February 14, 2023
3
MIN READ

How to Hire Fractional CFO Services in 2023

Finance

Considering outsourcing CFO services? In this guide, you'll learn everything you need to know to hire a great fractional CFO.

by
Grace Wildsmith

With new economic challenges on the horizon, scaleups have to grow more efficiently than ever before. And outsourcing CFO services has become a popular solution. By outsourcing the responsibilities of a Chief Financial Officer, companies can significantly reduce their costs, while still maintaining access to the key financial expertise they need to succeed.

If you’re considering hiring outsourced CFO services, look no further. In today’s post, we’ll share everything you need to know to make the most out of your fractional CFO.

We’ll explore: 

  • What’s an outsourced CFO
  • The pros and cons of outsourced CFO services
  • 9 CFO services you should outsource
  • Services you may not want to outsource to your fractional CFO

Ready? Let’s dive in.

What Is a Fractional CFO?**

First things first, what is a CFO? CFO stands for Chief Financial Officer. And a fractional CFO, or outsourced CFO, is usually a well-experienced CFO who provides services to companies on an on-demand basis. This outsourcing is usually done through a limited-term contract or a monthly retainer.

A great fractional CFO has experience in high-level finance roles in both private and public companies at varying growth stages. Their clients range from small businesses to large corporations, and they offer services such as:

  • Strategic planning
  • Scenario modeling
  • Unit economics
  • Financial projections

Usually, CFOs work on retainer agreements. These agreements usually range between $1,000 to $25,000, depending on their proficiency. 

Some valuable skills to look out for in a fractional CFO are:

  • A strategic approach
  • The ability to transform key performance indicators into information that’s relevant and actionable for all leadership
  • Developing a plan for implementing the CEO’s strategy in a financially viable way
  • Broad knowledge of financial management & reporting
  • Risk management skills

Niall McGinnity, CEO of Nuvem9, one of the UK’s leaders in outsourced CFO services said, “The common need is for a middleman to stand between financial operations and the business owners, and to analyze and interpret the performance of the company.” 

According to McGinnity, “Many business owners suffer from self-doubt and imposter syndrome when it comes to the numbers. The ability to listen to results, in a language they understand, from a trusted and experienced CFO, generates massive levels of confidence in business decisions transparently.”  

With the ability to tap into C-level financial expertise, Nuvem9 clients are implementing strategies much more effectively and efficiently than their peers who lack those skills in their leadership teams. This easy and affordable access to a CFO, provides peace of mind and helps alleviate the self-doubt that many business owners experience when dealing with financials.

Is a Fractional CFO Worth It? The Pros and Cons**

You may benefit from hiring a CFO if:

  • You don’t have the proper time to manage your business’ finances
  • You make financial decisions based on insufficient data or even intuition 
  • Your company grew too fast and  you need to make sense of your finances to attract new investors
  • Your company is underperforming and you need to figure out why
  • You don’t fully understand your financial situation

A CFO can help you to:

  • Monitor your business’ capital structure, such as fundraising or restructuring the debts of your business.
  • Improve your cash flow by proposing strategies for faster payment or cooperating with creditors and banks, among other strategies
  • Increase your profit margins by tracking spending, reviewing monthly financial statements, analyzing data, and more
  • Provide financial reports and guide your scaleup’s financial decisions

However, truth be told, it’s likely that early-stage businesses may not see significant ROI in hiring a CFO full-time. In fact, when your finances are relatively simple, outsourcing can keep your budget manageable and reasonable. 

The Pros of Hiring Outsourced CFO Services

Aside from the cost savings, by hiring a fractional CFO, you can:

  • Benefit from the expertise and experience of a highly-qualified CFO, without a long-term commitment
  • Avoid the traditional costs of a full-time CFO, such as salary or bonuses which on average are $383,000 per year.
  • Take advantage of their diverse and ever-growing experience
  • Choose another contractor if the hired CFO isn’t a fit, with minimal friction

The Cons of Hiring Outsourced CFO Services

Nevertheless, outsourcing isn't all roses. 

For instance, It’s quite common for companies to underestimate the amount of work needed from contract CFO services. 

Oftentimes, companies estimate that their CFO will only have to be around 3-4 hours per month. However, this will only cover basic services. An effective fractional CFO will probably need 15-25 hours per month to make positive, long-term changes.

Additionally, if they aren't a permanent part of your organization, the outsourced CFO may be unable to fully understand your business challenges. So they won’t be able to provide in-depth analysis or actionable advice.

9 CFO Services that Your Scaleup Should Outsource**

Every company is unique. But, in most cases, an outsourced CFO working with a scaleup will help it to develop and implement a sound financial strategy. This is done through certain concrete services. 

In this section, we’ll explore 9 common fractional CFO services and how scale-ups benefit from them.

We’ll cover:

  • Financial projections
  • Scenario modeling
  • Budget vs. actual financial data comparison
  • Unit economics
  • Financial presentations & reporting
  • Strategic planning
  • Customer contract reviews
  • Legal team liaison
  • HR expense reduction

Let’s take a look at each one, shall we?

Financial Projections

‍‍Every business needs financial projections to show its revenue potential and attract new investors. Plus, they’re also the basis for budgeting and investing.

An outsourced CFO will help you predict your financial performance for the future months and years. How? By analyzing your past financial performance.

Through financial projections, you will: 

  • Get a complete picture of your expenses and revenue projections for all key verticals
  • Discover how sales expenses will increase
  • Get concrete data that will help you expand your sales team to drive & support growth

Scenario Modeling

Financial scenarios show how your company is likely to perform under multiple circumstances. For instance, you can model a conservative scenario where the business grows by 10% per month as well as a more aggressive scenario where it has a monthly growth rate of 35%.

The main purpose of scenario modeling is to prepare your company to adapt to different possibilities intelligently and soundly. 

Budget vs. Actual Financial Data Comparison

As you may already know, a business’ budget establishes targets for how it should perform each month to achieve its projections.

Yet, to make sure that your business is hitting the desired milestones, your CFO will compare your actual financial data with your budget. This step, according to Peter Strik, one of Europe’s leading fractional CFOs, creates information that is “digestible and actionable” for leaders as it is “financial management tailored to the need of non-financial people”. You then have a proper diagnosis of your financial situation, and can adjust your strategy accordingly.

Unit Economics

‍Establishing and tracking the unit economics of your business model can be easier with an outsourced CFO. This analysis can help you to:

  • Understand how sustainable your business is
  • Get insights to boost revenue

For example, when it comes to SaaS companies, this usually involves operations such as analyzing the ratio of customer lifetime value (LTV) vs. customer acquisition cost (CAC).

Financial Presentations & Reporting

Your leadership should be 100% aligned regarding your company’s financial situation. That’s why board meetings often cover:

  • Your annual budget 
  • Fundraising opportunities
  • Financial projections
  • Financial models

This information will get more complex as your business grows. And here is where an outsourced CFO can help. A great fractional CFO will:

  • Attend board meetings
  • Lead financial discussions
  • Turn figures into actionable advice
  • Answer financial questions with a combination of technical knowledge and clarity

However, if you feel confident handling board meetings without a CFO's assistance, your outsourced CFO could provide you with a concise report or presentation, to support your key points and move the conversation forward yourself.

Strategic Planning

A fractional CFO can assist with the financial side of your business strategy. In short, they can test it and let you know if it’s financially viable. And if it isn’t, they can advise you on ways to optimize it. 

Customer Contract Reviews

A fractional CFO may help you to rethink your pricing and your contracts. 

Your CFO will help you to:

  • Identify potential risks when negotiating contracts
  • Determine if the contract terms are beneficial to the business, and recommend ways to enhance or guarantee profitability

Legal Team Liaison

To work with accurate financial information, fractional CFOs need to go over your legal obligations and company contracts. Hence, they’ll be working side-by-side with your legal team.

And since outsourced CFOs will go over your legal documents, they’ll be able to determine whether they’re in your business’s best interests, from a financial perspective.

HR Expense Reduction

It’s no news that payroll costs are usually a company’s biggest expense. A fractional CFO can collaborate with your HR management to:

  • Analyze how team changes affect your ability to hit financial goals
  • Provide recommendations for reducing staffing costs (if necessary)
  • Create a compensation plan that’s competitive while offering good value to the company

Financial Services That May Not Be Worth Outsourcing**

It’s true that a fractional CFO can make a huge difference in your company. However, some finance services may not be convenient to outsource to a CFO.

We don’t recommend:

  • Outsourcing functions that require long-term relationships
  • Involving CFOs in basic projects that could be handled by someone else

Two common examples would be:

  • Fundraising
  • Bookkeeping and accounting‍
  • Operational management of the accounting team 
  • Specialist advice 
  • Compliance or Statutory Reporting

Why? Let us explain.

Fundraising

You may be wondering why it’s not recommended to hire a fractional CFO to manage fundraising. The reason is simple: Most investors want to have direct contact with the company’s founder. Their vision & story are crucial to their company’s culture. And their mindset plays a key role in whether their company succeeds or fails. 

Therefore, it’s always better for the founder to conduct fundraising meetings and develop relationships with prospective investors. Still, your fractional CFO could offer you useful advice, but they shouldn’t replace you.

Bookkeeping & Accounting

It’s better for outsourced CFOs to not perform day-to-day bookkeeping and accounting. Why? Fractional CFOs charge a high rate for their services. According to Finvisor, outsourced CFOs charge an average of $175-$300 per hour. Therefore, asking them to handle basic accounting tasks would be a waste of money and talent.

Nevertheless, even though accounting and bookkeeping aren't the CFO's main duties, they can be a valuable resource if you need assistance.

Operational Management of the Accounting Team 

When working on a part-time fractional basis, it’s better for CFOs to devote their time to perform strategic and analytical work, rather than managing and training staff on a daily basis. The CFO can and should direct how the finance team grows and evolves but not be involved in daily activities.

Specialist Advice 

A good CFO should be a central leader who knows when to bring in specialist skills to answer very specific questions. Otherwise, trying to be both will diminish the quality of both roles, e.g. VAT, corporate restructuring, etc. 

Compliance or Statutory Reporting

Similarly a CFO should not be pulled into compliance or statutory reporting other than to review, advise and make recommendations on the finished articles.

Take Control of Your Finances with Cledara**

Using outsourced CFO services can be an effective way to reduce costs while continuing to pursue your company’s goals. One of the first things a fractional CFO might do is use Cledara to get your SaaS spend under control.

When was the last time you analyzed your SaaS stack? Often, companies subscribe to multiple software tools in a strive to work more efficiently. But subscriptions soon accumulate to the point where they have multiple tools serving the same purpose. These tools add up to your monthly spending but have no positive impact on your team’s workflow. Here’s where Cledara can help.

With Cledara you can:

  • Get a centralized view of all your software subscriptions
  • Prevent shadow IT
  • Detect unnecessary software and unsubscribe with a click
  • Identify who’s using which tool
  • Get 2% cash back on every tool subscription
  • Simplify your team member onboarding and offboarding processes
  • And much more

At Cledara, we love working with the fractional community through our partnerships program. Curious to learn more? Reach out to arrange a call with us today. Book a demo and discover Cledara today.

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Grace Wildsmith

Grace is Cledara's in-house financial accountant, who thrives in businesses with fast-paced growth. Grace's role is to provide insights to the wider business, she has been heavily involved in cross-functional projects stretching across the introduction of global benefits, financial modelling and KPI reporting procedures.

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