The Fractional CFO

In our opinion, small businesses and early-stage companies looking for their next level of financial support are well served by hiring fractional CFO’s. They come with relevant knowledge and can be onboarded for a fraction of the cost of a full-time finance hire or a CFO. 

Now we’d want to clarify the difference between a fractional CFO v/s an interim CFO. A fractional CFO spends only a fraction of their working week with the company and likely spends the rest of their time with other clients. Typical fractional assignments range from 5 – 20 hours a week.

An interim CFO, on the other hand, is typically a temporary yet full-time dedicated resource. The typical use-cases for hiring interim CFOs are special projects such as a fund-raise, a company sale, a carve-out, OR as temporary backfill in the event of executive turnover.

Both fractional and interim CFOs are hired as contractors and paid on a 1099 basis.

For the fractional CFO, an early-stage company will benefit by offering financial oversight, controls, and someone who can be a sounding board as the company grows and prepares for its initial capital round. The responsibilities of a fractional CFO are typically centered around setting up early financial infrastructure, managing accounting resources, selecting and oversight of tax advisors, advising founders on cash flow and other financial nuances, and building out investor data rooms.

Companies with a rapid growth trajectory can quickly outgrow the fractional CFO and look towards a more dedicated resource, either as a VP or a Head of Finance. In some rare cases, companies leapfrog directly to a full-time, experienced CFO hire based on their growth and success. We have seen several cases where the fractional CFO was hired as a full-time CFO or played a key role in sourcing and hiring the full-time CFO. 

In terms of any pitfalls, we have seen some cases where there was a lack of fit. Was seeking. Case in point, the CFO came with a strong accounting background but had limited to no FP&A or Investor Relations experience. In some rare cases, the fractional CFO was unable to offer the time and the commitment that the client required. Lastly, it is important to understand the support network of the fractional CFO or the firm, especially if they source offshore talent. Several CFO services firms rely on offshore talent, and you want to make sure your business data and information are safe and treated confidentially. We thus advise companies to vet their candidates and do necessary background checks.

How do you source and vet a fractional CFO?

Ideally, the best source is to get direct referrals from your network of founders and entrepreneurs. We at The CFO Office have relationships with best best-in-class fractional CFO’s who can help make introductions to. We also have direct connections to firms that offer fractional CFO services and a large and growing contingent of financial professionals who have entered the fractional CFO business. Further, we can also help interview your potential candidates and offer our point of view. You should vet to see the fit between the individual, their industry domain expertise, relevant experience, availability, and gauge their commitment to providing excellent service to your company.

A bad CFO hire, albeit as a fractional CFO, can prove to be expensive.

Green Flags:

1. Relevant experience

2. Strong references

3. Industry and Domain expertise

4. Depth of experience

5. Availability to dedicate time and attention to your business

   
   

Red Flags:

1. Slow/low / zero vetting from your side

2. Hiring based only on social media popularity

3. Hiring a CFO with no prior CFO background