The chief financial officer is crucial role. But not all businesses can afford – or are ready – for one.
One alternative to committing to a full-time (and expensive) C-suite financial executive is a fractional CFO.
“The biggest role of a fractional CFO is going to be high-level overview. The business is typically not going to be big enough to really justify a full-time CFO,” BluWave Head of Finance Justin Scott says. “But you do need somebody to validate the financial statements and make sure that your cash flow’s in line. Things that the controller or even a super-controller may miss.”
Fractional CFO consulting is something we hope the world’s leading private equity firms and private and public companies with on a regular basis.
Let’s look at this part-time position in more detail, and explore whether temporary CFO services – full-time interims – make more sense.
A fractional CFO provides high-level financial oversight for businesses that might not be able to justify a full-time CFO.
“The biggest role of a fractional CFO is going to be a high-level overview. You just need that extra set of eyes,” Scott says. “It’s more of a validation role.”
The “fractional” part of the title indicates that the person in this role is working a “fraction” of what would normally be a full work week. In fact, it’s not unusual for someone to serve as a fractional CFO for three or more businesses simultaneously.
A fractional CFO is a great option to help secure funding, and then establish the ongoing reporting process and line of communication with the funding source.
“If you use a fractional CFO because you want to establish a line of credit, that line of credit is going to have regular monthly reporting that has to be provided and you may not want your controller working on it,” Scott says.
While there are other use cases, these are among the more common ones.
How Many Hours Does a Fractional CFO Work?
This will vary, but again, by definition the role is a fraction of full-time.
That could mean as little as 5 hours per month, or as much 10-plus hours per week, which is why people in this role often support multiple businesses at once.
There are, of course, both positives and negatives to having someone work for such a limited amount of time.
Fractional CFO Near Me: Hire Today
The best fractional CFO companies will provide candidates with experience in your specific situation. That means industry, company size, geography and more.
BluWave’s network of professionals is pre-vetted with multiple references. That means before you contact us, we already have multiple candidates ready to meet you within 24 hours.
Instead of searching for “fractional cfo services near me,” you can save time and money by letting us connect you with a situation-specific candidate who meets your pricing and experience expectations.
Hire Fractional CFO: Benefits, Drawbacks
Here are the pros of hiring a fractional CFO:
Fractional CFO Pricing
How much do they cost? Well, a fractional CFO cost is more budget-friendly than bringing on a full-time executive.
Instead of paying a salary plus benefits, you can budget for a set amount of hours each week or month.
Fractional CFO Hourly Rate
Even someone who charges $250 per hour, for example, would only cost $2,500 in a 10-hour month – far below the cost of a full-time chief financial officer.
“I think the larger use case is they just don’t have a need for a full-time one,” Scott says. “They probably have a controller or a super-controller in place that gets them almost everything that they need, and they just want an extra set of eyes for peace of mind. The expense is definitely going to be your primary driver.”
Fractional CFO Contract: Flexibility
A fractional CFO is usually brought in as a specialist in one particular area of the finance function. In fact, CEOs could leverage multiple fractional CFOs at the same time, each focusing on different areas.
Since a part-time hire works so few hours per company, they typically have more flexibility, too.
Fractional CFO Services
For specific tasks in advanced functionalities, a fractional CFO’s on-demand expertise can be invaluable.
One person can be brought in, laser-focused on a project, and only cost the company the amount of time needed to complete it.
“Fractional CFOs do get a lot of exposure to a lot of different businesses, so those are typically the CFOs that are very industry agnostic because they can step into a lot of environments,” Scott says.
Mentoring and Coaching
Whether the person running a company’s finances full-time is an ambitious controller or a green CFO, bringing in a fractional CFO to cover their weaknesses can benefit both the company as well as the permanent hire.
The fractional CFO can not only ensure that the full-time person’s blind spots aren’t a liability, but they can train them along the way so that they’re able to do it on their own in the future.
Here are the pros of hiring a fractional CFO:
Limited Business Insight
Since a fractional CFO is not fully engaged, they might lack a deep understanding of the company’s needs.
“I use myself as the example here. There’s a lot of things that I catch or help plan for because I’m intimately involved in every step of the business,” Scott says. “If I didn’t understand the complexities of what BluWave does, it would be very easy to give a vanilla, out-of-the-box opinion on something and then it blow up in our face.”
Fractional CFO Time: Less Commitment
Fractional CFOs might not feel as invested in the team and organization they’re supporting if they’re only involved a few hours a week.
“There’s no long-term commitment,” Scott says.
This means that if things start to go south, they’re not going to feel the pain as much and therefore might not be as motivated as someone whose career is on the line.
Lack of Focus
As mentioned, fractional CFOs are likely to be working for multiple companies at the same time.
Depending on the urgency of projects from one situation to the next, the fractional CFO may not be as locked in on your company’s needs as they would be otherwise, despite their best efforts.
Risk of Losing Them
Some finance experts are content to keep their hands in multiple pots. Others, however, would be happy to jump to a full-time position if the right opportunity presented itself.
Instead of receiving notice about their departure weeks in advance, they may leave you high and dry for a business that’s willing to pay them more.
“That can almost be even bigger risk because fractional CFO by nature already has less understanding of your business, and now they also have less commitment,” Scott says.
Perhaps your business can’t justify a permanent CFO – or you’re going through a leadership transition or preparing for sale – but you still need the full-time commitment of a finance executive.
An interim chief financial officer, then, may be the perfect solution to strike that balance.
An interim CFO includes all the pros of a fractional CFO, but practically none of the cons.
That’s not to say that there aren’t also drawbacks of an interim vs. a permanent CFO, but they tend to be a much more impactful solution than someone who only engages with your business for a few hours per month.
An interim CFO is typically more engaged, provides a deeper understanding and is committed full-time.
This deeper involvement brings with it process improvements, better cash flow management and strategic partnership benefits to CEOs, Scott says.
“The interim CFO is going to be more of a strategic partner.”
When To Hire an Interim CFO Instead
Scott says portfolio companies and private and public companies that are ready to add a full-time CFO for the first time are well-positioned to seek an interim.
“Now all of a sudden, this is their game. It’s their full-time focus, so they’re going to be digging through everything,” Scott says. “You’re going to get process improvements. You’re going to get better cash flow. You’re going to get all of the things that a full-time CFO brings to the table.”
2. Strategic Partnership
CEOs can expect more from an interim CFO than a fractional solution.
“They’re more engaged with business,” Scott says. “They have a deeper understanding of the business. They’re just going to get more out of the relationship.”
While the initial cost might be higher, the benefit an interim CFO brings in terms of expertise and commitment can significantly outweigh the expenses.
“The interim CFO is going to be more of a value-add,” Scott says.
Their billable hours can also be capped, and they typically don’t take benefits like health or 401ks.
Whether you seek a fractional, interim or full-time CFO, the Business Builders’ Network is loaded with private equity-grade options for all company types and industries.
The resources BluWave provides have been vetted by multiple PE firms before joining its invite-only network. It’s no surprise, then, that interim CFOs are consistently among the most requested connections we make.
When you’re ready to meet your next chief financial officer, our research and operations team will provide a short list of industry-specific candidates within a single business day. Set up a scoping call to get started today.
“It’s a big step to go from a fractional CFO to a full-time role,” Scott says, “but the benefits are undeniable.”
Identifying an interim chief financial officer can be tedious, if not expensive. Companies that don’t know what they’re looking for when they begin their search could spend large sums of money on headhunters and recruiting firms.
They can also lose valuable time interviewing unqualified candidates.
When hiring an interim CFO instead of a permanent replacement, key considerations include timeline, need-specific criteria and keeping an eye out for red flags.
As a trusted resource for hundreds of private equity firms and thousands of portfolio and independent companies, BluWave has exclusive insight into what makes a home-run selection vs. someone who will send you back to the drawing board.
What is an Interim CFO?
An interim chief financial officer is a temporary, full-time executive a company hires when it’s without a full-time CFO. We’ll talk more later about the situations in which you would hire a temporary CFO.
To better “define interim CFO,” we asked BluWave’s Vice President of Finance and Accounting Justin Scott.
“I think the interim CFO role really depends because it’s really got to be scoped well going into it because you could have an interim for different reasons,” Scott says of defining the role. “If you’re going to take the interim route, you want make sure that you have an interim that has the specific skillset you need for the reason you need an interim.”
There are several benefits to hiring a CFO temporarily while searching for someone to fill the role permanently.
“What we’ve heard is, you’re either finding a full-time person in less than 30 days in the first slate of candidates or it’s going to take five or six months,” BluWave managing director Houston Slatton says.
Identifying a candidate experienced with the right industry, company size and revenue models, for example, takes time.
“You may get lucky, but you’re probably not going to. And so you need to plan to not have a full-time person in that seat for five or six months,” Slatton adds. “You don’t want a B-minus player because they’re going to be a key member of the executive team.”
“You could have an interim CFO simply as a stopgap. You lost your prior CFO unplanned for whatever reason. And ‘I just I got to fill a role until I find my long-term solution,’ or I could have an interim CFO to prep for sale,” Scott says. “So it really depends on the scope of the interim CFO.”
Here are some of the more common scenarios where interim CFOs are hired.
Trial Basis
One benefit of a short-term hire is that you can test them in the role before making a full-time commitment. This makes it easier to transition a strong candidate to full-time if they prove to be a good fit. It also means giving someone an opportunity without immediately making a larger investment.
“It is very easy to interview very well and then the person who shows up is not who you interviewed,” Scott says. “That’s very critical in the CFO role because if you get a bad CFO or somebody that can talk the lingo but not deliver the activity, you can get yourself in a lot of trouble real fast.”
Interim-to-full-time transitions often happen after a company’s been recently acquired. What began as a one- or two-quarter stint can easily transition to a permanent role if the person has integrated well, especially with the CEO.
Stopgap
Sometimes, companies need more time before choosing a permanent CFO. But they don’t want to leave such a crucial role vacant for months, either.
This is another opportunity to bring in someone with interim experience to bridge the gap between the prior CFO and your long-term solution.
“Given the importance of the CFO role, it’s really hard to be without one unless you have an amazing controller,” Slatton says.
Some people make a career out of temporary assignments, putting them top-of-mind for recruiters in these situations. One such person in our network talked to us about the benefits of an interim CFO.
“I think the primary purpose is to just stabilize everything,” says the executive, who spent eight years in PE before focusing on temporary assignments. “But then also learn the nature of the operations and the backbone of the company, and how it operates and if changes need to be made.”
At BluWave, we have seen that the end of the year is a popular time to hire an interim CFO.
Historically, about 60 percent of the interim CFO projects we have sourced were in Q3 and Q4.
“The last thing a CEO wants to do is be approaching an end-of-fiscal-year and not have somebody that’s going to drive their financial close right for the year,” Scott says. “That could be a really scary place to be, where earlier in the year you’ve got time to bounce back.”
Interim CFOs also focus on making a company as valuable as possible once it’s been acquired. This is especially important if someone in a lower-level position, such as a controller or an accountant, previously led finances.
“One purpose of an interim CFO is to just stabilize everything,” says Hunter Eagan*, an interim CFO from BluWave’s invite-only network. “But then also learn the nature of the operations and the backbone of the company, and how it operates and figure out whether it’s going to meet the demands of the new private equity owners, or if changes need to be made so that the company can produce the information that the private equity owners are going to want to see.”
Slatton says companies often use large amounts of debt to finance their purchases, opening the door to new accounting situations.
“Now they need somebody to handle all the bank reporting and covenant testing for the lenders and putting in real GAAP,” Slatton says. “As soon as they have a loan like that, they suddenly have to do all this financial reporting. That will be a new process and it hits quickly after they close on the business.”
In addition to what Slatton shares, other key value-creation tasks may include:
A short-term finance executive can also be a great resource when a company is preparing to be sold. After holding a company for 3 to 5 years, PE firms typically look to sell it to a larger PE firm or public company.
Merger and acquisition experience is especially important in private equity, whether it be post-merger integration or prep for sale, having M&A experience is key.
Here are some other ways interim CFOs can help companies prep for sale:
Performing legal and external reporting to regulators
Any company that needs a temporary finance leader at the C-suite level can use an interim CFO.
Private equity firms often want to find temporary finance leaders before, during or after the sale of a portfolio company.
But private and public companies can also benefit from strong finance and accounting leadership.
At BluWave, this is one of our most in-demand roles year-round as companies seek to professionalize their finance function, ease a transition, recover from a crisis and more.
When evaluating candidates, use the same measuring stick for each one. BluWave founder and CEO Sean Mooney, who has more than 20 years of PE experience, came up with the PE-grade CFO scorecard for this purpose when looking full-time CFOs.
Many of the same principles can be applied to the interim CFO search process. Having a baseline allows everyone involved to make more objective evaluations.
“Assign different parts of your scorecard to relevant key team members so you can systematically measure candidates against each of your criteria while getting a range of inputs from across your organization,” Mooney explains on the Karma School of Business podcast.
When sourcing candidates, companies often reach out to someone like BluWave for help. We then present them two or three candidates tailored to their specific needs. One of those candidates typically emerges as the leading choice, at which point they’ll continue interviewing with other executives and, when applicable, the PE firm.
While you can put whatever criteria you like on your scorecard, we have a few recommendations for the interim CFO process.
Experience at a larger company vs. a smaller one isn’t good or bad, it’s just different.
We often see, for example, executives who traditionally spend time at larger organizations struggle to move to smaller ones.
“CFOs that come out of those portfolio companies or come up through the ranks have a very different mindset than one that comes up through the Fortune 500 world,” Scott says. “It’s a little bit more of the rolling up the sleeves type thing, right? The PE-grade CFOs, that’s just expected because you have to be engaged in everything because instead of having 500 people on your finance and accounting team, you might only have two to five.”
Mooney recalls multiple past appointments that didn’t work out for that reason.
“I’ve had so many failures trying to bring in big-name large company CFOs who just couldn’t function at a lower middle market size company,” he says. “It wasn’t that they weren’t great. It was that they just weren’t a good fit for a smaller-company environment.”
Relevant Industry Experience
This is an important factor for companies with unique or complex accounting needs or ones within highly regulated industries.
A strong candidate should be able to articulate relevant industry experience in the interview process. Whether manufacturing, software, healthcare, or another area, the interim CFO should be entering familiar territory from day one.
To evaluate this point, Scott says we ask candidates: “What did you do in that industry to make yourself stand out or to prove that you understand that industry and how it works?”
Capital Structures
Mooney says interactions with lenders and investors go more smoothly when someone has experience operating under similar capital structures.
“This is particularly true when we think about having done the balance sheet entering a public company operating environment,” he says.
While uncommon, there are times when the ideal interim CFO is already on your team.
“It’s going to be a more seamless transition with somebody that comes internally,” Slatton says. “If you have somebody really good that you like that’s internal, use them just because it’s going to be easier.”
More often, though, companies bring in someone new.
“Some of those higher-level kind of CFO skills, you’re not going to find on an internal team,” Slatton says. “Bringing in somebody from the outside allows you to have access to a broader set of skills and brings a fresh perspective.”
Welsh agrees, saying it can be easier for interim CFOs to put their emotions aside and get the job done.
“They can just pick out the issues and deal with it,” she says.
Interim CFO assignments, by nature, are temporary. Interim finance roles typically last around six months, though we have seen stints as short as three months and as long as a year or more. It all depends on the situation a particular business is facing.
“Oftentimes it’s until you find the permanent and that often takes three to six months,” Slatton says. “Recently it’s been longer, just as it’s been harder to find talent across the board.”
As Slatton mentions, at the end of the temporary CFO’s time, a full-time CFO is named. Oftentimes there’s a transition process where the eventual full-time candidate works alongside the interim to ensure a smooth transition. In same cases, the interim CFO is hired into the same position full-time.
Hire an Interim CFO Immediately
A well-vetted interim CFO search process typically takes up to 90 days from the initial call to their first day of work.
There are times, however, when you need a vacancy filled “yesterday.” At BluWave, we provide two or three best-fit candidates within a single business day. This can cut a process that normally takes three months to a few days.
“Of the several hundred PE-grade CFOs in our network, we select the top two or three choices for a company, and once the negotiation is finalized, they can get to work very fast,” Scott says.
Every candidate in the BluWave network has been pre-vetted with multiple references. And before we recommend someone to a company, they are vetted again to provide the most up-to-date evaluation possible.
As we already mentioned, many candidates can talk the talk, but not walk the walk.
Here are some signals that will help you discount the duds from the outset.
Salary Disparity
If someone is accustomed to making significantly more money than you can pay, you might want to skip them. While they may claim to be interested, they could use the interim opportunity as a stepping stone to a higher-paying role, leaving you looking for another finance executive sooner than expected.
“In my experience, rarely will the candidate take a meaningful discount and not start looking for the best next role sooner than later,” Mooney says. “You don’t want to be a bridge to somewhere else.”
Geography
Another important consideration is location. Or in some cases, relocation.
While the pandemic accustomed companies to remote workforces, there’s value in having your financial leader on-site, even for a few days a week.
In high-stress situations like turnarounds, restructurings or building a finance team from scratch, interim CFOs need to earn trust as fast as possible. This is difficult to achieve working remotely.
“Time and time again we’ve seen projects get down to the finish line and at the end of the day, they say, ‘Well I’m not really ready,’ or ‘We’re not going to move our family,’” Mooney added.
If you’re considering someone who’s out-of-market, confirm early on that they’re willing to work from your office for the majority of the assignment if this is important to you.
While less of a concern for temporary assignments, beware of candidates who routinely spent only a year or two in full-time roles.
The exception would be someone like our interim CFO veteran, who spent years in full-time roles before shifting exclusively to short-term stints. Candidates like him understand how to make the most out of a three- to six-month opportunity.
“I think it’s very valuable to have someone who knows all the things that need to get done,” he says. “Getting everything set up, and then making sure that the management team and the private equity owners have a good open line of communication, and aren’t afraid of one another. I think an interim CFO is in the perfect spot to facilitate that communication.”
Employment Gaps
Mooney says it’s normal for candidates to have “bumps in the road.” No one’s career is a downhill ride on the yellow-brick road. Hiccups should be the exception, though, and not the rule.
“Be aware of large gaps in employment. Look for track records of being recruited to bigger and better next roles versus leaving roles without a bird in hand,” he says.
If a candidate consistently left full-time jobs without having the next one lined up, dig deeper into why that is, or discount them altogether.
Pointing Fingers
Talk to each man and woman you interview about difficult times in their careers.
If they’re quick to pass the blame, you can expect them to act likewise once hired. You want someone who takes responsibility, not assigns it.
“Look for candidates to own the results and ultimately share what they did to take action and improve the situation,” Mooney says. “Be aware of candidates who repeatedly blamed circumstance and fate.”
Questionable References
BluWave runs multiple reference calls before presenting a candidate to a potential client. Welsh says this is a great way to weed out unqualified options.
“It’s a value prop that we have for our clients,” she says. “We always ask for references, and if they’re unwilling to send them, we take that as a red flag and we are unwilling to work with them from there.”
Passive Work Habits
If a candidate doesn’t have a history of getting involved in the day-to-day details, they’re probably not going to accomplish much in a three– to six–month assignment.
“People aren’t looking for an interim executive to come in and bark orders. Anybody can do that,” Scott says. “They’re looking for somebody to come in and really get engaged, understand what’s going on in the business, figure out what’s not working in the finance and accounting department and get that aligned with the business needs as quickly as possible. And you can’t do that sitting back.”
That’s why a candidate needs to express past accomplishments with details.
Bad Cultural Fit
“Every CFO that we’re going to present is qualified,” Slatton says. “It’s more about, can they fit well with the organization and are they going to partner well with the PE firm?”
Welsh agrees, saying there are many qualified finance executives for hire. The more important question, though, is how well they can adapt to a new situation.
“If they can’t earn respect and get people on board with the company mission, they’re not going to be able to move the company in a positive direction,” she says. “You can be the most experienced executive in the world. But ultimately, if you butt heads with the person you’re supposed to be working with, it’s not going to work out.”
Welsh, who onboards interim CFOs to the BluWave network, says lesser-known candidates can embellish their background to land a prized opportunity.
That’s why, she says, we ask probing questions before recommending them to a client: “Who have you worked with? When have you worked with them? And how have you worked with them? I think those are very important.”
When candidates see interim opportunities as a chance to build their skillset, it’s a recipe for disaster.
“An interim CFO job probably isn’t the way to learn new types of business models, because interim CFOs need to jump in and know what they’re doing,” Slatton says. “Don’t try to think of an interim opportunity as a stretch opportunity.”
Selecting the right interim executive can be difficult, but with the right evaluation process and support, you’re more likely to hire the best person much faster.
Mooney recently recommended in CFO Magazine eight ways to optimize the process.
Creating an interim CFO scorecard can be a great way to kick off your search process, but don’t hesitate to contact us for help.
“Don’t overly weigh your assessment on any one criteria,” Mooney adds. “When using a structured scorecard-based approach that includes a comprehensive assessment of a candidate’s competencies, skills, values, intellect, personality and real-life case-study testing, I think you’re going to find that your success rates are going to go way up.”
*Privacy is important to us. While the source and company name have been changed, these are real quotations from a real service provider in the BluWave Business Builders’ Network.
