The Fractional CFO Role And Its Effects On Startup Operations

Current economic news is full of predictions for the economy over the next year. While inflation rates seem to be declining, interest rates are high and likely to continue fluctuating. There have also been widespread job cuts at large companies, including Spotify, Meta, and Google.

While no one has a crystal ball to predict the future, business owners are battening the hatches to ride out the storm. And startups are in a particularly challenging situation. Notably, funding is harder to find, and loans are much more expensive.

So, your startup is likely in one of two positions: 

• You have existing capital that you need to make last for the next one to two years
• You have just a few months of funding left and are preparing for an investment pitch to deliver to investors as soon as possible

While both scenarios are different, founders are looking for ways to stay sustainable until the economy rebounds. To do that, you likely need answers to questions that a CFO can provide.

The solution to both managing your funds wisely and finding the support you need is hiring a fractional CFO. You may be wondering, what is the benefit of a Fractional CFO? In a nutshell, these professionals work on a part-time basis according to a company's needs. They're available to answer questions and help you plan more strategically, but you don't need to commit to a high salary and extensive benefits package.

What's more, they can give you a clear and transparent picture of the financial health and performance of your business, which is key to navigating the uncertainties of today's market.

With an experienced professional in this role, you'll have someone with the skills and experience necessary to provide you with a financial roadmap for your startup's success.

What The Fractional CFO Role Unlocks For Your Startup

Fractional CFO services offer clear financial guidance to help founders and their leadership teams navigate challenges and unify everyone under a single goal, especially during difficult economic periods After thoroughly assessing the company's current financial status and future objectives, Fractional CFO's can set up a plan for the management team to follow.

For instance, consider a company that has plans to scale over the next year. It needs to grow its revenue and gross margins while minimizing churn and ensuring total customer satisfaction. The fractional CFO will establish the steps necessary to achieve those goals.

No matter your startup's situation, someone in the role will create tailored objectives for your vision and work to ensure that your team is fully aware of everyone's responsibilities. They will also regularly establish checkpoints as the plan unfolds, so everyone remains on the same page.

This is especially helpful if you've never had a budget or a financial forecast and need extra guidance.

Another common goal for startups in today's economy is maintaining enough cash to be sustainable over the next year or two. Many new startups aren't ready to scale fully yet. Instead, you may be finessing your product with the expectation of going live in the future.

With little incoming revenue, you must be frugal with your existing capital. In this situation, a fractional CFO can facilitate expense cuts and cut out any excess.

The situation is similar to someone who makes a New Year's resolution to lose weight. They might take the initial steps to meet their goal by joining a gym, but by the end of the month, they lose interest, and there's nothing to hold them accountable for their actions. They slip into their old habits and never see the outcome they wished for in the first place.

The fractional CFO holds your business responsible for its financial objectives. They can step in and steer you in the right direction whenever there's a deviation.

The Fractional CFO's Effect On Financial Operations

Fractional CFOs can drastically impact your company's financial operations (finops), especially in cases where there aren't strict procedures in place.  

At the outset, you may not need a full-time CFO or accountant, and QuickBooks and an outsourced bookkeeper might be enough. However, when you're ready to find an investor or obtain a loan from a bank, a sound set of financials is non-negotiable. Acquiring financing will be challenging unless you have a clean set of financials, a detailed budget, and a long-term forecast.

Hiring a fractional CFO can prepare you for what's to come. They'll organize your accounting processes, ensuring everything runs in tip-top shape for financing opportunities. They'll also set up KPI reporting that provides real-time actionable insights, allowing you to make proactive rather than reactive operational decisions.

Planning From The Ground Up

Keep in mind that a fractional CFO is your liaison between all departments within your company. As you grow, this will become even more important. 

A good fractional CFO will create a ground-up budget for you. Ground up means that they will work with every department to build it up in a financially stable way.

This means creating individual department budgets that align with the larger company budget and working one-on-one with department leaders monthly to ensure they stick to their budgets.

Again, this ground-up approach creates unity for the entire team, working under a single goal and vision for ultimate success. 

Beyond FinOps: Building Up Entire Business Operations

Of course, the expertise of fractional CFOs extends past accounting and financial operations. They can also act as a critical partner in your strategic plan. They'll use their financial knowledge to fill in the gaps where you need assistance.

For instance, they can help you develop short-term and long-term planning for expanding into a new market or creating a new product. Additionally, they can be a crucial part of your leadership team, helping you to plan for future capital needs or develop detailed business plans.

Fractional CFOs can also support you in your search for potential investors or suitable lenders. They're always by your side, lending an ear and offering suggestions as you navigate obstacles you may not be aware of.

Another way that they can assist with overall operations is by leading special projects. For instance, if you're considering an investment in expensive ERP software, they can act as the overseer, speaking with executives in each department to understand their needs before teaming up with the CTO for a final decision.