A talented C-suite can help shape a startup’s future — and can also be a significant investment. Hiring a CMO, CTO, COO, or CFO with a proven track record will often command significant compensation. And while their guidance has the potential to change your company’s trajectory, the cost isn’t always tenable for a cash-strapped startup.
Fractional C-suite roles — that is, leaders with highly specialized skills working in a part-time capacity — have gained popularity in recent years. When a full-time hire doesn’t make sense for your budget or current expectations for the role, a fractional hire can give you access to someone who can guide a specific function within the organization at the right scale for right now.
Financial leadership, in particular, is critical for early-stage startups — and a fractional CFO can help navigate the tricky waters of cash flow management, raising capital, and financial planning.
What is a fractional CFO?
A CFO is frequently not your first finance hire. From your business’s earliest days, you may have hired a bookkeeper to work with your accounting software, send invoices, and categorize expenses, or maybe an accountant (either internal or external) to provide additional expertise and tax advice.
But at some point, your financial needs will likely exceed what those professionals can provide. You’ll want someone who can strategically guide the organization’s finances — and that’s where a CFO comes in.
At a large company, a CFO often has a wide range of responsibilities, including budgeting, forecasting, analyzing financial strengths and weaknesses, ensuring compliance with regulations, developing internal controls, and reporting. A CFO is directly involved in major financial decisions the company makes. While a startup may need the same flavors of guidance, the scale can be smaller — as such, the role may be less complex and may not always require full-time attention.
Keep in mind, though, that a fractional CFO should generally provide more than high-level financial strategy — they should become immersed in the financial operations of your company. While you can hire a fractional CFO on a short-term or project basis, you can also hire someone to work long term. This can provide you with immersion and company-specific expertise similar to that of a full-time CFO, with a leaner commitment aligned to your business’s current needs.
How a fractional CFO can help your startup
Like any C-suite executive, your expectations for a fractional CFO should be high. Even though they may only work for you part-time, you’re still hiring someone with significant seniority and expertise to deliver results for your company.
Knowing specifically how a fractional CFO can help is a good starting point to guide your search and interview process. If you’re too broad with your expectations (“we need financial guidance”), you might struggle to establish the right goals with your fractional CFO. Instead, you should try to identify specific financial weaknesses or challenges in the company that you expect the fractional CFO to improve.
As you make a list of your must-haves for financial leadership, a fractional CFO can typically do any of the following:
- Implement cash flow management strategies to maintain liquidity
- Recommend cost optimization and cost-saving initiatives
- Develop budgets and financial goals for long-term planning
- Evaluate opportunities to secure additional financing
- Ensure accurate and compliant financial reporting and guide best practices
- Establish financial governance and internal controls
- Collaborate cross-functionally with other teams, such as product and marketing
- Provide expert analysis to help the board make informed strategic decisions
You may need your fractional CFO to help with many financial aspects of the business — so it’s important to discuss what’s feasible within a fractional relationship and prioritize goals, if necessary.
Plus, outside of specific goals, one of the key benefits of a fractional CFO is that it may feel (or be) less risky than a full-time hire. The CFO role can be so critical to an organization that the wrong person can have a disastrous impact (or no impact at a time when you need guidance and impact the most). A fractional CFO not only supports your organization’s needs now, but can help you identify what you need the most from a future full-time hire.
As you craft a job description, you can emphasize the responsibilities that need more attention because the fractional CFO simply doesn’t have enough time, or because your organization’s needs have gotten more complex.
Knowing when to hire a fractional CFO
If your bookkeeper and accountant are keeping your company’s finances in order, when should you consider hiring a fractional CFO?
Accountants and CFOs typically have substantially different perspectives within the company. Accountants tend to focus more on what has already happened in the business. They’re responsible for financial reporting on existing transactions and managing the day-to-day operations. A CFO tends to focus on the future and drives planning and decision-making. Accountants are typically confined to the finance department, while a CFO collaborates across departments and interacts with the board.
You may not need a fractional CFO if your business model is relatively simple, your operation is small, and/or you’re comfortable with finance fundamentals. In some scenarios, even with a fractional role, the cost may not offset what a CFO can offer — if you mostly need more help with basic planning and budgeting, a skilled accountant may be able to satisfy your financial needs for now.
But if you’re struggling with cash flow, financial decisions, or pressures from your investors, you may need expertise beyond what an accountant can provide.
A fractional CFO can also be a good investment if you’re experiencing rapid growth, want to secure additional funding, or need strategic planning advice after funding has been obtained.
Finding the right fractional CFO candidate
While an accountant has specific training (they may have a degree in accounting and/or be a licensed CPA), anyone can call themselves a fractional CFO. On the credentials side, at a minimum, a fractional CFO should have some financial certifications, such as CPA or CFA.
Additionally, you’ll want someone with experience working with startups at your growth stage. Ideally, the candidate has even worked directly in your niche. They should have a proven track record of success with other companies that you can verify through references.
One way to narrow a search is to ask others in your industry for recommendations. You can narrow candidates by their service offerings, prioritizing those who specialize in your identified needs or who offer a broad range of services. Try asking candidates to provide specific examples of the advice they’ve provided to other startups and the outcomes of their leadership.
As you interview potential candidates, you should also look for someone who aligns with your company’s values and goals. A fractional CFO’s approach will differ if you prioritize aggressive growth over cash flow management, and so on.
Read more: How to choose an accountant for your startup
Outlining the project scope with your fractional CFO
As you outline the scope of a project with your fractional CFO, you should discuss some baseline expectations around communication and deliverables.
Keep in mind that a fractional CFO is likely working with multiple clients. If they’re not focused solely on your company, you may not get an immediate response to questions, especially if the person only works with you a few hours per week.
In your agreement, you should outline the person’s regular (think: weekly) involvement with your company, whether it’s attending meetings, overseeing e.g., your accountant, or preparing/reviewing reports. You’ll also want to outline the larger initiatives you agree for them to focus on, such as optimizing spending or creating a budget. A fractional role may have a much shorter ramp-up period than a full-time role, so be sure to set your fractional hire up to dive in quickly.
Since C-suite roles are typically decision-makers, you’ll also want to clarify the person’s decision-making authority. Do any roles within the company report directly to the fractional CFO? Will they, for example, approve budgets for different departments, including increases in headcount? Do they have any unilateral decision-making power, or will you be the final rubber stamp? Will the fractional CFO serve mostly in an advisory role?
Your expectations for the role will drive the cost. You need to be crystal clear about expectations so you get your money’s worth. The range for a fractional CFO hourly rate or monthly retainer can vary widely, but it is often a fraction of what you would pay a full-time person. (Plus, you’re typically not paying benefits or offering equity to the fractional hire as they are not a full-time employee.)
Of course, what’s most pertinent to you will vary. While many fractional CFO roles are hired for ongoing engagements with recurring responsibilities, you may also hire for a specific project that has a clear, narrow scope and defined engagement period. (For example, you might want a fractional CFO to prepare for a financial audit or help you secure additional funding.) Either way, be clear on your ask!
The next step: A transition from fractional CFO to full-time hire?
If your startup continues to experience growth (and hopefully it does!), eventually, you’ll likely need a full-time CFO. You’ll start to feel the strain from your fractional CFO’s limited availability or lack of full integration into the team. Or, you’ll find that the amount of work exceeds the amount of time your fractional CFO can give.
If you’ve developed a good relationship with your fractional CFO, you can ask for guidance around the timing of a full-time hire. Fractional CFOs know that their roles are not permanent. Another option is to increase the scope of your fractional CFO’s engagement until you’ve reached the maximum of what the person can manage in order to buy yourself some time.
Much like hiring your fractional role, the decision to hire a full-time CFO is a combination of needs and benefits. Working with a fractional CFO should give you a taste of how the role benefits your company. When you’re ready, take that experience, and multiply the impact.
Anna Burgess Yang