The Fractional Chief Financial Officer: How to Elevate Your Business Finance Strategy
Updated: 4 days ago
Finance can be an afterthought.
It can be an area that business owners do not pay attention to unless a specific need occurs. The need for additional financing, an audit, or during the annual tax filing.
The reality is that all businesses are limited in growth potential without true financial leadership.
Financial leadership that goes beyond the basics of bookkeeping and accounting.
So, when is the right time to add a CFO to your business and how can you afford to hire one?
The Right Time to Add a CFO
Small businesses and startups rarely begin life with a seasoned finance leader working side-by-side with the founder.
Finances are managed either by the founder directly, or by an in-house accountant or outsourced bookkeeping service. This arrangement suits the needs of the company when it is in its infancy.
Payroll is managed, bills are paid, and receipts are collected. At the end of the year, the necessary documentation is provided to an external CPA and the appropriate filings are made for tax purposes.
This structure may be suitable in the short-term. However, as your company begins to grow, you need a certain level of financial expertise to support your growth.
That financial expertise must eventually come from a CFO.
But what does a CFO do, and why is it so important to add this resource to your business?
Let’s take a look.
What Does the CFO Do?
The CFO, of Chief Financial Officer, is the senior executive charged with oversight of all the financial actions of a business.
While this individual must be well-versed in GAAP (generally accepted accounting principles) and regulatory frameworks, it is equally, if not more so, important that the CFO have a strategic mindset along with a strong business acumen and communication skills.
The Realm of the CFO
At one time, the CFO was essentially the head accountant. The role was responsible for financial reporting, budgeting, and audit compliance.
The job description of the CFO has since expanded significantly to include oversight of strategic planning, data analytics, and risk management.
The focus has shifted significantly towards providing insights and foresight rather than simply looking at numbers in hindsight.
The CFO will typically have oversight over the four pillar areas shown on the graphic below in addition to sometimes overseeing IT, Investor Relations, and Strategy.
While the resources available to the CFO will vary based on the size of the organization, this framework can still be applied to small businesses.
But what about the cost? This can’t be inexpensive, right?
There is a solution for businesses of all sizes.
The Fractional CFO
The full cost associated with bringing-on a full-time CFO is often prohibitive to small businesses or start-up businesses in rapid growth mode.
A small to small-mid-sized business that will greatly benefit from adding the skillset of a CFO may not be able to justify adding a full-time executive due to the cost associated with this hire.
The business has the following options:
Overextend the business and hire a highly compensated full-time CFO
Scale-back the expectations for the role and hire, or promote, a senior-level accountant or controller
Hire a Fractional CFO
Option one will have both negative short-term and longer-term consequences for the business. Overextending the business is never wise.
The following example provides a breakdown of both the recurring annual cost and the one-time cost associated with hiring a full-time CFO.
Option two may provide some comfort in the short term but will hinder growth and strategic support in the long term.
A ‘watch’ area is for individuals claiming to be CFOs who are really no more than bookkeepers in disguise.
In the age of social media, it is easy for anyone to create content which can be construed as expert advice.
When making the decision on whether to bring-on CFO-level talent, it is important to understand what level of experience that individual should bring to your organization.
While a CFO will oversee all aspects of finance, this individual should be a strategic business leader.
That brings us to option three, partnering with a Fractional CFO.
A Fractional CFO brings your business the expertise of a full-time CFO, but without burdening the company with the full cost associated with salaries, benefits, and bonuses.
Under a fractional arrangement, you will most often pay a monthly fee, or retainer, in exchange for agreed upon services.
While fees will range based on the firm type, executive experience level, and service offerings, average fees range from $5,000 to $10,000 per month.
On an annualized basis, this range of $60,000 to $120,000 is a small fraction of the cost of a full-time executive.
Remember, you are paying for a fraction of the time, not a fraction of the expertise.
Investing in Your Business
By partnering with a Fractional CFO, you can build a foundation to support your business strategy and growth initiatives.
You are investing in a finance strategy that will propel your organization forwards.
With Your Weekly CFO, a Four Pillars of Finance structure is used to structure your finance processes.
Should I Add a CFO During an Economic Downturn?
You cannot blindly cost cut your way to sustainable growth and prosperity.
It does not work. Random cost-cutting measures rarely add sustained value to a business.
More frequently, those random cost-slashing exercises have a negative impact on both the short and medium-term outlook of a business.
During an economic recession, or any cyclical downturn, it is imperative that a business carefully review its cost-structure with a view on long-term objectives. This may include cutting costs in some areas while investing more heavily in other areas.
A Fractional CFO, an experienced business partner, can lead your business through this exercise.
Now, Let’s Get Going!
Let’s briefly recap what we have discussed:
As your business grows you will need a CFO to support your growth
The responsibilities of a CFO go beyond accounting to include strategic planning and business leadership
A Fractional CFO gives your business access to senior-level financial advice at a fraction of the cost of a full-time executive
Be aware that some Fractional CFOs have never actually been a CFO
During an economic downturn, it is even more imperative to invest in financial leadership
If your business has growth aspirations, you need the added expertise that comes with adding a CFO. A Fractional CFO offers you the flexibility to scale this added skillset to match your business growth.
Enter your email address in the box below to subscribe to Your Weekly CFO newsletter. Each Saturday morning, you'll receive insights and tips to challenge your preconceptions of finance.
Please click here to schedule a free consultation if you would like to discuss how I can support you and your business.
About Colin Murray
Colin is an experienced finance executive with over fifteen years of diversified experiences for companies spanning multiple industry segments and ownership structures. Colin has built a career on transforming finance teams into business partnering organizations with a focus on continuous improvement.
Prior to founding Your Weekly CFO, Colin was the CFO of a private-equity backed manufacturer. Previous roles including heading finance for multi-national business units of public companies.
Colin has bachelors degree in finance from Miami University and an MBA from The University of North Carolina a Chapel Hill.
About Your Weekly CFO
Your Weekly CFO is a boutique CFO Advisory Services Firm specializing in Finance Performance Improvement (FPI). FPI allows clients to extract maximum value from their existing business while increasing projected returns on future business through strategy alignment, and people and resource development