Fractional CFOs and New Startups
Written by Amanda Bower | Published: July 1, 2022
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If you’re at the helm of a powerhouse new startup, and you’re seeing successes and rapid growth, you’re probably starting to take a closer look at how you’re doing things. That includes everything from how you’re scaling, what your staffing looks like, your finances, and your C-suite lineup.
If you’re like most new startups, it’s very likely that in the beginning, your founders or other key players were handling your finances personally. They probably were doing things like managing the cash flow, handling financial strategy, and covering all areas related to financing. That makes sense for a budding young company, looking to consolidate finances and spend wisely. But as you hit more rapid strides when it comes to growth, it’s nearly impossible for those same figures to keep up with these responsibilities.
At this point, startups usually feel the need to bring on board a Chief Financial Officer (CFO), or someone to handle the complexities and minuita of the finances. But there are two things that tend to hold them back: startup growth is uncertain (even during prosperous times) and CFOs can be expensive.
Instead of agonizing over hiring a CFO or not, there’s another option.
And just as you can be a fractional owner of assets like homes and yachts, and you hold a fractional share of a stock, you can also have a fractional Chief Financial Officer running the finances of your business.
And as far as many new startups are concerned, fractional CFOs are a match made in heaven.
What Is a Fractional CFO?
You might be thinking: of course it’s possible to outsource certain accounting services for startups, such as taxes and cash management. But outsource an entire C-Suite position? No way.
We’re here to tell you, yes way. You can outsource a CFO, and it might honestly be the best solution to your business.
While there are different ways you can hire an outsourced CFO for your business, one way is by using a fractional CFO.
So, what exactly is a fractional CFO, and why can they be so good for your new startup and its finances? A fractional CFO is essentially a part-time Chief Financial Officer, who works with your company only some of the time. Fractional CFOs aren’t just locked into one company, and instead, will work with several companies at the same time.
At the end of the day, fractional CFOs bring C-suite financial expertise to your startup at a rate that is much more affordable than that of a full-time CFO. And while Fractional CFOs can be great for your startup’s budget, there is no compromise on the quality of the services they provide: fractional CFOs are typically seasoned executives, who have held executive financial positions before, and who have a wealth of knowledge in business and startup finances.
Why Not Hire a Full Time CFO?
If you’re a fast growing startup or other type of new business, you obviously know it’s important to have your finances in order. But more often than not, new startups take care of their accounting services on their own.
While this might be acceptable during the earlier stages of your company, once you start to hit your strides with growth and your scaling, the last thing you want as a leader is to be personally managing financial aspects of your business, such as handling taxes or navigating a financial audit.
So at this point in your business, hiring a full-time CFO probably makes sense from a logistics standpoint. But from a practical standpoint, there are many barriers to hiring a full-time CFO.
Firstly, full-time CFOs are top-tier financial experts, and they expect to (and deserve to) be compensated as such. To put it bluntly: hiring a full-time CFO can be a big financial burden. While there may be a time when you are 100% confident that it is worth it for your company to bring a full-time CFO on board, that moment might not align with when you need the financial services of a CFO.
Second, a full-time CFO might simply be a little bit of overkill. If your startup is just hitting its first real growth spurt, you might not need the full-fledged services of a full-time CFO. In fact, this is a great time to point out that you definitely don’t need to be in a position of rapid growth to bring on a fractional CFO. You can hire a fractional CFO from the very beginning, and ensure that your finances are being expertly handled from the earliest days of your company’s existence. In fact, many small and medium sized businesses can use a fractional CFO for the majority of their businesses life cycle.
Lastly, a full-time CFO is much more than just a new hire. They might want additional compensation, such as equity in your business, which you shouldn’t have to give up in the early stages just to get the accounting and finance expertise that your company deserves. With a fractional CFO, you get the brains, knowledge, and expertise of a full-time CFO, without having to compromise on equity.
What Does a Fractional CFO Do for a Startup?
You probably know that your new startup needs expert financial and accounting services, but you might be wondering: “What exactly can a fractional CFO do for my business?”
The full answer is – essentially any and all key financial services that your startup needs. But let’s break it down. Here’s exactly what a fractional CFO can do for your startup.
First and foremost, a fractional CFO will manage the finances of your business or startup. This includes accounting functions, such as managing the cash flow to ensure that cash never runs dry, and reporting functions, such as analyzing the financial strengths and weaknesses of your company.
Especially as your business grows, finances are going to get more and more complex. Leaders who are not in the CFO position should not try to handle finances on their own, because they risk making errors and missing crucial elements of their own finances. At the very least, they will spend an unnecessary amount of time and energy in order to keep the business’ finances up-to-speed that could be spent growing the business.
Establish a financial strategy and budget
The financial strategy and budget of your business is an essential framework that the entirety of your business functions on. These numbers and methods determine how the rest of your business operates, if it is profitable, and how much profit it is amassing. Fractional CFOs can help you analyze your current financial strategy and budget, identify what is and isn’t working, and can outline ways that you can improve it.
Implement new systems
One of the greatest parts about when your business starts to grow and scale is that you can take a look at your systems and processes, and improve upon them. Implementing new financial systems can be a great solution for meeting your changing needs, but it’s also no small undertaking.
Plenty of things can go wrong when new systems are deployed. But when you have a fractional CFO on board, you also have their expertise and knowledge that can help you smoothly roll out new systems. They’ve seen rollouts and new systems deployed before, and can help make sure everything goes according to plan.
As your business grows, it’s very likely that you’re going to need more capital. Busy business owners and other leaders shouldn’t have to spend their time looking for ways to raise capital. Instead, fractional CFOs can help with this crucial task. There are several different ways fractional CFOs can assist your business during this process. Some fractional CFOs might assist with the necessary reporting and documentation, some might work on due-diligence, while others might speak with the investors themselves.
Work with investors
Investors can be great for getting the cash your business needs to grow, and for bringing on different types of leaders. But investors also have certain needs and desires, which can slow leaders down when they’re trying to handle the day-to-day operations. Instead of getting bogged down with investor requests and asks, fractional CFOs can field their communications, and determine if working with certain investors is the right move.
As your business expands, it’s possible that you’re going to need to conduct audits, for internal or external reasons. Your business simply might want to conduct a close audit of its finances in order to ensure that everything is 100% accurate, or you might need to comply with an audit for legal or compliance reasons. Either way, audits are a time when complete accuracy with financial information is critical, and it’s where fractional CFOs can lend their expertise and experience.
We’ll just say it: a robust C-suit looks good. Having a fractional CFO handling your finances shows that your business is serious, and that you have legitimate financial expertise on your side. This credibility could be important for everyone, including new or existing customers, other business partners, and individuals who can provide opportunities for promoting growth.
Prepares for growth
Speaking of growth, while it can obviously be incredible for your business, it’s crucial to make sure your company is prepared for it. If the financial aspects of your business aren’t being handled by a fractional CFO, who then is preparing for growth? They might be able to identify different business models, ways you can serve customers, locating discounts for your own business, or changes to pricing.
Checks all of the boxes
When you’re at the helm of a business and you’re also trying to manage the finances, it’s far-too-easy for things to slip through the cracks. Regular reporting, bookkeeping, taxes, payroll, and compliance are just the tip of the iceberg. If one important financial form or file gets neglected, it could mean big trouble for your business.
That’s where we see the real power of fractional CFOs. They tick all of the boxes, check all of the lists, and make sure your business is doing everything it’s supposed to when it comes to finances.
Benefits of a Fractional CFO
As we mentioned, fractional CFOs might just be the perfect solution for your new business or growing startup. Here are some of the best benefits of having a fractional CFO on board your team.
Obviously, one of the most attractive benefits of using a fractional CFO in your business is the cost. A full-time CFO brings their experience, history, and knowledge to your company 100% of the time. Because of this, full-time CFOs can come with a pretty hefty price tag. That price tag isn’t just expensive: it can be prohibitive, especially to newer businesses.
But the thing is, the need for financial services doesn’t only kick in when your business is making enough money to bring on a full-time CFO. Honestly, most businesses could benefit from CFO services from the very beginning, but they simply are watching their wallets and spending cash with care.
Fractional CFOs are the perfect solution to this cost issue. You get the services, input, and guidance of a CFO, and a rate your business can actually afford.
Fractional CFOs are all experienced financial executives, which means they bring not only their knowledge, but also their connections to the table. Need to raise some capital? Your fractional CFO might know people interested. Looking for investors? They have a connection for that. How about a recommendation for a new system to integrate into your business? They probably know someone who works somewhere who can recommend something. You get the point.
Startups and new businesses can be exciting, and can attract employees from different career backgrounds and specialties. While this can make for a colorful workforce and interesting team, there’s one area where you don’t want someone who is new to the field: the financials.
No, when it comes to covering your finances, you want a bonafide expert, who has excellent experience in the most complex and extensive financial issues. That’s where your fractional CFO comes into play. Not just anybody can be a fractional CFO. No, these people are experienced executives who simply share their expertise with multiple businesses.
Flexible if not a fit
Bringing on a full-time CFO is not only a big financial commitment, but it’s a big personal commitment. Because yes, you are bringing in a new person who will wield a lot of power and influence in your business. What happens if you bring on a full-time CFO and they’re not a good fit?
Instead of stressing over finding the perfect CFO, fractional CFOs give you the incredible perk of flexibility. Because they’re part-time and contractual, if they’re not a fit, it can be easier to part ways with them.
Fractional CFOs can cover any and all financial issues, but more likely than not, you probably have some bigger things in mind you want them to tackle. When you bring on a fractional CFO, you can direct them to do just that: hit specific focus areas.
This can be great for strengthening your blind spots, providing coverage or expertise where it lacks, or guiding your business through specific financial tasks, such as audits.
Can help bridge a gap
Much of the time, companies need the services of a CFO, but aren’t ready to bring on one full-time just yet. Instead of waiting until your business is big enough, a fractional CFO can help bridge that gap, providing financial expertise until you’re in a position to bring on a full-time CFO.
That’s one of the best parts of a fractional CFO: once you’re ready to bring on that full-time person, you can shift your model appropriately. But just because your business doesn’t have a budget for a full-time CFO now doesn’t mean it has to suffer financially.
What Are the Signs It Might Be Time for Us?
How do you know it’s the right time to bring on a fractional CFO? Honestly, the best time to bring on a fractional CFO is from the very beginning of your company’s formation. A fractional CFO can help you make sure things are done right from the start, and can provide crucial financial support from the very beginning.
But more often than not, startups and new businesses look for fractional CFOs during times of growth. If you’re noticing more business, things are taking off, and you’re starting to feel like it’s hard to stay on top of (and ahead of) the finances, these are key signs that the time is right to bring on a fractional CFO.
A Fractional CFO May Be the Key to Unlocking Your Organization’s Growth
If your business is growing, that’s a great sign that you’re on the right track, and that incredible things are on the horizon. At this point, the last thing you want to do is have to slow down because of shoddy finances, or inexperience with the complexities of finances as you scale.
That’s where a fractional CFO comes into play. They don’t only provide the unparalleled expertise your business needs in order to be financially secure, but they free up founders and leadership to do what they do best: run the day-to-day of the business, full steam ahead.
Here at hiline, we have virtual CFO services that can provide your business with C-suite experts, at a part-time rate. Our virtual CFOs will provide you with the in-depth financial guidance you need, to make sure your business can soar. Contact us today to find out how our virtual CFO services can help transform your businesses finances.
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