Updated: Aug 6, 2019
I get asked fairly often how being a Fractional Chief Financial Officer (CFO) works. Having been the full-time CFO of an organization, I have seen firsthand how a Fractional CFO is sometimes better than a full-time one. Compared to a Traditional CFO, a Fractional CFO can give better advice, be more flexible, and cost less.
Being able to give better advice comes from the nature of the work relationship. When 100% of a CFO’s income depends on keeping the business owner happy, there’s a strong incentive for them to pull their punches and not be completely candid about something they know will upset their boss. Because a Fractional CFO has many clients, it’s much easier for them to be completely honest even about things that are likely to be upsetting. In the long run, CEOs would generally prefer to skip beating around the bush because someone is worried about the politics of keeping their boss happy.
There are clear advantages to being able to discuss your ideas for a company-wide bonus plan or changes to the vacation policy with someone who isn’t affected by them. Would you view your full-time CFO’s suggestions for next year’s sales goals and related commission structure differently if you knew that the VP of sales went to lunch with the CFO every week? It’s hard to separate personal from business when both are entangled. Having someone independent on your team makes that separation easy.
Fractional CFO tends to work with a range of different industries, exposing them to lots of different ideas that could benefit your business. Maybe the skills learned in a service industry can be applied in a unique way at a manufacturer to create a better back office experience. Maybe the efficiencies learned from working with manufacturers can be applied to help service business get more things done.
Hiring a Fractional CFO is more flexible and stable. A Fractional CFO usually has a team working with them that can scale up and down as needed, ramping up to get you through an audit or big special project, then ramping back down so you’re only paying for what you need when you need it. You can’t do that with a full-time CFO.
If you lose a key member of your accounting team, the Fractional CFO’s team will already be familiar with your business and able to jump in quickly to keep things running until you find a replacement.
Fractional CFO relationships are long-term relationships — they are not going to leave because they get a better offer from a different company. Good CFOs are in demand. If a Fractional CFO gets a new client, you probably won’t see any impact, but if your Traditional CFO gets an offer from another company, you could suddenly lose your key advisor.
Hiring a Fractional CFO is less expensive because you are only paying them for what you actually need. A Traditional CFO’s time quickly gets filled up 50% or more with meetings and much of their remaining time is spent doing general management tasks. People often hire a CFO expecting a boost of productivity only to find that the new person is buried with all the day-to-day stuff that comes up instead of doing those crucial things you hired them for that will move your business forward.
With a Fractional CFO, you also don’t have to worry about paying retirement, insurance, taxes, holidays or vacation time, etc.
These are some of the advantages of using a Fractional Chief Financial Officer. Very large companies need to have a full-time in-house CFO, but for many companies under $50 million, a Fractional CFO can better provide the expert advice that they really need.