Fractional CFO: What Is It — And Who Should Hire One?

A fractional CFO is a financial expert with years of experience who provides the job functions of a Chief Financial Officer but on a part-time basis. They often work with multiple clients on a subscription or project-basis.

Why would a business want to hire one? The answer is pretty simple. Many small and mid-size businesses are not ready to hire an in-house Chief Financial Officer. Maybe the business doesn’t have the funds available to make a full-time hire, or maybe they just don’t have enough work to warrant a full-time employee joining the team.

Whatever you call them — a virtual CFO, outsourced CFO, or a part-time CFO are other commonly used names — they are a finance professional who provides financial services designed to help businesses reach goals and improve profitability.

Fractional CFO vs. Traditional Bookkeeper or Accounting Firm

Why not just hire a bookkeeper or a traditional accounting firm? We get this question quite often. The answer is an advisory relationship. Fractional CFOs don’t just help you file your taxes and prepare basic financial statements; they help with data-driven decision-making, based on forward-looking financial reporting.

Fractional CFO vs. Virtual CFO vs. Interim CFO: What are the differences?

If the terms fractional and virtual CFO are often used interchangeably, is there a difference? Sometimes, fractional refers to a part-time CFO who visits their clients in-person.

Virtual CFOs, on the other hand, deliver services in an entirely remote environment. They will log into Zoom, Teams, or other video conferencing software to meet with clients. This remote work environment allows for flexibility for both clients and virtual CFOs because services can be delivered anywhere internet access is available.

However, it is important to note that remote, part-time CFOs are often referred to as fractional as well. Make sure you verify the mode of interaction a financial professional uses when considering hiring them for your financial needs. That way, if you have a preference for in-person or virtual services, you are aware of a candidate’s business model before hiring or signing contracts.

Note: fractional and virtual CFOs are very different from interim CFOs. While fractional and virtual CFOs offer ongoing services, an interim CFO only works for a business for a short time. An interim CFO is exactly as it sounds, a CFO that replaces a former CFO while a business looks for a permanent hire.

What Does a Fractional CFO Do?

A fractional or virtual CFO is a trusted financial advisor who provides expertise that enables business owners to make calculated decisions to get closer to their business goals.

How they do this is through a mix of financial strategies and strategic planning. They provide the “basic” accounting services of a bookkeeper or a traditional CPA firm, designed to keep a business in good financial standing:

• month-end close

• financial statements

• scheduled financial meetings

• revenue recognition

• management of banking relationships

In addition, CFOs use the above listed services to gather information used to develop long- and short-term financial forecasts, cash flow management, financial analysis, and company-wide KPIs.

These last services will help you understand where your company is currently sitting financially, and how your company can make changes to achieve certain business goals. For example, your CFO can use a forecast to show you how certain business decisions will impact your future numbers. From there, you could see if you would have the money to make a new hire or if you may have to scale back a certain product line that isn’t doing well. One of the major benefits of a CFO is that they help entrepreneurs understand the financial and non-financial metrics that drive their business, in other words, the things an owner can control, like whether to grow their team, use freelancers, or change their pricing.

Fractional CFO services include:

• incentive plans (phantom stock, esops and variable pay)

• performance by project

• team member performance evaluations

• department performance evaluations

• customized department reports.

When Is It Time to Hire a Fractional CFO?

The first reason a business owner would want to hire a fractional or virtual CFO is cost: if your business requires the services a Chief Financial Officer but isn’t in the financial position to hire one full-time. It costs on average $229,000 per year to hire an experienced CFO. That doesn’t include vacations, bonuses, and other benefits.

The second reason? Business scale. At Summit Virtual CFO by Anders, we advise that if your business is under $2 million in annual revenue, a bookkeeper or traditional CPA firm will likely be more cost-effective. This will usually mean that startups and very small businesses will be better off hiring a bookkeeper or small CPA firm.

However, if your business is over $2 million in revenue and has grown to the point where you need a financial advisor, your business is ready for the financial expertise a fractional or virtual CFO could provide.

If you have any questions about whether this role fits your specific needs, please feel free to reach out to us. You can book a free virtual CFO consultation where we can share more information about the services we offer and if we’d be a right fit for your business.