Develop strategies for growth
  • Identify potential risks and solutions to problems

Additionally, a fractional CFO will have access to best practices from other successful businesses, which can be applied at the client’s organization.

Having access to higher-level strategic thinking that only comes from more experienced professionals helps businesses make smarter decisions.

What does a fractional CFO do?

A fractional CFO provides the same services as a full-time CFO.

However, their primary responsibility is to help businesses track and manage their finances by providing financial insight, strategies, and recommendations for improvement.

They oversee financial processes such as:

  • Projections
  • Monthly Finances
  • Financial Strategy
  • Raising Capital
  • Navigating Audits
  • Scaling Systems

We’ll review each of these to give you a better idea of what a fractional CFO does.

Projections

what is a fractional cfo - projections

Fractional CFOs use historical data to make projections about the future of a business.

This includes the following:

  • Revenue
  • Expenses
  • Forecasting cash flow
  • Financial metrics that help businesses plan ahead

Monthly Finances

A fractional CFO will assess a business’s current financial state by reviewing monthly and quarterly financial reports.

They will then provide advice on how to make changes to improve the bottom line.

Financial Strategy

Fractional CFOs provide invaluable guidance when it comes to developing a financial strategy for the future.

They will often analyze data and make recommendations on how to:

  • Increase revenue
  • Reduce costs
  • Improve profitability

Raising Capital

Fractional CFOs can also help businesses to raise capital. This might include finding sources of financing, such as loans or equity investments, and providing advice on how to structure deals.

Navigating Audits

A fractional CFO will provide guidance when it comes to preparing for audits.

They will help ensure that all necessary documents are in order and ready for auditing.

This could include helping with the following:

  • Preparation of financial statements
  • Cash flow projections
  • Budgeting

Scaling Systems

Fractional CFOs can help businesses scale their financial systems to prepare them for growth.

They work with clients to develop strategies for:

  • Automation
  • Budgeting
  • Cost-reduction initiatives

Advantages of Hiring a Fractional CFO

Fractional CFOs are ideal for businesses that cannot afford to hire a full-time CFO.

The advantages of hiring a CFO include the following:

  • Fractional CFOs Save You Time
  • Overhead Savings
  • “On Call” Financial Experience
  • Experience Raising Capital
what is a fractional cfo - hiring a cfo

Fractional CFOs Save You Time

Hiring a fractional CFO is the perfect solution for businesses that need help with their finances but don’t have a large budget.

They can provide an experienced financial perspective and insight without the high overhead costs of full-time staff.

This saves businesses time and money while getting access to the same expertise.

Overhead Savings

Fractional CFOs do not come with the overhead costs of salaries and benefits that a full-time executive team would have.

This makes them an affordable option for small businesses looking to improve their finances.

“On Call” Financial Experience

Having a fractional CFO on call can give businesses the expert advice they need to make informed decisions without hiring additional staff.

Businesses don’t have to wait for board meetings or other formal events to get advice.

Experience Raising Capital

Fractional CFOs can also help businesses raise capital, whether through a loan, an angel investor, or venture capital.

They have the experience and knowledge needed to structure deals and negotiate terms so that businesses can maximize their chances of success.

Disadvantages of Hiring a Fractional CFO

Although fractional CFOs can provide a lot of value to businesses, there are some potential disadvantages to consider.

These include the following: 

  • You don’t have access all the time
  • They typically work off-site
  • They don’t just work for you

You Don’t Have Access All the Time

Fractional CFOs are not available all the time.

They work on a part-time or contract basis, which means you won’t always have access to them when needed.

This can be a problem if you have an urgent financial matter that needs to be addressed.

They Typically Work Off-Site

Fractional CFOs typically work off-site, which can make it challenging to collaborate.

Since they are not in the office regularly, communication is often limited to phone calls and emails. This means that businesses don’t always have complete visibility into the activities of their fractional CFOs.

Additionally, it can be difficult to monitor progress and measure results.

They Don’t Just Work For You

Fractional CFOs usually work for multiple clients, which can create a conflict of interest.

It’s essential to ensure that your fractional CFO is not focusing too much time and energy on other clients.

This can make it difficult to trust their advice, as they may not give you the best advice for your business.

Why Hire A Fractional CFO?

Hiring a fractional CFO can provide businesses with the resources and expertise to help them grow and succeed.

They are also flexible and available when needed, making them the perfect solution for businesses that need help with their finances.

Here are some specific reasons businesses should consider hiring a fractional CFO: 

  • Your business is growing
  • Delegate and elevate (As the CEO)
  • You want a better accounting system
  • You’re thinking of raising money
  • You’re being audited
  • Forecasting is becoming difficult

Your Business is Growing

When a business is growing, finances can become more complex and difficult to manage.

Having an experienced CFO on-call can help businesses make informed decisions and provide insight into how to better manage their finances.

This can help you scale up operations and manage growth for your business more effectively.

Delegate and Elevate (As the CEO)

As a business owner, staying on top of all the financial tasks can be difficult.

A fractional CFO can help you delegate tasks and free up more time for yourself.

This allows you to focus on other aspects of the business while your CFO handles financial decisions and strategies.

You Want a Better Accounting System

If you’re overwhelmed with your current accounting system, a fractional CFO can help you make changes and improve processes.

They have the experience and knowledge to help modernize your accounting systems and maximize efficiency.

You’re Thinking of Raising Money

Raising capital is an integral part of running any business.

A fractional CFO can help you find the best sources of financing, as well as negotiate terms and structure deals.

Finding funding for your business can be complicated, and having the right CFO on your side can make all the difference.

You’re Being Audited

If you’re being audited or need to provide financial documents for other reasons, having an experienced CFO is important.

A fractional CFO can help you do the following:

  • Prepare financial documents
  • Interpret the results of an audit
  • Respond to any questions or concerns raised by auditors

Forecasting is Becoming Difficult

Having the right financial data and insights can help you make better decisions and plan for the future.

A fractional CFO can provide invaluable insight into trends in your industry and help you make more accurate forecasts for your business.

Conclusion

Hiring a fractional CFO can provide businesses with invaluable insight and expertise regarding their finances.

They are an excellent option for businesses that need help with financial decisions but don’t have the resources or budget for a full-time CFO.

If you’re looking for someone to help manage your finances, consider hiring a fractional CFO today.

Do you have any questions? Let us know in the comments below!



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Author

  • Chuck Parsons

    Chuck is Score LA’s Executive Director of Events and Marketing. He aims to help business owners and would-be entrepreneurs in Los Angeles improve their business practices.

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