What is a Fractional CFO and When to Hire One

Written by Cameron McCool    |    Published: May 8, 2024

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What is a Fractional CFO

“What is a Fractional CFO?” If you’re asking this question, congrats. It means your business is growing and you need a financial pro to take things to the next level.

To help you decide if a fractional CFO aligns with your goals and budget, we’ll outline the role of a fractional CFO and explain when it’s typically best to bring one into your business.

Want to hire a fractional CFO but not sure where to start? Connect with a Hiline Advisor and learn how our CFO services can help.

Key Takeaways

  • A fractional CFO is an experienced financial leader that provides Chief Financial Offer expertise on a part-time, interim, or project-based arrangement.
  • Fractional CFOs can help companies with financial planning, financial analysis, and strategic decision-making. Services are usually tailored to the needs, size, and specifics of the business.
  • Fractional CFOs are usually cheaper and more flexible than in-house, full-time CFOs. Hence, they’re typically ideal for small businesses and startups with smaller budgets.

What is a Fractional CFO?

A fractional CFO is a part-time Chief Financial Officer employed on a contractual basis, catering to the needs of businesses seeking a high-caliber financial strategist without employing a full-time CFO in-house.

Distinct from traditional full-time CFOs dedicated to a single firm, fractional CFOs offer their services to multiple businesses. This means that fractional CFOs can bring extensive financial management experience from other clients and tailor it to address the unique challenges of other startups or small businesses they work with.

Compensation for fractional CFOs will vary depending on factors like location, experience, and the specific demands of the projects they undertake. A Fractional CFO salary can range from $240,000 to $480,000 annually. Average hourly rates sit around $300 per hour.

Fractional CFO Services: The Responsibilities of a Fractional CFO

  • Financial Analysis: Conduct in-depth analysis of financial data to provide insights for decision-making.
  • Cash Flow Management: Monitor and manage cash flow to ensure financial stability and liquidity.
  • Financial Reporting: Prepare and present financial statements and reports to stakeholders.
  • Strategic Financial Planning: Develop and implement financial strategies to support business growth and goals.
  • Budgeting and Forecasting: Create budgets and forecasts to guide financial decision-making and planning.
  • Risk Management: Identify and mitigate financial risks to protect the company’s assets and interests.
  • Tax Planning: Develop tax strategies to minimize tax liabilities and ensure compliance with regulations.
  • Investor Relations: Communicate financial performance and prospects to investors and stakeholders.

The Benefits of Hiring a Fractional CFO

For small to medium-sized businesses, or those going through significant changes, hiring a fractional CFO can be a game changer. These seasoned financial strategists deliver expertise at a fraction of the cost of a full-time equivalent. 

Here’s how businesses can benefit from bringing a fractional CFO on board.

Expertise and Experience

Fractional CFOs are financial virtuosos. With rich backgrounds that span across different industries and companies, they bring a wealth of knowledge to the table. Such expertise means they have been in the trenches, know what to expect, and can tap into a broad network and diverse skill set to advise their clients.

A fractional CFO may have seen a variety of financial landscapes, from equity funding and bank lines of credit in lean startups to mergers and acquisitions in fast-growth enterprises. This makes them adept at steering companies through tricky financial waters, ensuring that financial strategies aren’t just sound but are also positioned for value creation and long-term success.

Cost Savings

Hiring a fractional CFO is a financial decision that in itself reflects prudent financial management. By nature, a part-time CFO costs less than a full-time CFO, whose annual compensation can soar to $450,000, plus benefits and stock options. On the other hand, fractional CFO services can deliver the same strategic financial leadership at significantly lower rates, often $250 to $500 per hour, saving companies tens of thousands of dollars. Additionally, the absence of the need to fork out for benefits, office space, or other full-time employee perks compounds the cost-effectiveness of a fractional CFO. For financially savvy businesses, the math is straightforward—fractional equals fiscal efficiency.

Flexibility and Scalability

Fractional CFOs offer a level of agility that caters to the dynamic needs of modern businesses. They can be brought in for targeted financial projects like capital raising, budget overhauls, or strategic overviews and can scale their involvement as the company grows. This operational elasticity means companies only pay for what they need, when they need it, keeping overhead low while still capitalizing on high-caliber financial guidance.

Moreover, the external perspective of a fractional CFO who has weathered diverse financial climates can provide novel strategies, identify areas of risk, and present growth opportunities. Their flexible engagement translates into more informed decision-making and adaptable financial planning for businesses aiming to thrive in the ever-changing market landscape.

Which Businesses Should Hire a Fractional CFO?

Deciding when to hire a fractional Chief Financial Officer (CFO) can be pivotal for businesses navigating financial complexities or seeking to bolster their growth trajectory. Their assistance may prove invaluable through periods of fundraising, preparing for exit strategies, undergoing audits, or managing significant transitions.

Here are some key business stages where hiring a fractional CFO often makes sense.

Early Stage Startups

In the infancy of a startup’s journey, financial sustainability is a crucial determinant of success. Early-stage companies often encounter challenges in managing cash flow and mitigating the risks of rapid expansion. A fractional CFO can be instrumental in:

  • Establishing robust cash management practices through accurate cash flow forecasting
  • Developing strategic initiatives tailored to the startup’s nuanced needs
  • Create budget plans and financial projections that are vital for early-stage ventures
  • Provide strategic guidance on meeting all tax obligations and ensuring compliance

Small to Medium-Sized Businesses

For small to medium-sized businesses (SMBs), a fractional CFO can be the linchpin to elevating financial strategy and alignment with broader business goals. These businesses may look to fractional CFOs for support with securing funding, navigating audits, achieving tax compliance, assimilating new technologies, and executing strategic initiatives. 

By offering an external lens and expert opinion on financial matters such as audits and capital raising, fractional CFOs can drive operational efficiency and sustainable growth. As a strategic investment, these financial specialists afford SMBs the flexibility to adapt to leadership shifts while maintaining focus on their core financial objectives.

Companies Undergoing Change or Transition

During pivotal times of transition, companies often face pressing financial and operational challenges. Fractional CFOs can seamlessly step in as interim leaders, offering stability and strategic oversight to maintain financial momentum. Suitable scenarios for their engagement include executive absences, mergers, acquisitions, fundraising rounds, and regulatory changes. 

Fractional CFOs can manage transitions, optimize financial strategies, improve cash flow, minimize unnecessary expenses, and guide cost restructuring efforts. Their forward-facing financial insights ensure that companies evolve without compromising their financial integrity, making fractional CFOs a prudent choice for businesses in flux.

Companies with Limited Financial Resources

For companies with restricted financial means, the specialized knowledge and strategic input of a fractional CFO can be a game-changer, enabling them to compete with larger companies with deeper pockets.

For example, smaller companies or startups with modest budgets may not have the bandwidth to employ a full-time CFO, yet they require strategic financial guidance to propel them toward growth. A fractional CFO serves as an invaluable resource for these companies, providing high-caliber financial acumen at a fractional cost.

Hired to meet specific needs, a fractional CFO can assist with tasks ranging from funding and audits to tax compliance and technology integration. Leveraging their cumulative experience from varied industries, fractional CFOs empower these smaller entities with strategies to manage cash flow more effectively, prepare prudently for growth, allocate budgets optimally, and track key performance benchmarks—all while keeping the overhead of full-time executive roles at bay.

Do You Need a Fractional CFO?

Here are some tell-tale signs that indicate your business could benefit from the expertise of a fractional CFO:

  • You don’t have a long-term financial strategy. Fractional CFOs work with business owners to develop effective financial strategies that optimize revenue, manage costs, and mitigate risks.
  • You want to get better at tax planning and optimization. A fractional CFO’s knowledge of tax deductions, credits, and effective management strategies, can help your business deal with the complexities of the tax landscape, ensure timely filings, and help reduce your liabilities.
  • Your company would benefit from strategic financial decision-making. Fractional CFOs assist with financial analysis and forecasting, helping businesses make informed decisions that align with their long-term goals.
  • You need to get better at KPI setup and monitoring. Fractional CFOs can help you track the right key performance indicators (KPIs) and help you uncover valuable insights into the financial health and performance of your business.
  • You’re worried about cash-flow issues. Fractional CFOs help manage the company’s cash flow, ensuring the availability of financial resources for growth and operational needs.
  • You want to buy other businesses. Fractional CFOs can help you know when to take on new businesses via strategic planning, financial modeling, valuation, M&A due diligence.
  • You’re about to seek fundraising and new investors. Fractional CFOs can assist with fundraising efforts, helping businesses secure financing and develop financial strategies that attract investors.
  • You need a CFO but want a cost-effective solution. Fractional CFOs offer their services on a part-time basis, allowing businesses to access high-level financial expertise without the cost of hiring a full-time CFO.
  • You need a CFO’s guidance on something specific, but not on a full-time basis. Fractional CFOs can be engaged for specific projects or periods of time, providing businesses with the flexibility to tailor their financial support to their immediate needs.

How to Hire a Fractional CFO That’s Right for Your Business

Consider these factors in your search for a Fractional CFO that aligns with your company culture and long-term business goals.

Evaluate Experience and Expertise

It’s essential to evaluate a fractional CFO’s experience and sector-specific expertise, because you’ll want to team up with a Fractional CFO with a proven track record in your niche.

Fractional CFOs often have a history of success across a spectrum of industries—if they have experience in your niche, they can leverage the insights and knowledge from previous clients to quickly get your business up to speed.

Check Professional Credentials and References

Next, verify a CFO’s professional credentials and references. Many of these top-level financial experts hold advanced degrees in finance, accounting, or business administration and are often certified as CPAs, CFAs, or CMAs. Direct experience as a CFO, or in an equivalent senior financial leadership role, is an essential benchmark.

When speaking with their references—be it previous employers, colleagues, or clients—focus on acquiring insights into the candidates’ leadership styles, effectiveness in achieving goals, and their ability to drive financial success. 

Assess Compatibility and Cultural Fit

Finding a fractional CFO with the right alignment to your company’s culture and vision is as vital as their financial acumen.

Cultural fit is paramount; a CFO who shares your startup’s values and growth aspirations can become a powerful catalyst for financial success. Consideration should extend beyond their technical know-how to include their dedication, innovation, and shared vision for the future of your enterprise. In-depth interviews that delve into problem-solving tactics, industry experience, and future financial foresight will help determine whether the candidate will be a driving force within your organization.

Get Expert CFO Services and Strategic Financial Guidance with Hiline

Hiline’s team of CFOs and financial experts can deliver the financial operations support and strategic guidance your business needs to grow.

Get a dedicated team to handle all of the financial tasks your business needs to thrive—accounting, tax planning and filing, bookkeeping, spend management, CFO advisory, and more.

Connect with a Hiline advisor and learn how our accounting and CFO services can help.

Further Reading

CFO Resources for Small Business Owners
CFO Resources for Startups
Outsourced vs Fractional vs CFO: Understanding the Difference

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