FRACTIONAL CFO: WHEN IS IT THE RIGHT WAY TO GO?

While fractional CFO and finance services are nothing new, they have been noticeably trending for small to mid-sized organizations. The disruption and challenges many businesses are facing due to the economic effects of COVID-19 have only increased the need. 

What is a fractional CFO? The term “fractional” is a relatively new but increasingly common way to refer to outsourced CFO, controller, and similar finance and accounting outsourcing. But first, what is a CFO, fractional or otherwise? 

In general, a Chief Financial Officer is an executive responsible for managing the top-level financial planning and actions of a company. A CFO should be a key strategic partner to the CEO and other executives, and typically reports to the CEO.

Controllers, by comparison, directly manage the accounting function and oversee financial statement reporting, internal controls and accounting procedures, and similar activities. They typically report to the CFO, or, in smaller organizations, to the CEO. I’ve held all three positions (controller, CFO and CEO) and know that the lines can blur, especially between CFO and controller in small to mid-sized organizations.

Once, when interviewing for a high-level finance position, the CEO asked what I would do if he was unavailable my first two months and I could do whatever I wanted. I told him I would put on a bump cap and uniform and work in the plant for a month, then ride around with the sales team for a couple of weeks, sit in with the marketing department, then finally introduce myself to the accounting department. The controller – a vital function – must know the accounting function. A CFO must know the business. 

A fractional CFO may be engaged on an interim, part-time, or project basis. Due to the critical nature of the position and a company’s needs, an organization may decide to fill a CFO vacancy on an interim basis rather than rush into a permanent decision. Another common situation is for organizations that are ready to establish a CFO position but aren’t exactly sure what it should look like, what the responsibilities should be, and how it should fit into the company’s executive structure. In those cases, an experienced fractional CFO can help assess the company’s culture, establish its needs, and set the ground for a permanent position.

A company may need a CFO level executive on an ongoing basis, but not quite full-time. In those cases, a part-time fractional CFO may be the best fit. This can provide a company with CFO level planning and oversight without committing to a fulltime position.

A fractional CFO may also be brought in on a project basis. The company may have a capable permanent CFO but be lacking in availability or expertise due to specific needs. As examples, a company may need to optimize financial strategies and planning, be considering substantial acquisitions, be planning the introduction of significantly different operations, experiencing rapid growth, or any of a number of critical situations. Fractional CFO services can supplement and boost the expertise and bandwidth of the internal team until the need is met. 

As with most professional services, fractional CFOs may be compensated in a number of ways, including hourly rates or fixed fees for defined services, and it may depend on the nature of the service provider. The most common types, and their pros and cons, are:

  • Freelancers: These are individuals with specific expertise, often focused on certain industries. They can act independently and quickly, but may be limited to their personal expertise and availability.
  • “Matchmakers”: These go by a variety of names, but their essential function is to match freelancers with clients for a fee. They may have a broad range of professionals and expertise available, but may be more costly in total.
  • Consultancies: These firms specialize in fractional services and typically have a bench to draw from. This option may offer a broader range of resources and expertise, and the consultancy can usually assign different personnel in the event of turnover or for specific expertise needs.  

The first step in selecting a fractional CFO is to list your perceived needs. Be open to suggestions from experienced candidates, who may “see” issues that are not readily apparent from up close. 

With the right match, fractional CFO services can be a money saver. This may be in the form of lower costs compared to a fulltime position (e.g., salary, benefits, and bonuses), or a more cost effective way to obtain specific expertise for a limited period. And in a challenging situation or crisis, the right help can be a lifeline. 

Morrison has filled a variety of fractional CFO, controller, and other roles since our founding in 2002. These have included many of the situations described above, including filling vacancies on an interim basis, ongoing part-time CFO-level assistance, providing expertise for specific projects, helping create new positions, and more. For examples, see our Client Success Stories page for Business & Accounting Client Success Stories, including MBG Marketing (“The Blueberry People”), Sierra Gold Nurseries, Taylor Brothers Farms, Green Spring Farms, Crystal Creamery, and others. See also these cover articles in our quarterly newsletter featuring Associated General Contractors of California, Ventura Pacific CompanyPro Pacific Fresh, and P31 Enterprises

About the Author

Brent Morrison is the Founding Principal at Morrison. To get in touch with Brent, please find contact information for Morrison here.

Questions?

We’ve worked with a wide variety of clients on a broad range of projects and are happy to discuss solutions that can best fit your needs.

Get in Touch