Fractional Leadership and the Fractional CFO

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Is your company suffering from lack of a clear financial strategy or your revenue isn’t where you want it to be despite having strong marketing and sales and operations leadership?  It might be time to consider a Fractional Chief Financial Officer (FCFO).

Generally, there are two main scenarios that could cause you to consider engaging the help of an FCFO.

The first is simply that the person who grew up with the company handling finance is somewhat out of their element at your current scale.  Your head of finance is someone who’s not a professional CFO with experience advising and analyzing the needs and unique decision points of a multimillion-dollar venture. They may have learned finance through taking courses, bookkeeping training, YouTube videos, or perhaps they’re a certified public accountant (CPA) or have experience as a controller.

The second scenario is that you’re facing a specific finance-related crisis, challenge, or transaction, such as facing a cash crunch, experiencing low or negative profit margin, suffering from high expenses, outgrowing your finance systems, navigating an audit, raising capital, or preparing for a sale or acquisition.

In either case, your revenue might be between $2 million and $50 million and you recognize that your leadership team lacks the financial experience and expertise you need at this stage.

Do You Need an Accountant or FCFO?

It’s sometimes unclear to small business owners when they need CPA or a Fractional CFO. The first thing to do before moving forward to improve your finance team is to be clear about whether it’s tax and financial advice your business needs or execution of an internal financial overhaul or strategy under experienced leadership to help your company earn or increase its profits.

If the former, an accountant is your best bet. If the latter, it’s an FCFO.

What Does FCFO Engagement Look Like?

Depending on the mandate you agree upon, the Fractional CFO will likely oversee all finance operations, including your bookkeeping, accounting, insurance, banking, tax, and legal functions to ensure that you’re managing your risk and that you’re covered from all angles.  However, they’re leadership role is often required to go deeper:

  • They will ensure that the appropriate financial staff and technology systems are In place and integrated with marketing, sales, and operations.
  • They will overseeing financial reporting, so you and the other members of the leadership team have the data you need to make great decisions. This includes the all-important budgeting process. Approximately 50 percent of businesses close within their first five years of existence. You don’t want to become one of those because you spent more than you could afford, ran out of cash, and couldn’t make payroll.
  • Once your organization is healthier and has the tools and practices it needs to scale successfully, they will stay with you until you’re ready for them to help level up someone internally to take on the CFO or Head of Finance role or to help you hire a full-time CFO.

What to Ask When Hiring a FCFO

As with any Fractional Leader (FL), it’s critical that you communicate your desired outcomes and deliverables when hiring an FCFO. By doing so, you can ensure that you both are on the same page. Consider the following when interviewing candidates:

  • If you’re retaining an FCFO because of a specific transactional need or type of crisis like an M&A transaction, due diligence, bankruptcy, restructuring, or cash crisis, you definitely want to ensure they have proven experience with that kind of scenario.
  • Ensure they have full-time CFO experience before they “went fractional.” Like other kinds of FLs, people must have first gone through the gauntlet of deep CFO service with an organization to earn the chops necessary to spot issues quickly and find solutions in a fractional scenario.
  • If the learning curve for your business model is great, ensure that they have industry experience. For example, if you have a home care business that bills Medicaid payors and you need someone who understands that industry so they’re not starting from scratch, make sure that background is there before either of you waste your time.

Like other Fractional leaders, most FCFOs do not want to permanently embed themselves into your organization. They want to get your ducks in a row, financially speaking, so your business can become healthier, and you can thrive and focus on what your business really does for its customers or clients.

This blog is part of a series that outlines some high-level considerations and offers insight into the five major types of Fractional Leadership: marketing, sales, operations, finance, and technology.

The information is a consolidation of my personal experience as a Fractional Leader (FL), retaining other FLs in businesses I managed or manage, interviews with FLs on my podcast, Win-Win—An Entrepreneurial Community, and my network and relationships with other FLs.

My experience in operations and being a Fractional Leader in companies running on EOS certainly contribute to my knowledge of operations. I am not, however, a subject matter expert in marketing, sales, finance, or technology. I’ve written these topics with reliance on business owners and FLs in those fields — from a 30,000-foot perspective.

If your company’s marketing or sales efforts aren’t generating the level of performance you need, check out my blogs discussing the Fractional Chief Marketing Officer (FCMO), Fractional Chief Sales Officer (FCSO) and Fractional Chief Operating Officer (FCOO).