Comprehensive Guide To Understanding Fractional CFOs

What the heck is a fractional CFO?

Here’s a comprehensive guide to understanding Fractional CFOs, what they do for you, and what you can expect from them.

The TL;DR: Fractional CFOs are part-time CFOs that will help your business grow, optimize expenses, and oversee accounting.

Let’s begin…

Some Disclaimers:

• Fractional CFOs (FCFO), part-time CFOs, and Virtual CFOs (vCFO) all refer to the same (or very similar) thing.
• Financial coaches aren’t necessarily Fractional CFOs (more on that momentarily).
• We have talked to and studied numerous Fractional CFOs.
• If you have questions or concerns on selecting or working with a Fractional CFO, we’re happy to talk. If we aren’t the best fit, that’s all right; we know of amazing Fractional CFOs in each of the categories we are about to describe.

What Does a Fractional CFO Do?

The fractional CFO bridges the gap between tactical accounting and strategic oversight. They operate like your business partner and think like an owner, not an employee completing day-to-day tasks. Think of them as a football coach: they help you create strategies, plan out routes, and assemble game plans; sometimes, they’ll throw on the pads themself during high-leverage situations (including during M&A talks, vendor negotiations, payroll disputes, etc.

The bread and butter of a FCFO typically includes the following:

• Financial Planning & Analysis (FP&A): Creating budgets, forecasts, and financial models to support strategic decision-making.
• Financial Reporting: Ensuring accurate and timely financial reporting to find insights, meet regulatory requirements, and inform stakeholders.
• Financial Optimization: From expense audits that unearth hidden savings to exploring cost-effective financing options, your fractional CFO ensures your financial house is in impeccable order.
• Strategic Guidance: Creating plans to improve business valuation, developing meticulous financial models, and conducting due diligence; these are all key ingredients in making informed decisions that propel your business forward.
• Financial Operations: Overseeing accounting, financial records, treasury, and financial systems.

The Types of Fractional CFOs

Before we dive in, you’re probably already thinking “I thought a Fractional CFO was already a type of CFO! There are types of Fractional CFOs?” 

Yes. Sorry to make it complicated on you. 

To simplify the different types of FCFOs, we have the following four examples:

The Finance Business Coach: Think of the finance business coach as a professor. They're focused on providing general training and guidance on various finance topics, although they may not be explicitly focused on solving your financials issues. Their goal is to give you the tools and understanding needed to solve the financial issues going on in your business.

The Accountant FCFO: Most bookkeeping / CPA firms offer advisory or FCFO services. Typically, this looks like reviewing your profitability, cash flow, and some KPIs. We have seen a couple firms that offer more comprehensive advisory services, but most are still fairly focused on accounting, compliance, and financial operations.

The Advisory FCFO: This is frequently a former full-time CFO or retired CFO with a lot of experience and they assume more of a board-level role within your organization. If you have a well-built out accounting and FP&A team that is already producing financial reports, Advisory FCFOs will be able to add incredible amounts of value; if you need help creating your first budget, this isn’t who you should hire.

FinTeam: We operate with one directive that supersedes all others: increase cash flow. This keeps us nimble and allows us to dive into a bunch of different areas of your business, including marketing, sales, financial operations, headcount planning, etc. We add the most value when you need more than a bookkeeper, but don’t have a budget, forecast, or financial goals. There aren't many other firms like us that we know of. 

Here's a matrix to visualize it:

Perhaps an Example Would Help…

Situation: You’re thinking about buying another company in order to expand your footprint into a new geography. You want to know if you should use debt, seller financing, or the cash on your balance sheet. You also are curious about how you’ll integrate the two companies from a financial perspective.

Here’s how each type of FCFO would handle it:

The Finance Business Coach: They will most likely start by teaching you about M&A, the pros and cons of using debt, equity, and seller financing to fund the transactions, and what types of synergy most companies realize during an M&A process.

The Accountant FCFO: More likely than not, they’ll hyper focus on the financial integration of the businesses, as it’s in their wheelhouse and will provide an opportunity for their firm to increase fees (rightly so, as it’ll be a lot of work for them). If you ask them “is this a good deal for me?”, they’ll more likely than not leave that up to you to decide.  

The Advisory FCFO: They have probably been through an M&A process or two and will be a wealth of knowledge as it comes to this situation. They’ll be able to answer any questions you have on the deal, connect the acquisition strategy with your long-term goals, and will provide insight on terms, valuation, and structure. You may run into problems if you don’t have a built out finance team facilitating financial modeling of the deal, due diligence, and financial integration.

FinTeam: We’ll refer back to our key mandate here: does it improve cash flow? More likely than not, we’ll own the process of creating internal financial models, evaluating LOIs, and running point on due diligence. We’ll share our opinion and data on whether the deal would be accretive or dilutive and let you make the final call. Once you close, we’ll let your accountants run the process of integrating your books (whether you have FinTeam doing your books, an in-house team, or an outsourced team).

What’s The Value-Add?

For us, we find that we can frequently increase cash flow by simplifying complex financial decisions; if we can turn the outcome of a complex decision into a positive number or a negative number, it makes the decision much simpler. 

Here's some more thoughts on why you’d typically bring on a FCFO:

• Expert Guidance: They’ve spent their career dedicated to mastering financial concepts and figuring out ways to create value for your company.
• Cost-Effectiveness: Compared to a full-time CFO, they are typically much more affordable.
• Scalability: You can tailor their services to your specific needs, ensuring flexibility as your business grows.
• Objectivity: An independent perspective helps you make strategic decisions based on data, not emotions.
• Unlocking Growth: Their expertise empowers you to make informed financial choices that drive sustainable growth.

Summary

Even though  we are biased since we are a FCFO firm, we have found that small businesses generate significant amounts of value from bringing on a FCFO. However, not every business needs a FCFO. In order to figure out which type of FCFO you should hire, we’d encourage you to consider these questions:

• Can you describe how your business’ finances are in a minute or less?
• Do you understand why you’re making (or losing) money?
• Do you know how you’re going to make (or why you’re going to lose) more money?
• Do you have a long-term financial plan for your business?

Depending on those answers, a FCFO may make sense.

If you’d like to connect, you can contact us here. Our promise: no hard sells. We want to make sure you work with the Fractional CFO that’s best for you.