As a growing business, you know the importance of keeping an eye on your company’s finances. You’ve researched and realized that hiring one of the many full-time CFOs out there can be expensive, especially if you’re just starting.
That’s where fractional CFOs come in. They provide companies with much-needed financial advice without breaking the bank or taking too much time. But how does this work exactly? And what are the benefits of choosing a fractional CFO over a full-time position? This article provides answers to all your questions.
What Is a Fractional CFO?
A fractional CFO is a term used to describe a part-time CFO. A fractional CFO can help you with financial planning, cash flow management, or other tasks that might be out of reach for your company.
But it’s important to note that a fractional CFO is not a replacement for your full-time business partner. They work alongside you as an extension of your team. However, they don’t take over any of your responsibilities or make decisions on behalf of the company.
A common misconception about fractional finance officers is that they are only good at serving small businesses with limited resources who don’t have enough time or money to hire full-time finance officers. However, this isn’t true. Many large corporations have succeeded in using this model because it allows them to save money without sacrificing service quality.
Benefits of a Fractional CFO
Opting for a fractional CFO over a full-time position can be significantly beneficial. Here are some of the benefits you get by hiring a fractional CFO:
Cost-Effective, On-Demand Support
Fractional CFOs can be hired on an as-needed basis. This makes it easy to scale up or down according to your company’s current needs, which is especially important for SMEs who may not have the same budget for their finance team as larger companies.
The average salary of full-time financial managers is around $131,710 per year, which comes to about $63 an hour. However, you might not want their services all year round.
But you have to pay full-time CFOs even if you don’t need their services all the time. On the other hand, you have to pay a fractional CFO only for the time you seek their services. Once your need is over, you don’t have to take the burden of paying.
Moreover, fractional CFOs offer an alternative to increasing CFOs stepping down from their position. According to a report from The Wall Street Journal, 37 CFOs stepped down from S&P 500 companies in 2020. It’s an increase of 27.6% from 2019. Fractional CFOs can step in the shoes of full-time CFOs as and when needed.
Additionally, fractional CFOs can help you save money by helping you make better decisions. For example, if a particular expense doesn’t seem necessary at the time it was requested or approved, your fractional CFO can point this out and help you reconsider whether or not it should go forward with approval.
Stable Cash Flow and Profitability
Fractional CFOs can help you avoid cash flow problems and achieve profitability. Cash flow is a leading problem for small businesses. A survey shows over 60% of companies face cash flow problems.
A good fractional CFO will know when to take a proactive approach to manage cash flow in your business by implementing strategies that can help you identify and address any issues before they become crises.
For example, a fractional CFO may be able to help you create a comprehensive budget that accounts for all of your financial needs throughout the year. This type of planning is crucial because it helps ensure enough funds are available for unexpected expenses or emergencies and allows consistency in how money is allocated within the company.
A well-managed budget will also keep tabs on how much money is spent on things like employee salaries or inventory purchases so that these numbers don’t get out of hand over time. This means less stress about whether or not there’s enough room left over at month’s end. Instead, everyone knows what their responsibilities are without having any surprises popping up from under them later down the road.
Increased Business Value
Here are some ways you can experience increased business value:
- Fractional CFOs help you increase the value of your business by increasing its profitability and cash flow. This leads to a more valuable company because it gives investors a reason to pay more for it, providing an opportunity for greater returns on investment.
- Fractional CFOs help grow your assets’ value by maximizing their use and efficiency, which also increases profits. As mentioned above, this creates an environment where investors may be willing to pay more for your business if they know it’s turning a profit or making money in some other way. In addition, having these financial controls in place makes sure that resources don’t go unused, meaning employees’ time isn’t wasted on unnecessary projects.
- Fractional CFOs help protect intellectual property from theft or loss through firm contracts with third parties, such as vendors or suppliers who work with you.
Increased Flexibility
According to an article published in CHRON magazine, flexibility is vital in ensuring your business’s growth. It helps increase competitiveness, improves efficiency, and builds a better team. However, hiring full-time CFOs can’t offer you that flexibility. On the other hand, selecting a fractional CFO gives you flexibility in terms of skills and the period until you need services.
This increased flexibility means that you can hire a fractional CFO for a specific project or task. You could also hire one on an as-needed basis if it were beneficial for your company to have some extra help with financial planning in the early stages of a new project or initiative.
Specialized Skillset
Fractional CFOs are typically trained and skilled in a narrow area of finance, such as cash management or interim financial reporting. They can then focus on that area and provide advice relevant to your business needs.
Moreover, you can also go with a CFO with a local specialization. For example, consider that you have multiple branches, one operating in Colorado, one in New York, and one in Washington. If you hire a full-time CFO, they will manage all the branches. However, with a fractional CFO, you can hire someone who knows and understands the local market.
For the Colorado branch, you can hire a Colorado Fractional CFO. Similarly, you can hire another fractional CFO for the New York branch until required. The CFO will have an understanding of the local vendors, customers, and stakeholders. Hence, this will help create a better financial strategy that can please everyone involved in the business and help your company grow.
You don’t need to hire a full-time CFO if all you need is advice on handling your cash flow or getting ready for an audit. A fractional CFO will be able to give you the tools and resources necessary without taking up too much of their time, allowing them to spend more time working on other projects for other clients.
Conclusion
At the end of the day, a fractional CFO can be a great way to save money while still getting top-notch advice. This is why so many businesses are turning to this model. It gives them access to specialized skill sets without paying for an entire team that requires full-time commitment or expensive overhead expenses like office space and equipment costs.
You’ll have easy access to professionals who understand your business well enough after just one meeting that they can give you valuable feedback on any questions or concerns you might have about financial matters as soon as tomorrow morning.
