A fractional CFO performs many of the same roles and duties as an in-house CFO, except that they serve as part-time CFOs and typically work with multiple companies. Fractional CFO roles are commonly filled by external firms who act as an extension of your internal finance team and offer multitudes of financial management services. With the high cost associated with hiring full-time CFOs, it’s often not attainable for startups. Hiring a fractional CFO firm who specialize in startups, like Graphite Financial, is a smart use of the limited capital and makes it possible for startups to gain access to CFO expertise and tailored strategic financial guidance that can boost financial performance.

What is a startup Fractional CFO?

Most people already know and understand the importance of having a capable CFO for the financial health of a startup. CFOs manage, track and predict the financial actions of a company. They are the leaders and decision-makers for major financial activity and strategies within an organization. In addition to their core duties, they also often provide risk management reporting and advise the CEO and the board on a business’ financial health so key decisions can be made.

Early startups typically don’t have a need or the budget for a full-time in-house CFO. Fractional CFO firms are an ideal fit and a common practice for startups to partner with. They can guide companies through various funding rounds as well as growth stages. When you work with a qualified fractional CFO firm, you can rely on them for the financial expertise your startup needs to effectively scale up operations and revenue generation without the unnecessary cost of hiring a full-time in-house CFO.

What Does a Fractional CFO Do?

As mentioned above, a fractional CFO performs the same duties that a regular CFO would but on a part-time basis. Fractional CFOs are often contracted with external firms and they work with multiple companies. You should expect to receive professional quality service, expertise and guidance on the financial activities of your specific operations if you hire a fractional CFO firm who specialize in startups. Some of the key duties that a fractional CFO carries out include:

• Financial strategy
• Financial forecasting
• Budgeting
• Navigating audits or transactions
• Fundraising

Fractional CFOs can also help solve unique financial challenges. These may include issues with cash flow, improving gross margins, reducing overhead expenses and other cost-cutting, and scalability and funding needs.

Many startups will attempt to run without a CFO or any type of financial expert. Many others will have an existing employee pulling double duty. Neither are ideal scenarios. That’s the value of a fractional CFO – startups can save money over the cost of hiring a full-time CFO but still reap the benefits of having the expertise, guidance, and high-quality financial service that a full-time CFO brings.

When Does a Startup Need a Fractional CFO?

The simple answer is that your startup should look into hiring one as soon as you can afford one. Keep in mind that your fractional CFO can scale with your startup as it grows. So while this professional may only work a handful of hours with you each week to begin, your growth situation may soon evolve into a position where a fractional CFO is providing you much more strategic support as you grow.

Fractional CFOs are experienced financial professionals who can help hone financial strategy and offer value in ways your existing employees cannot. They can help you navigate financial complexities, help make recommendations to investors and your board, and also assist with fundraising and other critical activities that startup firms need to do to grow and thrive in their market.

Key Qualities to Look for in a Fractional CFO

As a startup, it’s important to find the right partners to help propel operations forward – and you’ll look for a fractional CFO in the same way that you’d look for these other partners, weighing things like cultural fit, proficiency, strategic thinking and communication skills.

A good fractional CFO aims to become an extension of your startup. It’s just as important to be comfortable with who you’re working with as it is for a fractional CFO to be comfortable and clear of their duties and expectations with your startup.

Understanding the Cost of Fractional CFO Services

The cost of a fractional CFO largely depends on the level of service that your startup requires. For example, startups that haven’t scaled and aren’t in a growth mode may only need the services of a fractional CFO a few hours per week. Other startups that are in growth mode and have more complicated financial needs are likely to need more comprehensive financial services. In this sense, the cost of a fractional CFO is tied to the size and needs of your startup.

Generally speaking, Fractional CFO rates range between $200-$400/hr, depending on the needs of the startup. Young startups can expect to need a handful of hours per month, while a more mature startup with specific needs can expect more.

Various other intangibles can impact fractional CFO pricing, including the experience of the CFO, the type of market that your startup is doing business in and more.

Benefits of a Fractional CFO for VC-Backed Startups

Fractional CFOs are particularly valuable for startups who have raised venture capital. Venture-backed startups raise money from partners to grow and advance rapidly – and that’s where a Fractional CFO can become essential. Not only do many Fractional CFOs have experience fundraising in the VC landscape, but they can also serve as a key partner for helping your startup manage its finances as it grows. A fractional CFO can also handle investor relations and serve as the liaison between your startup’s key leadership personnel and the board to advise decision-making as the startup continues to scale.

How Fractional CFOs Have Impacted Startups

It’s estimated that 4.7 million startup businesses are born in the United States each year. Yet, about 10 percent of startups fail in the first 12 months. Over the long term, it’s estimated that more than 90 percent of startups eventually fail. Why do most startups fail? Some of the leading causes of failure are due to a lack of adequate cash flow, an unrealistic budget and a lack of capital. These are all common pain points that a Fractional CFO can help a startup manage.

Take Caraway, for instance. Like many startups, when Caraway launched, it had a small team and didn’t have the resources to hire in-house financial professionals. It began working with Graphite Financial as the business scaled, relying on its expertise to support fundraising, provide budgeting and forecasting, and serve as that ideal extension of the business that Caraway needed. Today, Caraway is a thriving business with robust insight into their economics, growth plans and capital needs. You can learn more about Caraway’s story here.

Why Choose Graphite Financial for Your Fractional CFO Needs

Graphite Financial is a leading provider of fractional CFO services for startups. Graphite specializes in tailored services specific to your startup’s needs and has the experience and expertise to help your startup better understand unit economics and scale. Once you begin working with Graphite, you can rest assured that our financial experts will take a deep dive into your startup’s finances to develop the models and insight you need for better forecasting and decision-making. From fundraising support to interactive financial dashboards to scaling with your startup as it goes into growth mode, Graphite is here to serve as your Fractional CFO. Contact us today for more information.

Ready to Elevate Your Startup’s Financial Strategy?

Are you ready to take your startup’s financial strategy to the next level? Graphite Financial is here to help. With a proven track record of partnering and helping startup founders & operators, we’ll work to become that extension of your business and key partner that your startup needs to thrive in a competitive business landscape. Contact us today for more information and to schedule a consultation with our financial experts.

FAQs

What criteria should startups use to evaluate potential fractional CFOs?

Evaluating a potential fractional CFO partner is similar to evaluating any other partners that your startup wants to work with. Factors such as communication styles, market experience, overall CFO and financial experience, and strategic thinking prowess are all important considerations. Remember, when you’re looking for a fractional CFO, you’re looking to hire a partner that can serve as an extension of your business. Bringing on a fractional CFO firm is recommended over hiring an individual since fractional CFO firms like Graphite can offer more comprehensive financial support including accounting and bookkeeping services. 

Can fractional CFOs assist with fundraising efforts for startups?

Yes! This is one of the key core competencies of most fractional CFOs. In addition to managing cash flow, providing financial reporting and forecasting, and assisting with budgeting, a good fractional CFO can also help with fundraising efforts. Their level of expertise can provide the guidance that many startup firms lack when it comes to such efforts.

How can startups measure the effectiveness of a fractional CFO’s services?

When you work with a high-quality fractional CFO, the difference between outsourcing to a financial expert versus doing things in-house is typically immediately noticeable. However, there are some other key ways to measure the effectiveness of a fractional CFO to ensure that your startup is getting the most out of this partnership. These include financial results, budget and planning adherence, fundraising success, revenue growth and gross margin, among others.

Are fractional CFOs only suitable for specific industries or startup stages?

No! Fractional CFOs can serve any startup in any industry. However, when you’re weighing the key qualities you want in a fractional CFO, experience in your particular industry is something that you’ll likely want to consider. The more proficient a fractional CFO is in your field, the better the outcome is likely to be with your startup.

What are the typical tasks assigned to fractional CFOs in startups?

A fractional CFO will serve a startup in many of the same ways they would serve any other business. But as startups have more unique needs, fractional CFOs might dedicate a bit more time to some specific tasks. For instance, fundraising. Startups need cash flow to survive and grow. A fractional CFO can help with fundraising, among many other tasks like financial modeling, helping the CEO make informed decisions, overseeing financial processes, and monitoring key financial tasks through periods of rapid growth.

Is it common for startups to hire a fractional CFO temporarily or on a long-term basis?

Ideally, a fractional CFO will evolve along with a startup as part of a long-term partnership. As startups grow and evolve, it’s only natural for them to bring some financial professionals in-house. And while it may be that there’s some evolution to the fractional CFO role, it certainly doesn’t mean that it has to be eliminated.

Do fractional CFOs offer ongoing strategic financial planning support beyond day-to-day financial operations?

Strategic financial planning and support is one of the key competencies of a fractional CFO. At Graphite Financial, we’ll create a financial health dashboard that takes a comprehensive deep dive into your operations and displays your financial situation. Knowing your current financial situation goes a long way toward being able to plan and strategize for the future.