How Hiring a Fractional CFO Helps Small Businesses

Are you familiar with the concept of a fractional CFO (Chief Financial Officer)? It’s a less common—though no less important—outsourcing strategy that brings c-suite talent into your business.

Those unfamiliar with outsourcing might find it strange to outsource a role as important as the c-suite. The tactic can provide great benefits for business owners who know what they’re looking for.

Let’s review the concept in more detail and describe how a fractional CFO can support your small business goals.

What Is a Fractional CFO?

Fractional CFOs, otherwise known as contracted or outsourced CFOs, are financial experts at the c-suite level. They work for companies on a part-time basis. Typically, these experts are brought on board when a company realizes it needs financial insight but lacks the resources to hire a full-time professional.

In our experience, most companies consider contracted CFOs when they’ve identified a strategic need their internal teams can’t fill. Common examples include companies thinking about new business plans, pivoting on their accounting processes, reviewing financing/refinancing options, or securing in-depth help around tax time. They can also be used as informational resources when the company brings in a new CEO or other managerial staff.

If you can’t afford (or simply don’t have the ongoing need) for a full-time CFO, fractional CFOs let you leverage their skills at specific moments to drive results. And once they’re on board, you can tap into their expertise as needed to keep moving your company forward.

The Benefits of Fractional CFOs

Like many outsourced accounting positions, fractional CFOs bring specific benefits to the table in-house employees just can’t provide. This isn’t to say they’re “better.” They offer expertise and cost advantages inherent to the nature of outsourcing.

Competitive industry knowledge

Some CFOs work with one company for decades. Others work across many different companies and industries. Fractional CFOs usually fall into the latter category. As outsourced professionals, fractional CFOs bring their skills to every company that hires them. This gives them a great breadth of knowledge in the finer points of financial management across industries.

This insight can be great in terms of competitive advantage. A fractional CFO will be able to compare your processes, accounting software systems, and bookkeeping productivity against similar businesses with which they’ve worked. Depending on their experience with companies like yours, this can be a valuable benchmarking tool.

Strategic insights

In addition to their ability to judge your processes relative to others, fractional CFOs bring value to your company in other ways. For example, outsourced CFOs may have ready-made action plans for what to do during times of financial crisis, helping you respond faster. They may also bring their skills to work when pitching investors or raising capital; two key aspects of financial planning in which some CEOs need support.

While the specific insights they provide will depend on your company’s goals, the benefits remain the same. You can hand-off these high-level financial functions to CFOs who can draw upon their own experiences to solve problems in your company.

Low-cost staffing

The primary benefit of hiring fractional CFOs vs. full-time CFOs is the price. It’s great when businesses have the means to hire c-suite executives full-time, but many of us (including most small business owners) don’t have that luxury. And certainly not in the company’s early stages.

The outsourced nature of fractional CFOs gives your company the opportunity to tap into their expertise at a much lower cost. You won’t have to worry about salaries, benefits, perks, ownership shares, or any other compensation packages typically afforded to the c-suite professional.

The specific compensation structure you’ll end up paying will depend on who you choose to work with and your company’s required level of engagement, but overall, it almost always costs less to leverage their skills on an as-needed basis.

Finding the Right Fractional CFO

While fractional CFOs operate at a higher level than many other outsourced positions, the fundamentals of selecting one remain the same. If you don’t already partner with a trusted provider for outsourced accounting and bookkeeping services, put extra care into your hiring process. Look for contracted CFOs with experience in your niche, and ideally, who have helped companies around the same size as yours.

Better still, seek a CFO who can get excited about working with your company! You want someone who will be an active partner in the process rather than another employee on your roster. More than anything else, these factors will determine the success of your fractional CFO and your outsourcing relationship overall.

Read about how SmartBooks replaced a long-time CFO to support 66% client growth and 70% revenue growth over 3 year period.