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.”
Let’s look at this part-time position in more detail, and explore whether a full-time temporary CFO – an interim – makes more sense.
What is a Fractional CFO?
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.
Benefits and Drawbacks
Hiring a fractional CFO 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.
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.”
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.
3. Expertise on Demand
For specific tasks in advanced functionalities, a fractional CFO 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.
4. 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.
1. 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.”
2. 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.
3. 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.
4. 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.
An interim chief financial officer, then, may be the perfect solution to strike that balance.
Fractional CFO vs. Interim CFO
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.”
Why You Might 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.
Here are some reasons why:
Interim CFOs offer a higher level of dedication compared to their fractional counterparts.
“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.”
READ MORE: Interim CFO for a Financial Crisis
3. Cost-Effective in the Long Run
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.”