SaaS Fractional CFOs: Strategic Financial Guidance for SaaS Startups

A fractional CFO is a professional who does everything a conventional in-house CFO does, except on a part-time and external basis. While this type of relationship is ideal for resource-limited startups, it’s especially helpful for SaaS startups with unique financial requirements. This is largely because of their subscription-based revenue models, which make churn, CAC, deferred revenue and other key metrics important to track.

What Is a SaaS Fractional CFO and How Do They Differ from Traditional CFOs?

Unlike a full-time, in-house CFO, fractional CFOs are external partners that serve your startup on a part-time basis. Fractional CFOs are especially important for startups that likely don’t have the capital to hire a full-time CFO, as this type of relationship ensures access to high-level financial expertise, yet without the high price.

That’s the biggest difference between a fractional CFO and a traditional CFO. Roles and responsibilities largely remain the same between the two types of CFOs. Here’s a closer look at these — and other — differences:

Why SaaS Startups Need a Fractional CFO

SaaS startups face a unique set of financial challenges, which can make it difficult to keep accurate financials. While hiring an in-house CFO or assigning an existing team member to manage the financial situation is one option, it’s not always the most economical, practical or smartest decision for a startup.

Fractional CFO services can help. As a cash-strapped startup, you’re saving money by outsourcing this role. Yet, you’re still receiving expert-level service from a finance specialist who knows the ins and outs of your business and has expertise working with SaaS startups like yours.

Benefits of Hiring a SaaS Fractional CFO

Hiring a fractional CFO has its benefits – here’s a look at a few of them:

Cost-Effective Financial Expertise

When you hire a fractional CFO, you’re getting expert guidance for your financial operations at a fraction of the cost of what it would be to hire a CFO in-house. The average CFO base salary in the United States is nearly $230,000 per year, while Graphite Financial’s fractional CFO plans start at $1,250 per month and can scale into more comprehensive tiers as your startup evolves. This fixed monthly pricing model helps ensure cost certainty.

Strategic Financial Planning

Financial modeling, cash flow management and fundraising are all important for SaaS startups that plan on sticking around in the market — and a fractional CFO can help with all of this. From ensuring accurate financial reporting in the present day to long-term scenario planning and strategic planning, there’s value in working with a fractional CFO beyond the here and now, but in setting your startup up for a sustainable future. Good strategic planning helps provide a clear roadmap for your startup, which can help set the table for fundraising success and build long-term relationships.

Fractional CFOs also track other important metrics for SaaS startups like MRR, ARR, CAC, LTV and churn.

Industry-Specific Knowledge

Industry-specific expertise is necessary when you’re launching a startup. When you work with a fractional CFO, you’re already working with a trusted expert. At Graphite, we pride ourselves on pairing our professionals with the startups in markets that they have experience in. For example, SaaS startups can rest assured that they’ll be working with a fractional CFO who has specific experience in SaaS businesses to add more value.

Beyond experience serving SaaS startups, Graphite’s fractional CFOs add value by ensuring ASC 606 compliance. They can also help your startup avoid certain pitfalls that are common in SaaS, such as challenges with revenue recognition, deferred revenue management and customer churn.

When Does Your SaaS Company Need a Fractional CFO?

SaaS startups should consider hiring a fractional CFO when they need more financial oversight, but don’t want the overhead that comes with a full-time hire. Some of the more specific scenarios that indicate a need include:

• During growth stages
• Before seed and Series A-C fundraising to assist with modeling, fundraising prep and investor relations
• When the existing in-house team is struggling to keep up with financial requirements
• If there’s a need for specific SaaS financial experience

Key Services Provided by a SaaS Fractional CFO

Financial Modeling and Planning

Financial modeling is important for capturing a snapshot of where a company currently is while providing a roadmap to projected future financial performance. Some specific models important to SaaS startups include cohort analysis, retention curves and expansion revenue, which help startups better understand consumer behavior, retention patterns and growth potential.

When you work with Graphite and take advantage of our fractional CFO service offering, you’ll get more than just a professional to help manage the books, but someone who has a keen understanding of financial models and unit economics to help assist decision-making and help make your startup as attractive as possible to potential investors.

Fundraising Support

For startups to operate, they need capital. To attain the necessary amount of capital to operate, they need investors on board who believe in what they’re doing and see the financial opportunity. Fundraising for a startup is a bit like taking a leap of faith and trusting that the support helps the business prosper to a point where investors also prosper over the long term. However, there are metrics that investors look for to base their decisions on. These include MRR, CAC, LTV, churn, burn rate, gross revenue retention, LTV:CAC ratio and cost per lead.

A good fractional CFO can help facilitate venture capital, improve investor relations, and make your startup more attractive to potential investors, which can significantly help with the multiple rounds of fundraising efforts your startup will require.

Cash Flow Management

Good cash flow management often translates to good financial management and business stability — and vice versa. That’s why a big part of any fractional CFO’s duties is to accurately manage cash flow to cover expenses and remain solvent. Good cash flow management can do more than just paint an accurate picture of how much your startup is spending versus how much it’s earning, it can also help improve operational efficiency, better prepare for challenges, improve access to financing and help leadership make better, more educated decisions.

Good cash flow management for SaaS startups also helps avoid some common pain points, which include challenges with deferred revenue, advance payments, balancing payment terms, customer churn and more.

Compliance and Tax Management

Complying with tax laws is a part of doing business, and it’s another way that working with a qualified fractional CFO can help your startup. In addition to ensuring that your startup is complying with all tax regulations, a fractional CFO will also go to bat for you to ensure that you’re receiving all credits that your startup qualifies for. Many startup firms may be eligible for several credits, including but not limited to R&D credits for software development. Other SaaS-specific tax considerations a fractional CFO can assist with include Nexus issues, working with international customers and ensuring ASC 606 revenue recognition compliance for your subscription-based startup.

Essential SaaS Metrics Your Fractional CFO Should Track

There are various metrics and key performance indicators that all SaaS startups should be tracking to help inform their decision-making. These include:

• MRR: This metric represents predictable, subscription-based revenue.
  • MRR = (Number of customers) x (average monthly revenue per customer)
• ARR: Annual recurring revenue measures the total recurring revenue startups can expect in a year.
  • ARR = Total revenue + Ongoing revenue – Revenue lost due to cancellations or churn
• CAC: Customer acquisition cost measures the total cost a startup incurs to acquire a new customer.
  • CAC = Total marketing and sales spend / number of new customers acquired
• LTV: Customer lifetime value estimates the total revenue a startup expects from a single customer throughout their business relationship.
  • LTV = (Average order value) x (Purchase frequency) x (Customer lifespan)
• Churn rate: Churn rate is the percentage at which customers stop subscribing to your service.
  • Churn rate = (Number of customers who churned / total number of customers at the beginning of the period) x 100

Comparing SaaS Finance Models

There are various SaaS business models that your startup may enact. Some of the most popular include:

• Freemium, or a free basic version with premium features for a fee.
• Flat pricing, or fixed pricing for software access.
• Usage-based pricing, or charges based on how much software is used.
• Tiered pricing, or different pricing levels for different features
• Hybrid pricing, which combines more than one of the above models.

The model your startup operates under is going to impact financial strategy and the key metrics you monitor. A good fractional CFO can help adapt your startup’s strategies to get the most out of whatever business model you decide on.

How Graphite Financial Supports SaaS Startups

Dedicated Team of Experts

Partnering with Graphite ensures that you’re receiving expert-level financial service — but at a fraction of the cost that you’d have to invest in someone were you to bring a professional in-house. Our track record speaks for itself. Since 2016, we’ve strived to become your long-term financial partner, ensuring your startup receives the dedicated attention it needs — and we’ve helped hundreds of startups since.

We pride ourselves on only having our financial professionals work with a handful of clients at a time, meaning you’ll get high-level service that will truly feel like an extension of your startup. Additionally, we’ll work to pair you with a strategic partner and financial expert who has experience in the market your startup is operating in to ensure the highest level of service possible. This specialized approach is what sets our SaaS CFO services apart.

Comprehensive Startup Accounting Services

From bookkeeping to financial modeling to tax services to bill pay and invoicing, we do it all for your SaaS startup. Our industry-specific approach to bookkeeping and financial modeling allows us to provide a high level of service to our clients and scale up with them as they grow. Our proof is in the pudding — we’ve worked with more than 250 SaaS startups since our founding in 2016, helping them grow and prosper in part due to our expert-level accounting services and the actionable insight that we help provide.

We tailor our services uniquely for SaaS startups to meet your unique needs and requirements. This includes technology stack integrations with programs like Stripe, ChartMogul and more.

The Fractional CFO Implementation Process

Whether you’re working with an external partner for the first time or transitioning to Graphite after working with another CFO partner, we aim to make the process as easy and as painless as possible for your startup. We’ll assign your startup an onboarding manager to connect the two teams and begin administering financial setup. As we partner, we’ll define clear responsibilities, identify communication channels and a reporting cadence, and regularly review the financial information that matters most so you can make the best decision for the future of your startup.

How to Choose the Right Fractional CFO for Your SaaS Company

You don’t just want to pick any fractional CFO — it’s important to select the one that’s best for your startup, both by experience and cultural fit. Here’s a look at some of the key factors to weigh as you’re making your decision:

• SaaS experience and technical capabilities
• Experience working with startups in various stages of growth
• Proven track record of success
• Strong analytical skills and experience with industry-leading technology
• Clear and effective communication practices
• Alignment with your startup’s core values

Contact Graphite to learn more about how we’re the ideal fit for your SaaS startup.

Case Studies: How Our SaaS Clients Achieved Success

Founded in 2008, Traxo began as an SaaS startup intended to provide end-to-end visibility to corporate travel spend. As the startup grew, its financial processes became increasingly complicated for founder and CEO Andres Fabris to manage himself. It turned to Graphite to address these challenges and Traxo was paired with one of Graphite’s SaaS financial experts.

Graphite optimized Traxo’s financial dashboards, cutting the time necessary to source metrics and plan presentations for investors. The cost-effective and scalable support was just what Traxo needed to continue its growth.

“I feel like I’ve got a resident expert from the SaaS world advising us,” says Fabris. “Graphite’s team always had a great expert response because this was probably the hundredth time they were dealing with any particular scenario.”

Take the Next Step with Graphite Financial

For a custom plan tailored to your SaaS startup’s specific needs, contact us at Graphite today. With special pricing and programs available for early-stage startups, we’ll work with you on all the accounting services that you need to continue to advance your young business. We’re your one-stop shop for fractional CFO services.

Contact us today to learn more and discuss all of your accounting needs with a Graphite Financial expert.

FAQs

How much does a SaaS fractional CFO typically cost?

Graphite offers fractional services in various tiers, starting at $1,250 per month.

What’s the difference between a SaaS bookkeeper, controller, and fractional CFO?

Bookkeepers focus more on the day-to-day, while controllers oversee accuracy. Fractional CFOs provide strategic guidance and oversight.

How often should my SaaS startup meet with a fractional CFO?

We suggest meeting at least monthly and having more regular touch bases.

Can a fractional CFO help with SaaS-specific revenue recognition?

Yes, fractional CFOs have expertise in accounting and can assist with SaaS-specific revenue recognition.

What financial reports should my SaaS company be reviewing monthly?

Income statements, balance sheets, cash flow statements, ARR and MRR are all reports your startup should be reviewing every month.

How does a fractional CFO help prepare my SaaS company for fundraising?

A good fractional CFO can help facilitate venture capital, improve investor relations, and make your startup more attractive to potential investors, which can significantly help with the multiple rounds of fundraising efforts your startup will require.

What SaaS metrics should my fractional CFO be tracking?

MRR, ARR, CAC, LTV and churn are some of the key metrics a good fractional CFO will track for your SaaS startup.

How does a fractional CFO help optimize my CAC and LTV ratios?

Fractional CFOs work to help improve business performance, planning and operational efficiency, which can provide insight into CAC and LTV trends and patterns, and formulate strategies to optimize such ratios.