Unlocking the Benefits of a Fractional CFO

In my experience, I have seen a lot of early-stage startup CEOs and their teams get bogged down by G&A tasks that take their time away from more important sales and product development initiatives. Let’s be honest, finance and accounting tasks are the last things CEOs want to be responsible for, but time and time again I come across “Founder-led Finance.”

What is Founder-led Finance?

I dub “Founder-led Finance” as the dreaded scenario where the finance and accounting functions are owned by the founders of the startup. Typically the CEO and a few other execs.

Unfortunately, this tends to be the outcome in early-stage startups, because team compositions lean heavily towards product and engineering talent early, followed by GTM and operations talent. Somewhere after a Series A fundraise will a startup even start to consider allocating their precious capital resources to a dedicated finance professional.

So when it comes to managing the finances of a startup, there are a few different paths that a team can go down. One path that is becoming increasingly popular in recent years is to hire a fractional CFO. But what exactly is a fractional CFO, and what do they do?

What is a Fractional CFO?

A fractional CFO by definition is a part-time finance professional who provides financial leadership and expertise to a company. Fractional CFOs are different from Consulting CFOs and Interim CFOs in that they work part-time (typically less than 20 hours a week) but are treated and viewed as an integral part of the leadership team and company.

What Responsibilities Can a Fractional CFO Own?

The short answer is that the job description for a Fractional CFO depends on the needs of the CEO. Fractional CFOs can own tasks that range from day-to-day blocking and tackling to providing high-level strategic advisory services.

Examples include:

  1. Financial Modeling: Fractional CFOs can create financial models to help CEOs make informed decisions about growth and investment.
  2. Budgeting: Fractional CFOs can help create and manage budgets that align with a company’s financial goals.
  3. Cash Flow Management: Fractional CFOs can help manage cash flow by forecasting cash needs and ensuring there is enough liquidity to support ongoing operations (ex. SVB crisis).
  4. Financial Reporting & Board Prep: Fractional CFOs can prepare financial reports and prep board materials.
  5. Fundraising: Fractional CFOs can help raise capital by identifying the timing and needs for new funding and leading the fundraising efforts.
  6. Building Out Systems & Processes: Fractional CFOs can help examine the operational needs of the finance and accounting function and implement new systems and tools and hire internal and external resources to ensure that a company’s financial operations can scale appropriately.

Why Hire A Fractional CFO Instead of a Full-time Finance Leader?

Typically a full-time startup CFO will not be brought on board until after a Series B or C round has been completed, which is when the scale of the financial and business operations would warrant that level of expertise. A recent trend by startups over the last few years has been to utilize the support of a Fractional CFO early in the life of a startup and then transition to a full-time VP of Finance hire once a Series A or B round has been raised before ultimately hiring a full-time CFO.

There are a number of reasons why hiring a Fractional CFO makes sense early in the life of a startup:

  1. Cost savings: Fractional CFOs are more affordable than full-time hire since they work on a part-time. This can be especially beneficial for small businesses with limited resources.
  2. Flexibility: Fractional CFOs can be hired for a specific project or time period, which allows startups to get the financial expertise they need without committing to a long-term hire.
  3. Expertise: Fractional CFOs are highly experienced financial professionals who have worked with a variety of startups in different industries. This means that they can bring a wealth of knowledge and expertise to the table that might not be available in-house.
  4. Objectivity: Fractional CFOs can provide an objective perspective on the startup’s financial situation.
  5. Scalability: As startups grow, their financial and operational needs will change. Fractional CFOs can help startups scale their financial operations to meet future growth.

How Much Does a Fractional CFO Cost?

This depends on a wide variety of factors including the specific experiences and skillsets of the candidate, the number of hours per week you need, and the length of the engagement. But generally speaking, a Fractional CFO that is highly capable of supporting the needs of an early-stage startup on a part-time basis (5-20 hours per week) will cost between $250-400/hour. Specific terms such as minimum weekly hours billed, exclusive day-of-week commitment, and options or warrants are things that may pop up in your conversation with candidates.

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