In today’s dynamic business environment, many small to mid-sized companies struggle to achieve growth while navigating a challenging business environment and financial complexities. Whether you’re a startup scaling quickly, a small business aiming for expansion, or an established company optimizing its financial strategy, the expertise of a seasoned finance professional can be transformative. In this article, we’ll explore the role of a Fractional CFO and answer seven questions that every business owner should know about this emerging trend in business management.
All companies benefit from specialised management and leadership in financial planning, cashflow management and strategic execution. However, small and mid-sized companies often cannot afford a full-time finance executive to support the business in this way. Although many such companies still achieve growth and impressive success, the lack of financial expertise often leads to missed opportunities, inefficient financial operations and excessive risks which ultimately hinders the company from achieving its full potential.
For this reason, many businesses are turning to the services of a Fractional CFO to help owners and managers of small to mid-sized companies by providing the financial management and leadership of a dedicated CFO. But what exactly is a Fractional CFO?
Below are the 7 things all business owners should know about Fractional CFOs:
What is a Fractional CFO?
A Fractional CFO is a finance professional that offers flexible financial management and strategic guidance to help companies navigate complex financial challenges. Acting as a trusted advisor, they provide the expert leadership and insights of a dedicated finance executive on a part-time basis allowing companies to benefit from their professional acumen at a fraction of the cost.
Who hires a Fractional CFO?
Any company without a dedicated financial management function responsible for financial planning and integration of finance with business strategy would benefit from a Fractional CFO.
In general, small to mid-size companies that lack the scale and complexity to justify a full-time finance executive will use a Fractional CFO for financial leadership and guidance. Fast growing companies (like start-ups) looking to maintain a low operating overhead often use Fractional CFOs to access the critical skillset of an experienced finance executive to support their growth. It’s also common for family-owned businesses to bring in external finance expertise on a part-time basis, especially to support with generational transitions, major funding events or strategic planning.
Why hire a Fractional CFO?
Hiring a Fractional CFO is a cost-effective way for companies to access professional finance expertise before they reach the organisational complexity or scale that requires a dedicated executive. Fractional CFOs offer tailored services that ensure companies have the right financial leadership and guidance throughout their growth journey, optimising both strategy and operations.
To avoid idle capacity, smaller companies often use Financial Directors to also perform the functions of a Business Controller or an Accountant, while some look to their Business Controller or Accountant for the financial leadership and insights they need from a professional executive. There are also companies that operate without any financial management support resulting in a business management team that’s occupied with financial management tasks rather than their core competencies such as Sales, Product Development or Strategy.
What does a Fractional CFO cost?
Costs for Fractional CFOs can vary widely due to differences in professional experience and the bespoke nature of the services they deliver to each customer. It’s therefore helpful to consider the cost of alternative hiring options and the specific support each alternative offers.
According to Payscale.com, an entry-level Financial Manager in South Africa earns an average of ZAR 395k annually in 2024. This is typically a Commerce graduate entering the workforce with very little practical experience. On the other hand, an experienced Financial Director in South Africa earn an average of ZAR 1.9m annually (including incentives) for 2024.
Once a scope of work for the Fractional CFO engagement or project is defined, a company can secure professional financial expertise that’s capable of providing financial leadership as well as insights and guidance on strategy, capital investment decisions, etc for a fraction of the cost of a full-time executive.
What should I expect from my Fractional CFO?
Expect a Fractional CFO to offer a range of services, from project-specific work, such as raising funds or analysing and advising on capital investments, to ongoing financial management and leadership. The most value is often derived from continuous engagement. A typical Fractional CFO hire is a contact for services with a clearly defined scope of work and engagement framework.
A Fractional CFO should introduce fit-for-purpose financial management practices (budgets and forecast, financial controls, financial risk management, etc), provide valuable insights and analysis that enhance decision-making at the executive level and drive alignment between the business strategy and medium- to long-term planning.
At all times, business owners should expect professional excellence from your Fractional CFO – excellence in their insights and guidance and excellence in their execution.
How do I maximise the value from my Fractional CFO?
To maximize the benefits of hiring a Fractional CFO, consider the following internal factors before making an appointment:
- Clear expectations and objectives – You’re hiring an external resource on a part-time basis so set clear expectations to focus their efforts and by which you’ll judge their delivery.
- Accurate financial processes and records – You’re hiring an expert to interpret data and provide guidance on future actions that align with your strategy so accurate and reliable data is crucial. If you don’t have accurate processes and data consider a project ahead of, or in addition to, a contract for services.
- Access to key stakeholders – Much of the value from your hire is derived from the engagement and interaction they have with key stakeholders, such as your leadership team, department heads and finance staff (or vendors). Prepare your stakeholders for the appointment and encourage open lines of communication for discussions on strategy and decisions.
What should I look for in a Fractional CFO?
When evaluating a Fractional CFO for hire, consider their resume, credentials, referrals, and professional associations as indicators of experience and technical competence. These factors must necessarily be considered but one factor that should not be overlooked is rapport.
Once you appoint a Fractional CFO you’ll need to bring them into the fold, sharing sensitive information and inviting them to help you manage your business. Look for a Fractional CFO that you want to work with, one you can trust with your business and whose guidance you’re willing to consider. Rapport with the leadership team can be a critical success factor when hiring a Fractional CFO.
As the business landscape evolves the complexities of achieving success increase. However, tools, apps and services like fractional executives are emerging to help business owners manage their companies more effectively. By proving the skills and insights of professional financial management and leadership, a Fractional CFOs can be transformative for small and mid-sized companies.
Whether you’re a high growth start-up or an established company aiming to reach new heights, a Fractional CFO can free up your time to focus on core activities while ensuring that your finances are in expert hands.
