Top 10 Benefits of Hiring a Fractional CFO for Your Startup

Fractional CFOs are part-time Chief Financial Officers who operate externally of a business or, in this case, a startup. Fractional CFOs are often preferred by startups compared to hiring one in-house based on the ability to have access to an expert-level resource without having to pay an expert-level price. For startups with limited resources, fractional CFOs can pay big dividends.

Why Startups Need a Fractional CFO

From optimizing cash flow and financial management to implementing the right processes and policies for financial controls, a fractional CFO can check a lot of boxes. When you combine the industry-specific experience they’re able to bring to the table with their unique ability to set strategy and optimize processes, the value proposition is significant for startups – especially startups with limited resources and budgets.

Top 10 Benefits of Hiring a Fractional CFO

Still thinking about whether a fractional CFO would be best for your startup? Here’s a look at the top 10 benefits of working with one to help you weigh your decision:

1. Cost-Effective Financial Expertise

Perhaps the biggest benefit of working with a fractional CFO is having high-level financial expertise at your disposal for a fraction of the price of what it would cost to bring a professional in-house. Hiring a CFO to work in-house with the level of expertise and experience needed could cost upwards of a hundred thousand dollars or more (not to mention any associated benefits). Meanwhile, fractional CFOs have financial resources and experience working with and assisting startups with everything from fundraising to financial planning and reporting to tax compliance. When you work with Graphite, you can expect to have a fractional CFO service that’s designed to meet your startup’s financial needs and scale accordingly. 

2. Improved Cash Flow Management

Cash flow management is important for a startup’s financial strategy as it pertains to its past, present and future expenses. Cash flow management helps ensure a startup has enough assets to meet all its obligations and to make any adjustments necessary to ensure continuity, especially during periods of rapid growth. A good fractional CFO can help optimize and forecast cash flow and work with a startup to proactively address any surpluses or shortages.

3. Strategic Decision-Making

To grow and scale, a startup must have the right strategies in place. Many of these strategies are dictated by cash flow and your startup’s financial performance. Even though a fractional CFO is an external partner, it can still help advise your startup’s leadership when it comes to its strategic decision-making based on data. These decisions can help support your startup’s expansion, investments and market entry.

4. Financial Health Monitoring

It’s estimated that as many as 90 percent of startups eventually fail, many due to poor financial health. What’s more is that many startups don’t even realize that they are in financial turmoil until it’s too late to make the necessary changes. A good fractional CFO does more than just set strategy and carry out accounting practices, but they’ll always have an eye on your startup’s overall financial health to more quickly identify any risks or opportunities to improve. For any startup to grow and scale, it must be on a sustainable growth path. A fractional CFO can help ensure this by monitoring financial health regularly.

5. Enhanced Investor Relations

Transparent financial reporting is a huge win when it comes to investor relationships. Not only can good financial reporting set a solid foundation when it comes to providing real-time financial data to investors, but it can also allow startups to better understand their financial data and better prepare them to answer questions or present on it in board meetings or when seeking new rounds of funding.

6. Access to Advanced Financial Tools

Fractional CFOs have advanced knowledge of various financial tools to help further streamline operations, enhance transparency and take guesswork out of certain tasks. In many cases, these tools offer startups the ability to automate certain processes to minimize human errors and enhance efficiency. Many of these tools are also steeped in analytics to deliver detailed reports and offer advanced forecasting based on historical data, thereby allowing startups to make better, data-based decisions.

7. Scalable Financial Support

One of the best things about a fractional CFO is that their services can scale and evolve as your startup grows. Fractional CFOs support startups from initial seed funding to exit. At Graphite, we aim to form long-term partnerships with startups thanks to the scalability, cost efficiency and flexibility of our services. Graphite’s plans start at $1,250 per month and can increase as your startup’s needs change. Fractional CFOs aren’t band-aids. At Graphite, we design our services so we’re in it for the long haul.

8. Improved Internal Controls

In addition to accurate and reliable financial reporting, fractional CFOs can also help strengthen internal processes to ensure compliance and reduce fraud risks. This is largely thanks to the specialized knowledge and experience that fractional CFOs possess, which is often much greater than a startup’s in-house financial team.

9. Freeing Leadership for Growth Activities

One of the more overlooked aspects of outsourcing financial services is that it gives startup founders more opportunities to be entrepreneurs. Think about why you started your startup. It’s because you think you have a great idea that can disrupt the market. However, along with a startup comes many of the intangibles that also must be handled, like finances. If finances are handled in-house, it can bog down productivity and limit innovation. When you outsource financial matters, it allows your team to do what it does best while trusting a fractional CFO to do what they do best.

10. Stakeholder Confidence

Any startup likely needs investors and lenders to get started and then continue to grow. If they know you’re working with a fractional CFO, they’re likely to have more confidence that your financial data is accurate compared to if you were to handle such matters in-house. This can help better position your startup for future financing and growth.

When Should You Hire a Fractional CFO?

When should you hire a fractional CFO? The sooner in your startup’s tenure, the better.

Financial matters aren’t a choice with your startup — they’re a necessity. That said, many startups also have limited resources and limited experience with financial modeling and accounting. Working with a fractional CFO can fill these knowledge gaps and set your startup on the right path, especially when it comes to fundraising and scaling.

Furthermore, fractional CFOs can also be hired on a part-time basis or over the long term, so you can call the shots on the level of financial service your startup needs in the present day and into the future.

How to Choose the Right Fractional CFO for Your Startup

Interested in hiring a fractional CFO but don’t know where to start? Startups tend to hire a fractional CFO the same way they’d hire any other type of partner, weighing factors like level of experience, cultural fit and specialties. Some of the factors you’ll want to weigh include:

• Industry experience and any specialties
• Their track record with other startups and familiarity with your industry or market
• Their ability to scale based on your startup’s changing needs
• Communication preference and cadence
• Cost

Like any other big decision, it’s important to do your homework before hiring a fractional CFO. Schedule consultations to learn more about them and be sure to check references. Also, make sure to meet with more than one so you have options and can make a more educated final decision.

Maximize Your Startup’s Potential with a Fractional CFO

From cost benefits to having an expert, experienced CFO at your disposal when you need it, there are many benefits why startups should consider working with a fractional CFO. They can help fill financial knowledge gaps, build trust with investors and improve financial reporting. They can also help with strategic decision-making based on your current financial portfolio and any goals that you’ve set for the future.

Hire a Fractional CFO with Graphite Financial

For more information on the benefits of working with an experienced fractional CFO and to learn about how Graphite can help with fractional CFO services, contact us today. As experts in all things financial and accounting and a track record of providing tailor-made solutions to hundreds of startups, we’re ready to help your startup take its financial operations to a new level. Contact us today to schedule a consultation.

FAQs

What is a Fractional CFO?

Fractional CFOs are part-time Chief Financial Officers who operate externally of a business or a startup. They allow startups to have access to expert-level resources without having to pay an expert-level price.

How does a Fractional CFO differ from a full-time CFO?

A fractional CFO is a partner that operates outside of the startup, while a full-time CFO is often an in-house employee. Fractional CFO services are typically outsourced, which helps the startup gain access to a financial expert while saving on the overhead cost of bringing such a professional in full-time.

When should I hire a Fractional CFO for my startup?

There are many reasons to hire a fractional CFO for your startup. Not only do they offer significant cost savings versus hiring one full-time person, but fractional CFO services come with many benefits. These include improved cash flow management, help with strategic decision-making, improved investor relations, access to advanced financial tools, improvements to internal controls and processes, and the ability to scale financial services as required by your startup.

Is a Fractional CFO worth it for a small business?

Absolutely. Fractional CFOs can help fill financial knowledge gaps, build trust with investors and improve financial reporting. Additionally, there’s a significant cost savings in outsourcing this service versus hiring a full-time professional in-house.

How do Fractional CFOs help with fundraising?

Investors are more likely to have more confidence that your financial data is accurate compared to if you were to handle such matters in-house, which can help better position your startup for future financing and growth.

Can a Fractional CFO improve internal controls?

Yes, largely thanks to the specialized knowledge and experience that they possess, which is often much greater than a startup’s in-house financial team.