How Does a Fractional CFO Create Value for Startups?

A Fractional Chief Financial Officer (“fractional CFO”) is an increasingly popular addition to startups from seed stage to about series A or series B financing. They can also benefit startups who aren’t on the VC train. But why? In this article we’ll take a look at the role that a CFO plays in early-growth stage startups. As well as what crucial value points a fractional CFO can deliver before you’re ready to hire a full time CFO.

Fractional CFO Definition

A person who takes on the duties of the Chief Financial Officer of a privately held company. But only at a fraction of ‘full time’. A fractional CFO isn’t just an advisor in the early stages of a business. He/she can take on an executive role. Which means taking action and directing resources to achieve objectives for the benefit of the company. 

In contrast to a part-time CFO, which is an employee of the company, a fractional CFO is typically a contractor position. A fractional CFO may also be referred to as an interim CFO. But only if the objective is to use the fractional CFO while searching for a long term CFO.

What Does a Fractional CFO Do?

Your fractional CFO will effectively become part of your management team. They will attend financial management meetings. Talk to your board of directors (or prep you for these meetings). They also oversee your bookkeeper and accountants and work with operations teams to ensure that data flows through the organization and between systems. This way, everyone can see the KPIs in real time. They participate in optimizing the Business Plan and creating Financial Strategy.

Fractional CFOs can take on responsibilities in the following areas:

  • Accounting and bookkeeping – tax, filings, year-end, audit/review, financial reporting
  • Systems and data – e.g. ERP systems, cloud accounting software and connected apps
  • Internal controls and governance – board/investor reporting, approvals processes, risk management
  • Financial planning and analysis – budgeting, forecasting, goal setting and progress reporting
  • Cash management – moving funds, authorizing payments, ensuring the company has cash, cash flow planning
  • Investment – oversight for raising capital (equity raise, debt financing), mergers and acquisitions, venture capital
  • Building the finance team – hiring full time staff for the accounting and finance area when needed

Businesses need all of these things to some degree. Also, the amount of effort/skill required from your fractional CFO in each of these areas depends on their availability as well.

Fractional CFO for Startups

There are a long list of responsibilities that CFOs take on. It is important to enact some of these practices early – even at a basic level – as your company grows from startup to thriving business. One of the most important jobs they can do is to put the basic controls, processes and systems in place. This helps avoid a huge cleanup job later.

House in Order

Investors often want to see that a startup has its “financial house in order”. It means that the books are up to date and correct. All the filings are done and in good standing, sufficient internal controls are in place, cash is well managed, and the management team is capable of providing reasonable forecasts. Fractional CFOs often help get all this in place and their presence provides early investors with surety that the company finances will continue to be well managed.

Preventing Headaches

An experienced CFO will know the impact of seemingly small issues down the road. For instance, they might guide you on exactly how to reward early employees with equity without messing up an investment deal later. They might understand the impact of creating one more revenue or COGS accounts. Or adding dimensions/classes to accounting data in order to build KPIs. They might see your blind spots and internal controls risks when it comes to credit cards, expense approvals or tax liabilities.

Alignment and Growth

Getting help early and enacting best practices can smooth your path to growth. This isn’t just about cash management. It’s about creating harmony for the key metrics and Key Performance Indicators (KPI) your growing team will watch. The way you measure your company/team/people performance is integral to your company culture. Not making these decisions intelligently and with foresight leads to awkward conversations later – with investors, lenders, and key employees.

How much does a Fractional CFO Cost

This may be a weak answer, but “it depends”. It depends on how much of the ‘fraction’ of the CFO’s time you need and his/her skills and experience. Most startup companies are budgeting $2500 to $15,000 per month for CFO services. Most fractional CFOs hourly rate is $200 to $300 per hour. If you’re a newer startup, you’ll want high-impact expertise in small doses. If you’re a fast growing company, you’ll need some deeper integration. By contrast, a full time CFO with equivalent experience could cost $250,000 per year ($20k per month). 

Fractional CFOs in Canada

Entreflow is one of the Top Fractional CFO companies in Canada (Vancouver, BC and Toronto, ON). We offer CFO Services, controllership, accounting, bookkeeping and systems implementation services to high-growth companies across Canada and the USA.

Helina Patience, CPA, CMA
Author: Helina Patience, Founder, CPA, CMA, BA (Hons), BEd

Helina is a CPA, CMA with over fifteen years of experience in finance & HR within multinational companies, across many industries. Also the CEO of entreflow consulting group where I help small to medium-sized businesses get organized, grow, and crush their goals. I hold vast global experience after living and working in Australia, India, the UK and Ireland. Connect on LinkedIn.

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