Denice R. Preston
An individual CFO who is fractional s a seasoned finance professional who brings a wealth of experience in business management to an organization on a project or part-time basis. Finding the right one at the right moment can be significant to any company.
One trend we have discovered on finance initiatives with Toptal is the rising popularity of fractional CFOs. The term “fractional” refers to a seasoned financial specialist (usually with at least 3 CFO jobs) with extensive business and financial management experience to firms on a project or part-time basis.
The ideal timing to employ a fractional CFO is contingent upon the growth rate of a company or the financial task that are in hand. The benefits of hiring at the appropriate moment are numerous and lasting to the business.
How Is the CFO Role Fractionable?
The role of a fractional CFO is to manage many different circumstances that affect the finances of a company. The role of a CFO can be misinterpreted as being a person who handles numbers and accounting duties. The modern CFO is more than the sum of their duties. A CFO, regardless of whether it is full-time or part-time, is a multi-disciplined asset that:
Coordinates with frontline team strategies to understand and accurately price revenue opportunities.
Manages change events like turnarounds or management Reorganizations.
Like an experienced CFO who is full-time, a fractional one can offer the same experience while at the same time providing excellent flexibility and cost advantages that meet the needs of smaller firms.
The duties of a CFO in modern times are diverse and complicated; therefore, the role of each business’ needs will differ based on their specific situation. For certain companies, hiring a full-time CFO is not within their financial needs or capability, despite the numerous apparent benefits of a new hire’s strategic and leadership skills.
You can also consider a fractional CFO. Suppose your company isn’t advanced enough to justify a full-time CFO role. In that case, they can bring in particular expertise to assist with various projects that span the strategy and financial aspects. If different CFO roles are required periodically, it’s time to recruit a fractional expertise team.
What Types of Projects Can a Fractional CFO Help Resolve?
A partial CFO can help with multi-disciplinary projects and split between non-financial and financial duties. The job of the CFO is complex and may be separated into distinct issues and affect areas.
Companies Looking for Funding
Cash shortages are one of the most common reasons businesses cannot succeed. Apart from having a solid grasp on the company’s finances and the management of cash flows, an expanding company will require capital infusions to expand or keep operations going in a recession. Fractional CFOs can aid in fundraising (typically beginning in series B) or debt (e.g., negotiation of bank loan terms). Due to their combination of financial expertise and strategic knowledge, they can analyze the talks and determine where the investment could take the company.
Complex Budget Allocation Decision-making
Increasingly, companies often are in the position of deciding on the best way to spend their money. In determining whether to pursue acquisitions or shift distribution channels from traditional towards digital media, a business that doesn’t have a full-time financial manager may use a fractional CFO to review the proposed project and assist in making decisions in time-sensitive, intensive sprints.
Optimization of Internal Processes
Internal processes form the connection between operations, strategy, and performance. A CFO is uniquely positioned to know each step’s costs and impact and assist in their improvement. The CFO’s responsibilities include reviewing the entire process and understanding its financial effect on cash flow and profitability. The cycle keeps management updated on the company’s performance and returns to shareholders. Fractional CFOs can build procedures that best practice to document the reviews to ensure regularity and speed of execution.
Periods of Restructuring
Restructuring a business demands an in-depth understanding of the procedures (see above), the ability to determine the best way to improve capital structure, and a sense of cash flow. In a restructuring process, CFOs must detach from the traditional norms of the business and aid in reorganizing finance and operations to meet the new plan.
Filling a Leadership Vacuum
It is typically commonplace to alter the company’s management structure during leveraged buyout (LBO) procedures. A CFO might resign in these times, and investors may want to start with a fresh start and choose their preferred persona. These events could lead to an in-between period of appointments. It is possible to establish an interim figure to keep the company in a steady state and to begin developing new strategies. Hiring an essential position, such as a CFO, could last up to one year. Incorporating a qualified fractional CFO into the job is relatively easy and offers business owners a lot of flexibility and choice.
Regulatory Changes Are Afoot
Additional regulations, such as reporting, compliance, and disclosure obligations, require specialized and expert expertise. The consequences of not reporting or misinterpreting rules could cause reputational and financial damage. Therefore, it’s best to prepare for the worst. A fractional CFO can relieve the CEO and top management of these responsibilities while ensuring that external stakeholders are assured that the job is handled correctly. Because they are more likely to work in various sectors, Their broad experience and knowledge of different regulatory requirements can also create opportunities for knowledge transfer within existing teams.
The Board of Directors Needs Support
Board members, especially those in a venture or PE-funded business, significantly influence their decisions and the future direction. Having a fractional CFO participate in board meetings and offer new perspectives is advantageous. The interaction could be a two-way exchange, giving directors more information and presenting the key points to the company’s top management.
Independent board members must not have conflicts of interest with giant corporations with more complicated board structures. Sometimes, a company event could put a person at risk of becoming personally in a row. In these situations, the fractional CFO could be brought in as an interim board member to supervise the event, free of conflicts.
