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No Bad Questions About People Management

Definition of Fractional CFO

What is a fractional Chief Financial Officer?

A fractional Chief Financial Officer (CFO) is an experienced CFO who works for companies on a contractual basis and is not a full-time employee. Depending on their expertise and resources, they may work exclusively with one company or engage with several. A contractual CFO will share their expertise in finance, strategic planning, and other related activities with small businesses such as start-ups to help the company grow without spending money on hiring a full-time CFO until they can incur such an expense.

A contractual CFO's more specific responsibilities may include helping a business create KPIs, financial models, and budgets while also supporting investor relations and negotiations. If requested by the CEO, they may prepare reports and presentations for board meetings.

When should you hire a fractional CFO or interim CFO?

A business should consider hiring a fractional CFO when it's experiencing rapid growth and needs advice from an experienced professional to manage the growth healthily. Hiring a fractional CFO can help the business reach continued success even if it lacks the budget to bring on a full-time CFO. The business can hire an expert on a contractual basis or for a specific project, depending on its needs.

This is different from an interim CFO, who is brought on temporarily. They could be hired to fill a gap between a CFO leaving and a new, full-time hire, which would indicate that a company has the budget to hire this type of executive. Candidates for interim CFOs are often found within the company and aren't external hires. These specialists may also work on short-term projects related to mergers and acquisitions and digital transformation.

Companies can find fractal CFOs through:

  • Referrals from CPA firms and attorneys
  • Word-of-mouth
  • Fractional CFO businesses
  • Freelancer platforms
  • Financial placement services businesses

What common problems do fractional CFOs help solve?

Fractional CFOs are hired by companies to resolve specific issues in projects or on a long-term, contractual basis. Commons problems are:

  • Planning plans/pitch decks
  • Raising venture capital
  • Assisting with mergers and acquisitions
  • Supporting pre-IPO preparation 
  • Advising strategies for growth and profitability
  • Improving cash flow
  • Optimizing financial systems 

Fractional CFOs can be viewed as additional and practical advisors for startups and other small businesses that plan to grow and engage in more challenges in the future. Another benefit of a freelance CFO is the flexibility it provides a company. If a particular specialist doesn't match up with the business's culture, they aren't bound by an employee contract to keep them employed. Likewise, as a young company grows and changes, it can choose a CFO to help tackle new issues as they arise.

Key Takeaways

  • A fractional CFO is an experienced financial executive hired by a company on a part-time or contractual basis.
  • Companies hire contractual CFOs when they lack the budget to hire a full-time employee for this role.
  • These CFOs advise growing companies on strategic decisions, support them with investor relations, help raise funds, and perform other tasks defined by the company.
  • Fractional CFOs are different from interim CFOs in that the former work part-time, while the latter is a temporary position that fills the gap between an employee leaving a company and hiring a replacement.

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