Do you dream of having someone in your corner that would help you understand your finances and strategically manage them so that you can take your business to the next level? That someone is called a Fractional CFO (also known as a Virtual CFO, Outsourced CFO, or Part- Time CFO).
A Fractional CFO takes care of everything finance-related for your company – but on a part-time basis. They’re a great solution for businesses that don’t have the budget or need for a full-time CFO.
Because let’s face it, when you’ve got a small business, hiring a full-time, full-price CFO may seem as mythical as a unicorn. And frankly, you may not even require one right now, depending on your business size. But what you definitely do need is a trusted financial partner.
You want someone who has the financial expertise to assist you in making confident business decisions. Someone who can educate you on your numbers so that you never wonder where your finances stand. And someone who can help your business thrive.
But before you can experience the magic of expertise that Fractional CFOs bring to your business, you need to find the right one.
There are three things to keep in mind when searching for a Fractional CFO fit for your small business, but first let’s look into what they do and what they don’t do.
What Does a Fractional CFO Do?
It depends on what stage your business is in. There are two different types of Fractional CFO support:
- pre-funding or pre-revenue support, and
- post-funding or established business support
If you’re a business in the pre-revenue or pre-funding stage, a Fractional CFO can provide you with strategic support. They can help you create your pitch deck, financial forecasts, and review and vet your business strategy. Most importantly, they’ll develop a solid financial model that you can present to potential business investors.
When your business gets funding or if you are an established business that is already making revenue, Fractional CFO becomes an important member in your management team.
They’ll help build your financial structure so your business is financially supported in the right way. And, if needed, they’ll set you up with the right accounting provider, financial tools, and financial processes for your business. They’ll provide a financial strategy that will help you make the right financial and managerial decisions – ones that will ensure your business is healthy and sustainable.
What a Fractional CFO Doesn’t Do?
A Fractional CFO may seem like your one-stop shop to better business finances. Sure, they play a large role in it, but other trusted professionals are still necessary for complete business health.
For one, a Fractional CFO does not do any of the transactional aspects of accounting and bookkeeping – tasks like inputting invoices, bank reconciling, and reporting. They utilize this information to get insights and make strategic decisions, but you’ll need a bookkeeper and an accountant to complete day-to-day finance and tax work.
Legal is another area that Fractional CFOs do not specialize in themselves. However, they can connect you to those who do. Working together, they can play a crucial part in keeping your business protected. For example, if you’re looking to expand locations, a Fractional CFO may advise that you have a business lawyer review the lease. That way, you can ensure you’re protected legally and avoid future issues from a poorly written agreement.
When a Fractional CFO reviews your business, they often notice areas of your business that could use outside help. They may suggest hiring sales consultants and/or a Chief Operating Officer (COO) to increase efficiencies, save you money, and make your business run better.
In short, they become your partner that watches your back and a guide that helps you navigate the unknowns of financial and business waters.
How to Find the Right Fractional CFO for Your Small Business
Now that you know how helpful a Fractional CFO can be for your business, it’s time to find a suitable one. Choosing the right partner comes down to evaluating three things:
- Personality and Human Connection,
- Provider type
Personality and Human Connection
A Fractional CFO is your trusted ally for strategic financial planning. You need to feel comfortable talking to this person and confident that they are truly listening to your concerns. At the same time, they need to show interest in your company:
Are they excited about your business?
Do they care about your mission?
They shouldn’t treat you as simply another customer; instead, they should show genuine interest in helping you succeed.
And they shouldn’t always agree with you, either. As they partner with you and provide guidance, there will be times when they need to push back on your business ideas. Hiring a “yes” person may be tempting, but won’t produce the best results and it’s not in your best interest.
A good Fractional CFO is a steward of resources, but they should also mesh well with your personality. This is someone you will form a trusted business relationship with, so partner with a person who would be a great fit.
You don’t necessarily need to hire a Fractional CFO with prior experience in your industry. Instead, try to hire someone with wide industry experience. These types of Fractional CFOs have a huge toolbox of knowledge that they can customize to your business. This helps avoid groupthink and gives you access to various strategic insights, tools, and networks.
Have a conversation with a prospective Fractional CFO about your business to learn more about their thinking and decision making. Someone with experience in multiple leadership or strategic positions can offer unique insight that you’ve never thought of yourself. Even though their ideas may come from working in a different industry, it doesn’t mean that they can’t be extremely helpful in yours.
Also, carefully review their resume and LinkedIn profile (if they have one). Make sure that the prospect has actual finance experience on a true strategic level, versus acting only as an accountant in the past.
Transactional knowledge of accounting is very different from financial and strategic requirements that are needed for a Fractional CFO to be successful. Fractional CFOs need to operate at a 10,000 ft. view and look at your business from various angles, not just from a numbers point of view.
Type of Provider
Fractional CFOs either work independently or as part of a full-service agency – each with its pros and cons.
When you work with an agency, you can access all of your necessary financial experts in one place: Fractional CFO, bookkeeper, and accountant. This can be helpful to some types of businesses, especially those in the start-up phase.
Sole providers focus on Fractional CFO-related tasks only, meaning you still need to find a bookkeeper and accountant. If you already have these professionals in place, they’ll work them. Otherwise, they can source new ones for you.
An agency keeps a close eye on their overhead, which can limit the involvement they have with your business. But working with an independent provider offers more personalized, individualized support. They can spend quality time with you and provide more comprehensive strategic advice.
As previously mentioned, human connection is crucial to establishing a strong relationship with a Fractional CFO. Yet when you work with an agency, you may not be able to select your actual Fractional CFO. The opposite is true when working with independent Fractional CFOs – where you have the opportunity to choose the best fit for your personality and business. As a result, you’ll have a better chance of starting a partnership with someone you will feel comfortable with.
In the end, choosing the right type of provider for your business depends on you and your needs. The best advice?
Interview both, a sole provider and an agency, to learn more about each option. Compare the benefits and disadvantages of both to find out what type would best support your business.
From human resources to marketing, you have many different roles to play as a small business owner. There’s no way you can be an expert at all of them! But no matter how busy you are, some business areas – like finances – require expert management. Without it, you may not be able to identify and avoid bumps in the road or make smart decisions about your business.
A Fractional CFO provides you with the financial insight you need for your business – without the commitment of a full-time hire. This trusted partner educates you on your numbers, figures out where you want to take your business, and helps you get there.
Unicorns may not be real, but Fractional CFOs are.
If you’re going to take your small business further, you need the right support in place – you will not only get there faster but with a lot less growing pains. Partner with the right Fractional CFO, and you’ll soon be on your way.
Many small businesses struggle with understanding their financials and not knowing how to use that information to plan for their business. Schedule a consultation and we’ll help you understand your finances so that you can make better decisions and have a healthy and sustainable business.