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What Does a Fractional CFO Do?

The CFO or Chief Financial Officer position is just as important to a startup as the heart is to the human body. While it is crucial for every business to have a financial officer, many startups may not have the resources to hire a full-time CFO. Hence, a fractional CFO is a better option. 

What then is a fractional CFO, and what are the duties of a fractional financial officer to a company? This article answers questions about what a CFO does and why you must have one in your company.

What is a Fractional CFO?

A fractional CFO (Chief Financial Officer) or outsourced CFO is a professional responsible for managing a company’s financial goals and objectives on a contractual or part-time basis. Their primary duties are running the company’s financial, risk management, and administrative operations. 

They usually provide these services to more than one startup based on the contractual terms of each company. That means that they do not work full-time like regular CFO. 

What does a Fractional CFO do for a company?

Below are some of the roles and duties of a Fractional CFO to a company:

  1. Financial planning
  2. Legal and risk analysis
  3. Capital raising
  4. Accounting and reporting
  5. Manage cash and cash flow
  6. Navigating audit

Financial Planning 

Most startups have complex financial processes and numbers, which they need an expert to simplify. One of the main duties of a Fractional CFO is to manage the financial operations of the company.

As financial experts, CFOs analyze records, manage the present, and provide accurate forecasts and strategies to grow the company’s revenue. They utilize data for recommending strategies to steer development. They also analyze the profitability of a project or product or the company’s financial strength to venture into a project. 

Legal and Risk Analysis 

A CFO helps the company manage legal and financial risks overall or on a project basis. They develop plans to identify financial risks and avert dangers such as debt, bankruptcy, or low liquidity. They also ensure that legal and trade regulations are properly complied with. 

Capital Raising 

As startups, companies require funding to begin operations and set projects in motion. CFOs can help raise appropriate funding for projects or companies and ensure they’re adequately allocated. 

They can also help solicit loans or investments into strategic plans. They also help value the company, prepare plans to attract potential investors, and meet with investors to secure a good deal for the company. 

Accounting and Reporting. 

Complex or growing numbers births the need for proper accounting of the finances. Fractional CFOs help to oversee the financial records and the outcomes of the accountants and other officers. They also create reports such as balance sheets and design key performance indicators to analyze the company’s financial health. 

Manage cash and cash flow

With their financial acumen, Chief Financial Officers monitor the cash flow in the company to keep it stable. They help to grow revenue and achieve a strong return on investments (ROI). 

Navigating audit

Audits are inspections of the accounts of a business to ensure appropriate documentation of transactions and the accuracy of financial statements. They are very important to determine the financial state of a company and may be imposed by law. Because of its technical nature, startups require the expertise of a CFO to navigate the audits and get accurate numbers. 

How is a fractional CFO different from a full-time CFO?

While a fractional CFO performs all the duties of a full-time CFO, there are some differences between the two. A fractional CFO offers services on a contractual or part-time arrangement. That means they only work on specific days or projects rather than every day. 

They are also paid based on the contract terms and may not require the remuneration of a full-time CFO, such as salary and bonuses. 

Advantages of a Fractional CFO

Here are the advantages of a fractional CFO:

  1. Time-saving: Hiring a CFO that works like an external officer to tidy up your numbers helps to save you time to focus on other areas. 
  2. Cost-effectiveness: Startups may not have the financial standing to offer the salaries and benefits of full-time CFOs. Hence, it is cost-effective to employ the services of a fractional CFO who would be paid based on the contractual agreement. 
  3. Flexibility: As a company just beginning its operation, hiring officials temporarily is more beneficial. This way, they can cut ties easily while the company is still in its building process. 
  4. Experience and expertise: Tracking their finances becomes more challenging when businesses scale. Using a Chief Financial Officer’s foresight, experience, and expertise, they can set up a system that better matches the company’s growing needs.
  5. Improved productivity: Hiring a professional helps to keep the work done timely and improves productivity. The finances lie at the core of every business, and a CFO will help to correct mistakes and provide accurate forecasts and strategies while ensuring increased revenue. 

When to Hire a Fractional CFO

The right time to hire a Fractional CFO is when a company’s revenue starts getting complex for the internal team to handle. A good indication is after the business receives a significant investment or funding (usually Series B funding). That helps the startup set a good foundation to achieve its objectives. 

Would You Like to Hire a Fractional CFO?

There is no manual to hiring a fractional CFO. However, there are some factors to consider when hiring the right CFO. It is important to hire someone with a wealth of experience and who has worked in the same position more than once because they will be Fully Accountable for your accounting. The person should also have experience in your field or companies of different sizes. 

Asides from experience, you should look out for a record of evidence of excellence, good character, and accountability from your past jobs. It is also a plus that your potential CFO has a vision aligned with your company’s goals and objectives.