Business Management

Q&A: What is a Fractional CFO?

Jul 08, 2021

Written by: Scooter Heath

What is a fractional CFO?

Also sometimes referred to as an outsourced CFO, a part-time CFO can serve as an on-demand financial advisor, or as a “permanent part-time” member of your executive leadership team.

Sometimes, a transitional period for a company warrants some additional executive firepower – a financial expert who can step in, lead the charge, and then step away once the transition is complete. The right fractional CFO can serve in any of these roles.

OK, great. What does a CFO do?

It can vary by organization, but, in many small- to medium-sized businesses, the CFO plays a strategic role in the overall financial and operational management of the company. Upper management relies on the CFO to provide a high-level financial strategy for the company. Then, in an oversight role, the CFO helps to implement and refine that strategy over time.

A CFO typically has broad oversight, including:
• Accounting
• Finance
• Budgeting and forecasting
• Strategic planning
• Taxes
• Human capital (including personnel training)
• Legal matters
• Financial statement audits
• Property & risk management (including insurance)
• Banking and financial institution relationships
• Client contracts and supplier terms

A CFO also provides crucial operational insights to management, courtesy of a robust monthly financial review. This includes a tailored dialogue with company leadership, focused on key metrics.

Numbers can seem like a foreign language to many people. A good CFO can translate.

My business partners and I handle these things. Why do I need someone to do it for me?

Let’s face it – every organization runs more smoothly with effective financial processes in place.

Hiring an experienced CFO frees you up, so you can focus on your business and what you do best. Another upside? The right CFO serves as a vital part of your leadership team, helping to develop and implement your long-term strategy.

Glance again at the bulleted list above. From overseeing accounting to serving as the direct contact for bankers, lawyers, auditors, and insurance brokers, the CFO handles all the stuff that most business owners don’t like to deal with.

Having a seasoned pro handle the financial aspects of your business can lead to increased profits and growth. A steady hand at the rudder can also make your company more attractive to lenders and investors.

What pitfalls can a CFO help me avoid?

Let’s consider that bulleted list above one last time. Giving any one of those areas insufficient attention courts significant risk.

Sloppy accounting invites costly, time-consuming financial statement audits. The absence of a long-term financial strategy hobbles decision-making. Slipshod tax planning yields less-than-optimal results. Unread client contracts and supplier terms can lead to noncompliance and unmitigated exposures.

The pitfalls of “going it alone” are numerous. Here are two commonplace scenarios, as specific examples:

• Most business loans include agreements and restrictions called covenants. A failure to adhere to these covenants can be considered a default event under the loan, which can impact your relationship with your lenders (at a minimum). A good CFO can help you ensure that you are complying with your debt covenants, and avoid the sometimes dire consequences of noncompliance.

• Many businesses have contracts with clients and vendors that they have never read. Contracts typically document who is responsible for what in the relationship – including responsibilities in the unlikely event that things go south. It’s crucial to understand risks, and then mitigate those risks through diligence, or insurance if necessary. A good CFO can help you understand what is being asked of you, and then negotiate a palatable allocation of risk. A CFO can also help you implement any required procedures, and help facilitate discussions with an attorney when necessary.

How much does a CFO cost?

In today’s marketplace, an experienced, well-qualified CFO typically commands a salary of $250K or more, plus bonus and benefits.

A fractional CFO gets you an experienced financial executive without having to pay full freight. Moreover, the right outsourced CFO can strengthen your leadership team and save you money in the process.

When you crunch the numbers, it’s important to consider the opportunity cost. If a fractional CFO can help your company grow and increase profits, what’s that worth to your organization? If bringing rigor and transparency to your bookkeeping spares you an expensive and time-consuming audit, well, that’s money that stays with you and doesn’t fly out the door.

So the real question becomes: “What does it cost to go without a CFO?”

In closing

In the Q&A above, I’ve spoken in the abstract about CFOs in general, and fractional CFOs in particular. Allow me a few words on behalf of my firm, Heath Advisory.

At Heath Advisory, we’re business people at heart. We have a knack for clarifying and simplifying complex financial issues. That makes your decision-making easier, so you can lead your team with confidence.

We meet you where you are as a company. Think of us as a seamless, plug-and-play CFO, providing just the experience and expertise you need. No more, and no less.

Get in touch to discuss how we can add value to your leadership team.

Learn more about Heath Advisory.

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