The Benefits of a Fractional CFO

By Cheryl L. Mucha, CPA, CFO Your Way – September 16, 2021
The Benefits of a Fractional CFO

When a company is not yet ready to bring on a full-time chief financial officer (CFO), a fractional CFO can be a great solution. A fractional CFO is a longer-term, part-time member of the team. This financial professional (or firm) is generally contracted on an outsourced basis, made easier today through cloud-based bookkeeping and team collaboration software. The fractional CFO may work on premises, remotely or a combination of both, depending on the company’s needs. As a part timer with set hours and days appropriated to the orga­nization, this individual may be working for several other clients at the same time.

Why a Fractional CFO?

There are many small and midsize businesses that are ready to benefit from the expertise of a seasoned finance and accounting professional but do not want to take on the cost of a full-time CFO. Companies of this size, which are maturing, likely have a bookkeeper on staff and may even have a corporate accountant or an accounting department. However, the timing or need for a full-time CFO may not be right for a variety of reasons.

As companies grow, corporate accounting becomes more complex and, with it, the need for more sophisticated financial inter­pretation increases. Additionally, a CFO takes a 360-degree view of the organization — financially and operationally — and uses the numbers to create meaningful projections to guide the business toward a sustainable future.

Strong Support to the C-Suite

A CFO offers advisement and expertise in the financial and operational areas of a business and may have specific knowledge and experience in certain industries or types of companies.

Beyond budgeting, forecasting, monthly or annual financial analyses, and tax filing assistance, a fractional CFO offers strong support to corporate accountants and the C-suite through vital, sophisticated services including the following:

  • Implementing or upgrading the accounting system
  • Interpreting the numbers to identify profit centers and opportunities for cost savings or revenue enhancement
  • Building cash flow models to help with planning
  • Gleaning key performance indicators from financial data to guide leadership decisions
  • Advising on capital market activities that may affect the company
  • Positioning the company for a merger or acquisition, attracting equity partners or raising outside capital, or restructuring or refinancing debt
  • Performing due diligence and valuations on business transactions or acquisitions
  • Preparing the company to enter a new market or expand its vertical integration
  • Providing leadership and direction to the organization and support to upper management that aligns with corporate goals to improve profitability, build market share and nurture growth
  • Developing strategies for corporate reinvestment
  • Ensuring that the company’s standard operating procedures adhere to best industry practices, support corporate goals and provide the necessary guidelines in all departments
  • Serving in an advisory role to the C-suite
  • Reviewing contracts, such as insurance, lease or service agreements

Selecting the Best Match

While many companies will do well with a generalist, certain industries do require a fractional CFO with experience and knowledge in their area due to financial complexities, such as real estate, logistics (e.g., distribution, warehousing, trans­portation) and manufacturing.

Other companies may need a fractional CFO with expertise in specific functions: go-to-market strategies, M&A matters, debt negotiation, brand expansion, international business/subsidiaries, or succession planning and exit strategies.

In addition, this person will be in the role of trusted advisor; therefore, the fractional CFO must mesh well personally and professionally with corporate culture, leadership and staff. Communication and leadership style are important soft-skill factors to consider when matching the right person to the company.

Bringing on a full-time CFO is an important business decision. However, using a fractional CFO is an option that can be an excellent transition step — or may be the ideal long-term solution.

This article appeared in the Fall 2021 issue of New Jersey CPA magazine. Read the full issue.