What Is a Fractional CFO? And If You Need One

A fractional Chief Financial Officer (CFO) can be an invaluable addition to your startup, especially when you have to tackle challenging financial projects like raising venture capital funding or completing an M&A transaction.

Let’s explore what you should know about fractional CFOs, including how they differ from other financial experts, the value they can bring to your business, and when it makes the most sense to hire one.

What Is a Fractional CFO?

Also referred to as an interim CFO, a fractional CFO is an experienced financial expert who manages traditional CFO responsibilities for multiple clients on a part-time or contractual basis, rather than working full-time for a single company in-house.

A good fractional CFO has extensive financial knowledge and experience. They should be capable of overseeing your company’s core financial functions and helping you navigate a variety of complex financial challenges.

Fractional CFOs commonly work with startups and small and medium-sized businesses (SMBs). 

You can hire their services on an hourly basis and pay only for the financial assistance you need, which is significantly more affordable than hiring a full-time financial professional.

Hiring a fractional CFO also gives you the flexibility to scale your financial support up or down as your needs and budget fluctuate. 

For example, you might pay them to be more involved while you raise funds from investors, then dial their hours back once you’ve secured your financing and need less financial oversight.

What Is the Difference Between a Fractional CFO and a Traditional CFO?

The fundamental difference between the traditional CFO and the fractional CFO role is that fractional CFOs work on a part-time, contract basis, while traditional CFOs are full-time executives who focus their efforts exclusively on a single employer.

Here are some of the most significant implications of that difference:

• Cost: Hiring a full-time CFO is a significant financial investment that can be too expensive for startups and SMBs. A part-time CFO is a more budget-friendly option that lets you pay by the hour for the services you need.
• Experience: Fractional CFOs often have a wealth of experience serving multiple startups and SMBs, allowing them to offer unique insights and innovative solutions. Traditional CFOs work with fewer organizations, potentially making their experience deeper in certain areas but less diverse. 
• Responsibilities: Fractional CFOs often focus on specific, high-impact projects to deliver maximum value to their clients. Traditional CFOs aren’t as concerned with that and may take a more generalized approach, involving themselves more broadly in financial strategy and day-to-day oversight.

Fractional CFOs and traditional CFOs may fulfill many of the same fundamental functions, but one is often more suitable for your needs than the other. 

Fractional CFOs are often better for rapidly growing companies with tight budgets, while traditional CFOs may make more sense for mature organizations.

What Is the Difference Between a Fractional CFO and an Accountant?

Certified Public Accountants (CPA) firms are increasingly offering fractional CFO services, but accountants and CFOs are traditionally very different roles.

Accountants typically have greater expertise in subjects related to taxes and financial reporting standards. As a result, they tend to be responsible for tasks like:

• Maintaining your financial reports and statements 
• Devising a tax strategy and ensuring compliance
• Helping you prepare for and navigate audits

In contrast, CFOs tend to have backgrounds in financial management, business strategy, and executive leadership. Their responsibilities are often more along the lines of the following:

• Raising funds from lenders or investors and allocating capital
• Conducting financial analysis to inform strategic decisions
• Comprehensive oversight and optimization of financial processes

CFOs and accountants tend to have distinct backgrounds, skill sets, and responsibilities. As a result, they’re typically not substitutes for each other, and you may need to hire both instead of one or the other.

Check out our guide on the CFO vs controller roles to learn more about their involvement in your financial planning.

Should You Hire a Fractional CFO?

Hiring a fractional CFO is most beneficial when your business needs the financial insight and support of an experienced CFO but lacks the budget for a full-time finance professional. 

Startups and SMBs often find themselves in this situation when they face complex financial challenges like:

• Raising capital: Whether you’re looking to get an equity investment from a venture capital firm or a small business loan from a traditional financial institution, a fractional CFO service can help prepare necessary documentation and facilitate positive relationships with important representatives.
• Growing rapidly: Scaling your startup quickly but sustainably can be a delicate balance. A fractional CFO can use financial techniques like budget analysis and cash flow forecasting to inform strategic decisions and help you achieve long-term success.
• M&A transactions: Having someone with a CFO skill set is invaluable during mergers and acquisitions. They can help with the financial complexity of processes like due diligence, valuation negotiations, and integration planning to ensure the deal is successful.

If you expect to face significant financial challenges in the near future, it may be worth hiring an outsourced CFO to help you navigate them. 

You can purchase their services as an independent contractor, avoiding the costs of a full-time employee and paying only for the assistance you need, making it a relatively affordable solution.

Typical Fractional CFO Services

So, what does a typical fractional CFO do? Let’s explore some of the services you can expect them to offer.

Cash Flow Projections

Cash flow projection involves forecasting your company’s cash inflows, outflows, and their net impact on your cash reserves. It can help you maintain the liquidity levels your business needs to continue meeting its financial obligations and remain operational.

Fractional CFOs should have the financial expertise to manage this process and often provide it as a service. 

In addition to helping you avoid potential cash shortfalls, the benefits usually include more strategic cash management and deployment, facilitating more stable growth and profitability.

Financial Modeling

Financial modeling refers to the creation of a numerical model that represents your operation’s financial performance, either through spreadsheets or dedicated software. 

It can help you simulate various scenarios and calculate the impact of a major financial decision.

As a result, financial modeling is often a critical part of forecasting and risk management. Many fractional CFOs provide it as a service. Typically, it includes the initial creation of the model from raw financial data and ongoing analysis.

Fundraising Support

Businesses, especially startups, often need to raise external capital from lenders and investors to accomplish their goals. For example, you might require a business loan to develop your product, hire a sales team, or fund a marketing campaign.

An experienced fractional CFO can help you manage the fundraising process, and they often offer fundraising support as a service. 

For example, you can hire one to help you prepare your financial documents, craft and deliver a compelling pitch, or help navigate negotiations with potential investors.

KPIs/Metrics Tracking

Key Performance Indicators (KPIs) and metrics tracking involves identifying, monitoring, and analyzing the financial measurements most important to your business’s success.

These fractional CFO services can help you measure your business’s financial performance and assess your progress toward long-term goals. They can also reveal potential opportunities to improve operational efficiency and drive growth.

Stay Compliant With Taxes

Tax compliance refers to keeping up with your federal and state tax obligations, including preparing tax returns properly, submitting the required filings, and making the necessary payments on time.

While taxes are traditionally the realm of accountants, fractional CFOs often have experience managing these matters too. You can often hire them to help you minimize the amount of taxes your business pays without violating any laws or regulations.

Annual Business Budgeting

An annual business budget refers to a detailed financial plan that outlines income and expense projections for the coming year. 

In addition to helping you allocate company resources strategically, it serves as a helpful benchmark against your actual performance during the year.

Fractional CFOs are often well-equipped to create annual budgets due to their broad financial understanding, which helps them balance competing operational needs. As a result, they tend to offer annual business budgeting as one of their primary services.

Typical Fractional CFO Rates

Hiring a fractional CFO is significantly more affordable than employing a traditional CFO, but it’s still a sizable investment. The costs will vary depending on your needs and the size of your financial operation, but here’s what you can expect:

• Hourly rates: SaaS fractional CFOs traditionally bill by the hour, and their hourly rate is usually around $300 due to their extensive knowledge and experience. Most early-stage startups require 15 to 25 hours of assistance per month, which works out to between $4,500 and $7,500 per month.
• Fixed rates: Some fractional CFOs charge a flat fee per month instead of billing variably by the hour. Typically, these packages guarantee a specific scope of work or a set number of hours per month. That reduces your financial risk and makes them easier to budget for since your costs won’t change from one month to the next.

Your actual fractional CFO cost will ultimately depend on your provider, their billing structure, and how much assistance you need from them. However, cost shouldn’t be the only factor you consider when comparing options.

In addition to their rates, you should also think about points like:

• How much experience they have with companies like yours
• Which services they specialize in and if those match your needs
• The amount of time they have available to commit to your business

Don’t be satisfied with a virtual CFO that simply fits your budget. Before you sign a fractional CFO services agreement, look for the expert who can bring the most value to your organization and help you achieve financial success.

Consider Zeni’s Fractional CFO Services

Fractional CFO services are an excellent way to get the support you need to navigate a complex financial landscape without breaking your budget, but finding the right fractional CFO can be tricky.

Zeni is an excellent option for startups. On average, our fractional CFOs have more than 15 years of experience working directly with startups, and they’ve successfully helped our clients raise $120M in venture capital.

Zeni’s fractional CFO services start at a fixed rate of just $1,275 per month (billed annually) and include annual business budgeting, variance analysis, and cash flow management. You can also purchase any other services you might need, such as:

• Financial modeling and dynamic scenario planning
• KPI and metrics tracking, analysis, and benchmarking
• Fundraising support for debt and equity capital
• Flexible assistance with ad hoc strategic projects

Conveniently, Zeni is also a one-stop shop that can meet many of your other important financial needs. Our AI-power system lets us handle your bookkeeping, accounting, bill payments, and invoicing through a single platform.

Schedule a demo today to see how Zeni can help you outsource, streamline, and empower your startup’s financial processes.