by Marco Vargas

(written as an Expert Article for LinkedIn in 2022)
 

The Fractional CFO, Defined

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A Fractional CFO is an accountant, an analyst, a strategist and a business consultant all rolled up into one neat package; he's a CFO who provides his services on a part time, fractionalized basis.

 

Ideally suited for companies that aren't large enough to justify the cost of a full-time CFO, a Fractional CFO offers small and medium sized companies access to the same best-in-class levels of experience and expertise as its larger counterparts and competitors enjoy. Unlike a full-time CFO, a Fractional CFO is a long-term hire who splits his time between a short list of clients, none being large enough to justify paying for his services on a full-time basis.

 

In my professional opinion, and for reasons discussed in further detail below, the best Fractional CFOs specialize their practices, In my case, I exclusively serve Real Estate Developers, Homebuilders and General Contractors, all of which fall within an annual revenue range of a couple of million dollars at a low to approaching $100 million at a high.

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What a Fractional CFO does for his. Clients

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Fractional CFOs help their clients run their businesses by assisting with overcoming specific challenges, achieving growth, optimizing strategy, implementing systems, raising capital, mitigating risk, navigating an audit or completing a specific transaction that's beyond the expertise of the client or his full-time staff.

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The ratios and duties vary from one FCFO to the next. In my case I typically split my time between 3 to 6 clients and I prefer full service assignments; assignments that call for me to oversee the finance, accounting, FP&A, human resources, IT and legal functions of my clients.

 

The best result a FCFO can achieve is to serve a client whose business grows and matures to the point that a full time CFO is needed. I've worked as a FCFO since 2016 and, to date, have assisted a number of clients who have gone on to need exactly that.

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Overcoming Specific Challenges

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Fractional CFOs make sense for an organization when there are challenges or workloads that are beyond the skills or manpower of the existing team but that do not justify a full-time CFO. These challenges include:

 

• Cash flow issues

• Low gross margins

• Sales underperforming projections

• High expenses

• Existing IT systems outgrown or outdated

• H.R. and employer relations issues

• Risk mitigation issues

• Legal and compliance issues

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CREATING FORWARD FINANCIAL VISIBILITY

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Fractional CFOs are also helpful in optimizing or implementing forward-facing financial visibility. While financial professionals such as bookkeepers, accountants, and controllers are tasked with keeping past and current finances organized and well-documented, a CFO focuses on the future.

Fractional CFOs can help companies:

 

• Develop detailed short, mid and long-term financial forecasts;

• Prepare budgets based on forecasts;

• Analyze potential future products, services, markets, and customer segments.

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MANAGING GROWTH AND SCALE, RIGHT SIZING

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Fractional CFOs are also helpful in scaling a business, ensuring profitable growth as the business becomes more complex. This work involves reinventing the tools, processes and vendor relationships the business uses to deliver value to an ever-growing and increasingly diverse set of customers. This is often called “bridging the chasm”, as most companies start to see declining margins and increasing headaches as they strive to grow revenue beyond historic thresholds.

The philosophy of “what got you here won’t get you where you want to go” is ever-present in business once past the initial start-up phase. Businesses launch additional products, open new territories, open additional locations, transact in new currencies and deal with increasing regulatory requirements. These all require more advanced thinking, tools and techniques.

Many bootstrap startups begin with a part-time bookkeeper and simple systems but later find they can no longer sustain additional business growth and complexity. Systems, resources, processes and strategies must scale in sophistication as a company grows.

Fractional CFOs can help companies:

 

• Develop existing employees and hire new ones who bring essential knowledge and skills;

• Implement systems that will support sustainable growth;

• Improve visibility and analytical capabilities to convert large amounts of data into actionable information;

• Explore causes of revenue leakage, cost overruns, and operational friction in a growing business and develop potential solutions.

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ACHIEVING GOALS, CREATING A PLAN

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A Fractional CFO is also often brought in to an organization to help achieve a particular goal, such as raising capital or preparing for a sale, merger or acquisition.

In these cases, a Fractional CFO is helpful in:

 

• Getting books in order;

• Producing financial forecasts;

• Bringing expertise and validation to the company;

• Sitting in on board meetings;

• Helping with strategic relationships;

• Analyzing term sheets and contracts;

• Overseeing due diligence.