What is a Fractional CFO & What Do They Do | Graphite Financial

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Fractional CFO:

Understanding the Role and Benefits for Your Business

Josh Leider

Josh Leider - Head of Growth

March 13, 2024

A fractional Chief Financial Officer (CFO) is a professional brought into your organization via outsourced CFO services to provide you with the services and functions of a CFO without the significant cost of having a full-time employee. For many businesses and especially startups, the goal of making money has to be balanced with wise spending. While every business owner has a passion for creating revenue, knowing how to achieve financial health isn’t always easy. That’s where a fractional CFO with years of experience and financial expertise can help.

Here’s what you need to know about fractional CFOs for startups or companies looking to scale and grow.

 

What is a Fractional CFO

A Chief Financial Officer is a senior executive within a company that oversees financial health and manages financial decision-making. For a startup, having a professional on board who can tell you how and when to invest makes sense, but a full-time, on-staff CFO is an expensive first step. That’s why a fractional CFO often offers a better alternative for startups. 

A fractional CFO is like having a part-time, interim CFO until you’re ready for much more. These financial professionals can provide you with industry specific financial advice based on what your company needs. They can work to meet your company’s financial goals by tapping into their extensive experience.

Most often, the fractional part-time CFO’s services are a bit different than those of a full-time CFO simply because they have less time to do the work. They tend to be very honed in on specific financial needs your company has. The key benefit is that you can invest in services that best meet your goals and objectives.

What are fractional CFO services? Some of the services a fractional CFO may offer, depending on the relationship you establish with them, include:

  • Financial strategy development
  • Raising capital
  • Investment decision making
  • Analysis of company profit and loss
  • Analysis of new company ventures and opportunities
  • Acquisition support and research
  • Financial leadership alongside the company’s other managerial leaders

Having a fractional CFO offers key benefits to startups that are looking to secure funding and scale for growth and profitability, but also need to be able to manage their cash wisely. They provide the insight, financial expertise, and hands-on support your company needs but with significant savings. While all CFOs are assets to the company, the reduced cost can help startups get the help they need, where they need it, while still meeting financial obligations.

When to Consider Hiring a Fractional CFO

A brand-new startup could benefit from a fractional CFO, but they are not often the initial priority. As your company develops, the need for a fractional CFO for business startups becomes clear. Look for these clear signs that it’s time to consider getting help.

  • Your company is experiencing rapid growth and expansion. While this is a good problem to have, scaling requires added resources and careful planning to minimize the risk of spreading your company too thin too fast.
  • You’re struggling to manage cash flow. Even successful companies find challenges in this process due to inflow changes, expense changes, and preparing for new clients and customers. Fractional CFOs can provide a better level of insight into how to right the ship.
  • It’s time to raise capital. Founders and startup owners tend to be very close to this process as well, but a fractional CFO service, like Graphite provides, can help you craft the right financial story and position you in the best possible light for winning over investors, especially through Seed and Series A+ funding stages. Graphite Financial provides some of the best hands-on support for finding opportunities, comparing offers, and getting results. Oftentimes their extensive business connections can provide your company with access to capital that otherwise would have been outside of your company’s reach.
  • You’re faced with a significant transaction or audit. When there’s a significant but complex change in business operations possible, it’s time to bring in a professional for help. That’s key prior to any internal or external audit.
  • You’re looking to hire new employees. Talent growth is a good thing, but it takes proper planning to ensure you’re bringing in top-tier professionals. Your fractional CFO service can help you to research and develop effective benefit and compensation plans.
  • There’s a need for compliance and regulatory upgrades or changes that take industry expertise. Even minor tax changes can require careful and strategic planning.

In each of these situations, a CFO service for startups can alleviate obstacles and provide insight into the wide range of opportunities ahead.

Key Responsibilities of a Fractional CFO

Your fractional CFO services agreement allows you to customize the services the CFO provides to you. That means that you can choose and personalize the type of support you specifically need. This relationship can grow and change over time as your company changes, too. CFOs tend to offer two very specific areas of support that most startups need: financial management and strategic planning.

Financial Management

A fractional CFO will work closely with your startup leadership to establish, monitor, and adjust the financial functions within a company. This includes budgeting, forecasting, and financial reporting. Their financial expertise also allows them to create a way for you to manage your revenue and expenses while also working to create a forward-looking plan.

For many startups, a core component of this is providing assistance with cash flow management and financial risk assessment. These are two areas that tend to be financially challenging for startups, especially as they work to grow and scale. The job of the CFO is twofold: create plans in each of these areas with the framework to monitor success and to overcome financial challenges, and to make adjustments over time to keep the company on track.

Strategic Planning

The secondary core component of fractional CFO services is strategic decision-making. Before a startup decides to expand hiring, launch a new product, change up its marketing substantially, or launch an acquisition, it needs to do its due diligence. A fractional CFO handles that work for you, ensuring that your research and data analysis are thorough, ensuring the best possible long-term outcome.

Ultimately, this allows the fractional CFO to help set, monitor, and adjust financial goals over time. It also means making changes to better align and optimize profitability for the company. A very hands-on type of service, a fractional CFO uses their knowledge and insights to create better financial strategies to support the objectives of the company. With their support, your organization can focus on sustainable growth over time, making better decisions that enable your startup to compete at a more effective level.

 

Benefits of Hiring a Fractional CFO

Hiring a fractional CFO can provide numerous benefits to organizations. Some of the advantages that come from onboarding a fractional CFO service include the following:

  • It’s cost-effective: Compared to hiring a full-time CFO, which may not be accessible for most startups, this method enables organizations to establish some of those benefits without the high cost.
  • Improved decision-making: The CFO works closely with the startup’s other leadership to help improve profitability through better decision-making. Their insight and experience can help to create better outcomes for the organization.
  • Improved efficiencies within the organization: The use of a fractional CFO service allows companies to have better access to data and insights to make decisions sooner, improving efficiencies within the company.

Over time, these services can flex and scale with the startup as they need. That can evolve to include support for fundraising, exploring mentoring and training opportunities for other staff, and providing 

How to Find the Right Fractional CFO

Investing in a fractional CFO service can be a big decision for any startup. Finding the best fit means considering what your company’s specific needs are, including both opportunities and growth expectations. It then takes considering your budget and the amount of time you need to have help from a hands-on, experienced CFO.

Look for the right professional who fits into the specific areas of focus you have. This means focusing heavily on researching the professional’s strengths and experiences. If you’re hiring a fractional CFO service, you’ll have better opportunities to find the right fit than if you choose to hire a part-time CFO on your own. Expertise in this role often is critical, which comes from a professional or a team of professionals who have a history of providing fractional CFO services to various companies similar to your own.

When evaluating a fractional CFO firm, look for:

  • Experience in your field or industry
  • Specific financial areas of expertise if there is a concern
  • Education and training the professional has
  • Types of hands-on results the professional has created
  • Personality traits that align with your startup

Cost Considerations for Fractional CFO Services

The cost of hiring a fractional CFO depends on multiple factors. That includes simply defining what services the fractional CFO business will provide, how much time will be expected, and the overall tasks needed. The more specialized or experienced the professional is, the higher the costs are.

Many fractional CFOs will have a tier-based pricing arrangement. You choose the level of support you need and the services that fit your goals based on the tier. This allows you to pay for what you need, such as creating a financial model or managing tax compliance.

More so, you can step up the level of service you get over time as your startup grows and scales. At the current size and revenue of your company, you may not need all of the services available. However, as you begin to grow or your business expands in new directions, you’ll need more of the unique offerings available, such as M&A support, board presentations, and fundraising.

Why Graphite Financial is the Right Choice for your Fractional CFO Needs

At Graphite Financial, we work symbiotically with your startup. We only succeed when your company sees growth and profit. Our team of experts bring years of experience and industry-specific knowledge to the table. Contact us today to learn how our Fractional CFO services can be customized to work for your specific needs. Get the help you need to see the prosperity and profitability you know your company is capable of achieving.

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