Written by Brad Jungers, founder at CFO Insights
As someone who’s spent over a decade in the banking industry and now serves as the VP of Finance at Montecito Medical Real Estate, I’ve seen all sorts of financial challenges that startups face. I’ve worked with businesses of all sizes, from small local enterprises to companies with up to 2000 employees, and I’ve noticed a common thread: many startups struggle with financial management, especially in their early stages. This is where a fractional chief financial officer (CFO) can be transformational for the business.
In this guide, I’ll share my insights on why startups need fractional CFOs and how to find the best one for your business. I’ll draw from my experience managing $2.5 billion in commercial real estate debt, leading lender relationships, and driving significant portfolio growth in my various roles. Let’s dive in.
Table of Contents
- What is a Fractional CFO?
- Why does a startup need a fractional CFO?
- When to Hire a Fractional CFO
- How to Find the Best Fractional CFO for a Startup
- Steps to Find the Best Fractional CFO Services
- CFO Insights: Your Fractional CFO Partner in Financial Success
- How much do fractional CFOs charge?
- Conclusion
- FAQ: Fractional CFOs
What is a Fractional CFO?
A fractional CFO is a seasoned financial expert who provides high-level financial strategy and management services to companies on a part-time or contractual basis. Unlike a full-time CFO, a fractional CFO works with multiple clients, offering their expertise and insights without the commitment and cost of a full-time executive. While startups employ many types of fractional executives, the fractional CFO is undoubtedly the most popular.
At CFO Insights, our fractional CFOs bring years of experience from various industries, providing strategic financial leadership tailored to each client’s unique needs and growth stage.
Why does a startup need a fractional CFO?
Hiring a fractional CFO provides substantial benefits, especially for startups and small to medium-sized businesses.
1. Strategic Financial Guidance from Day One
When I was working as a Commercial Banker at Northwest Bank, I saw many startups making critical financial mistakes in their early days. These mistakes often stemmed from a lack of expert financial guidance. A fractional CFO brings high-level financial expertise to your startup from the get-go, without the full-time cost.
I remember working with a B2B SaaS startup from Iowa that was growing rapidly but struggling with cash flow. They were so focused on product development and customer acquisition that they neglected their financial planning. If they had a fractional CFO from the start, they could have avoided the cash crunch that almost sank their business.
2. Financial Planning and Forecasting
As someone who’s been involved in closing multi-million-dollar deals, I can’t stress enough the importance of strategic financial planning. A fractional CFO can help your startup develop realistic financial projections, create budgets and cash flow forecasts, identify potential financial risks and opportunities, and plan for different scenarios. This level of planning is critical for startups, especially when you’re trying to secure funding or make important business decisions.
3. Cost-Effective C-Suite Expertise
During my time at Bank Plus and Northwest Bank, I worked closely with C-suite executives. I’ve seen the impact that high-level financial expertise can have on a company’s success. However, many startups can’t afford a full-time CFO. A fractional CFO offers a cost-effective solution, giving you access to C-suite level financial knowledge without the full-time salary and benefits.
4. Improved Investor Relations
In my current role at Montecito Medical Real Estate, I manage relationships with lenders and investors. I see time and time again that accurate financial reporting and strategic financial planning are key to maintaining strong relationships with venture capital investors. A fractional CFO can help your startup prepare professional financial reports, communicate effectively with investors, answer tough financial questions, and build credibility with potential venture capital firms.
5. Better Decision Making
Fractional CFO meticulously analyzes financial statements to provide the insights you need for informed business decisions. They can also help you understand the financial implications of different business strategies, when to invest in growth vs. when to conserve cash, the true cost of acquiring customers, and which products or services are most profitable.
6. Cash Flow Management
In my experience working with startups, cash flow management is often one of the biggest challenges. A fractional CFO can help you develop cash flow projections, identify potential cash flow problems before they occur, implement strategies to optimize cash flow, and manage working capital effectively. This expertise can be the difference between a startup that thrives and one that struggles to stay afloat.
7. Funding and Capital Raising
A fractional CFO can be invaluable when it comes to raising capital for your startup. They can help you determine how much funding you need, prepare financial documents for investors or lenders, assist in pitching to investors, and negotiate terms with potential funders. Their expertise can significantly increase your chances of securing the funding you need to grow your business.
8. Financial Systems and Processes
As your startup grows, you’ll need robust financial systems and processes. A fractional CFO can help you set up accounting systems, implement financial controls, develop financial policies and procedures, and ensure compliance with financial regulations. These systems and processes are the foundation of a financially healthy business, and getting them right from the start can save you a lot of headaches down the road.
9. Risk Management
A fractional CFO can help your startup identify potential financial risks, develop strategies to mitigate these risks, ensure compliance with financial regulations, and implement internal controls to prevent fraud. This proactive approach to risk management can protect your startup from potentially devastating financial setbacks.
10. Scalability
As someone who’s seen businesses grow from small startups to companies with thousands of employees, I know how important it is to build scalable financial systems. A fractional CFO can help ensure that your financial processes and systems can support your company as it grows. They can anticipate the financial challenges that come with scaling and help you prepare for them, ensuring that your financial infrastructure doesn’t become a bottleneck to your growth.
When to Hire a Fractional CFO
The right time to hire a fractional CFO varies for each business, but there are several key indicators:
- Consider hiring a fractional CFO when your company is experiencing rapid growth and needs expert financial guidance to manage this expansion.
- It’s also beneficial when you’re planning to raise capital, as a fractional CFO can help prepare financial projections and communicate effectively with potential investors.
- If you’re struggling with cash flow management, need to implement more robust financial systems, or require strategic financial planning for the next phase of your business, it’s time to consider a fractional CFO.
At CFO Insights, we’ve found that many companies benefit from fractional CFO services when they reach a point where financial decisions become increasingly complex, but they’re not yet ready for the expense of a full-time CFO.
How to Find the Best Fractional CFO for a Startup
Now that we’ve covered why your startup needs a fractional CFO, let’s talk about how to find the right one for your business. This process is very important, and rushing it could lead to hiring someone who’s not the right fit for your company.
Key Qualities and Skills of a Fractional CFO
A good fractional CFO should possess a combination of financial expertise, strategic thinking, and growth mindset. Here are some of the key qualities and skills to look for:
- Financial Expertise: Different startup business models have different financial needs. Your fractional CFO should understand the financial implications of your business model, how to optimize finances for your specific model (e.g., SaaS, e-commerce, marketplace), and how to measure and improve key financial metrics for your model.
- Strategic Thinking: Beyond just managing numbers, a fractional CFO should be able to think strategically. Startups often face unique and complex financial challenges, so look for a fractional CFO who has a track record of solving complex financial problems, can think creatively and come up with innovative solutions.
- Growth Mindset: As someone who’s worked with businesses at various stages of growth, I know how important it is to have a growth mindset. Your fractional CFO should be excited about helping your startup grow, have experience scaling financial operations, and be able to adapt their approach as your business evolves.
- Industry Knowledge: Having industry-specific knowledge and experience allows a fractional CFO to provide tailored guidance and support. They should understand the unique financial dynamics of your sector and be familiar with relevant regulations and compliance issues.
- Analytical Skills: A fractional CFO should be adept at analyzing financial data, identifying trends, and providing insights that inform business decisions. Their ability to interpret financial metrics and performance indicators is essential for strategic planning and improving financial performance.
- Problem-Solving Skills: Startups often face unique and complex financial challenges. A fractional CFO should be able to identify and solve financial problems, providing creative solutions to complex challenges. Their proactive approach can help mitigate risks and capitalize on opportunities.
- Crisis Management Skills: Look for a fractional CFO who has experience guiding companies through financial challenges, can develop contingency plans, and stays calm under pressure.
- Collaboration: A fractional CFO should work collaboratively with other members of the management team, providing guidance and support as needed. A good fractional CFO should be able to educate your team on financial matters, mentor your in-house finance staff, and help elevate the financial acumen of your entire startup.
As your startup grows, your financial needs will evolve. Your fractional CFO should be able to scale their services as your company grows, help you transition to a full-time CFO when the time comes, and build financial systems that can support your growth.
What to Look for in a Fractional CFO
When evaluating potential fractional CFOs, consider the following factors to ensure you find the best fit for your business:
- Experience: Look for a fractional CFO with experience working with businesses similar to yours, including experience in your industry. Their familiarity with the specific challenges and opportunities in your sector can provide valuable insights and strategic financial guidance. If you’re planning to raise capital, look for a fractional CFO who has experience with different funding sources (VC, angel investors, bank loans), can help prepare pitch decks and financial projections for investors, and understands the nuances of term sheets and deal structures.
- Qualifications: Ensure the fractional CFO has relevant qualifications, such as a CPA or MBA. These credentials indicate a solid foundation in financial management and a commitment to professional standards.
- References: Ask for references from previous clients or colleagues, and contact them to discuss the fractional CFO’s skills and experience. Hearing firsthand accounts of their work can provide a clearer picture of their capabilities and reliability.
- Communication Style: Ensure the fractional CFO’s communication style aligns with your business needs. They should be able to communicate complex financial information in a clear and concise manner, making it accessible to all stakeholders.
- Strong Ethics: In finance, integrity is paramount. Look for a fractional CFO who has a strong ethical foundation, is committed to transparency and accuracy in financial reporting, and will always act in the best interest of your company.
- Availability: Ensure the fractional CFO has the availability to meet your business needs. Whether you need them on a part-time or project basis, their ability to commit the necessary time and attention is crucial for effective financial management.
Steps to Find the Best Fractional CFO Services
Here’s a systematic approach to identify and hire the best financial CFO who aligns with the goals and culture of your startup.
Step 1. Define Your Needs
First and foremost, you need to define your needs. Before you start your search, you need to understand what specific financial challenges your startup is facing, what your short-term and long-term financial goals are, how much time you need from a CFO each week or month, and what specific skills or expertise you need.
When I was at Northwest Bank, I saw many businesses struggle because they hadn’t clearly defined their financial needs. Take the time to really think about what you need from a fractional CFO. It will make your search much more effective.
Step 2. Research Potential Fractional CFO
Once you’ve defined your needs, look for relevant experience. In my career, I’ve worked across various industries, from banking to real estate. This diverse experience has been invaluable.
When looking for a fractional CFO, consider whether they have experience in your industry, whether they’ve worked with startups before, if they understand the unique financial challenges of startups, and if they’ve helped companies at your stage of growth.
Step 3. Evaluate Their Skills and Services
Assess the services provided by each potential fractional CFO. Consider their scope of services, cost, and experience to determine if they align with your business needs and budget. Your fractional CFO should be proficient in financial modeling and forecasting, data analysis, and financial reporting tools. They should be comfortable with the latest financial technologies and able to recommend and implement tech solutions to improve your financial processes.
From my experience closing complex deals, I can tell you that strategic thinking is crucial. Your fractional CFO should be able to see the big picture, identify opportunities for financial optimization, develop strategies to achieve your financial goals, and provide insights that go beyond just the numbers.
Step 4. Contact References
Don’t hesitate to ask for references and check their track record. Look for success stories from previous clients, specific examples of how they’ve helped startups, and feedback on their work style and reliability.
In my career, I’ve found that a strong professional network can be incredibly valuable. A good fractional CFO should have connections with investors and lenders, relationships with other financial professionals, and a network that could potentially benefit your startup.
Step 5. Schedule a Consultation
Arrange a consultation with the fractional CFO to discuss your business needs and their services. This meeting will help you gauge their understanding of your business and their ability to provide the financial expertise you require.
Step 6. Evaluate Their Communication Style
Communication skills are equally important. During the consultation, evaluate the fractional CFO’s communication style. Your fractional CFO should be able to explain complex financial concepts in simple terms, communicate effectively with different stakeholders (team members, investors, board members), and present financial information clearly and concisely.
Step 7. Confirm availability
Startups often need to move quickly and adapt to changing circumstances, so consider their availability and flexibility. Look for a fractional CFO who can provide the time commitment you need, is flexible enough to scale their involvement as your needs change, and is responsive and available when you need them.
Step 8. Make a Decision and Consider a Trial Period
Choose a fractional CFO who not only has the right skills and experience but also aligns with your company’s culture and vision.
As someone who’s worked in various organizational cultures, from the military to startups, I know how crucial it is to find someone who aligns with your company’s values and work style. Consider whether their working style matches your company culture, if they share your company’s values, and if they can adapt to your company’s pace and decision-making style.
It’s also a good idea to start with a test period of three months to make sure the arrangement works well for everyone. Set clear goals for what you want to achieve, meet regularly to check how things are going, and have a simple way to measure success.
CFO Insights: Your Fractional CFO Partner in Financial Success
As we’ve discussed the importance of fractional CFOs for startups, I’m excited to share that my firm, CFO Insights, offers precisely these services. We’ve built our company on the foundation of empowering entrepreneurs and addressing the finance knowledge gap that often exists between small companies and large corporations.
At CFO Insights, we understand that every business is unique, which is why we offer a comprehensive and tailored approach to fractional CFO services. Our process begins with an in-depth analysis of your company’s financial history, followed by a thorough examination of your current financial performance. We don’t just look at the numbers. We align our strategies with your objectives to chart the most effective course forward.
One of our key offerings is our signature monthly scorecard. This tool is designed to highlight critical financial indicators, ensuring that your attention remains fixed on what truly matters for your business’s health and growth. We believe in measuring what matters, and we make financial data easy to understand so you can focus on running your business.
Our fractional CFO services include:
- Monthly scorecard development and analysis
- Industry-leading financial analysis
- Budgeting, forecasting, and financial modeling
- Profitability analysis and cost reduction strategies
- Bank reporting assistance
- Cash flow analysis, management, and optimization
- Strategic goal-setting and tactic implementation
- Capital expenditure planning
I founded CFO Insights after managing debt holdings for a private equity real estate company. My background as a commercial banker for over a decade, combined with my degrees in accounting and an MBA, allows me to bring a comprehensive understanding of financial management to our clients.
At CFO Insights, we’re more than just number crunchers. We’re strategic advisors, risk managers, and forward-thinkers. We understand the unique challenges and opportunities that come with running a startup or small business, and we’re committed to providing the financial expertise you need to navigate these waters successfully.
How much do fractional CFOs charge?
The cost of hiring a fractional CFO can vary widely depending on several factors, including the CFO’s experience, the complexity of your business, and the scope of services required.
Typically, fractional CFOs charge either an hourly rate or a monthly retainer fee. Hourly rates can range from $150 to $500 per hour, with highly experienced CFOs commanding higher rates. Monthly retainers usually fall between $1,000 to $7,500, depending on the time commitment and services provided.
At CFO Insights, we offer flexible pricing models tailored to each client’s needs and budget. Some fractional CFOs may also work on a project basis, with fees varying based on the project’s scope and duration.
It’s important to remember that while the cost might seem significant, it’s still considerably less than hiring a full-time CFO, which can easily exceed $250,000 annually in salary alone. The value a fractional CFO brings in terms of financial strategy, improved decision-making, and potential cost savings often far outweighs the investment.
Conclusion
Finding the right fractional CFO for your startup is a crucial decision that can significantly impact your company’s financial health and future growth. By considering the factors I’ve shared in this guide and taking the time to find the right fit, you can bring on a financial expert who will not only manage your finances but also serve as a strategic partner in your startup’s journey.
A great fractional CFO is a strategic advisor, a risk manager, a forward-thinker, and sometimes even a coach. They should be able to provide the financial expertise you need while also understanding the unique challenges and opportunities that come with running a startup.
Don’t rush the process of finding a fractional CFO. Take the time to clearly define your needs, thoroughly vet potential candidates, and find someone who not only has the right skills and experience but also aligns with your company’s culture and vision.
Looking back on my career, from my early days in the Iowa Air National Guard to my current role managing billions in real estate debt, I’ve learned that success in business often comes down to having the right people in key positions. For a startup, a fractional CFO can be that key person who helps navigate the complex world of finance and sets the foundation for long-term success. Choose wisely, and you’ll gain a valuable partner who can help guide your startup through the challenges of growth and towards financial success.
FAQ: Fractional CFOs
Can a fractional CFO replace my entire finance team?
A fractional CFO doesn’t typically replace your entire finance team but rather complements and leads it. They provide high-level strategic guidance and oversight, working alongside your existing staff. A fractional CFO can help optimize your finance team’s structure and processes, potentially reducing the need for additional hires or identifying areas where more support is needed.
How often will a fractional CFO be present in my office?
The presence of a fractional CFO varies based on your needs and agreement. Some may work on-site weekly, while others might visit monthly or quarterly. Many fractional CFOs work remotely, using video conferencing and collaborative tools. The frequency of in-person meetings is typically determined by your company’s needs, the complexity of projects, and the CFO’s other commitments.
What industries do fractional CFOs typically work with?
Fractional CFOs work across a wide range of industries, from tech startups to manufacturing firms, healthcare companies to retail businesses. Many fractional CFOs specialize in certain sectors, bringing industry-specific knowledge. At CFO Insights, our team has experience across diverse industries, allowing us to provide tailored financial guidance regardless of your business sector.
What industries do fractional CFOs typically work with?
Fractional CFOs work across a wide range of industries, from tech startups to manufacturing firms, healthcare companies to retail businesses. Many fractional CFOs specialize in certain sectors, bringing industry-specific knowledge. At CFO Insights, our team has experience across diverse industries, allowing us to provide tailored financial guidance regardless of your business sector.
Can a fractional CFO help with fundraising and investor relations?
Yes, fractional CFOs can be invaluable in fundraising efforts and managing investor relations. They can help prepare financial projections, create compelling pitch decks, and communicate effectively with potential investors. A fractional CFO can also assist in due diligence processes, negotiate terms, and maintain ongoing relationships with investors, providing regular updates and reports.
How does a fractional CFO differ from a financial consultant?
While there’s some overlap, a fractional CFO typically provides more comprehensive, ongoing financial leadership than a financial consultant. Fractional CFOs often become integrated into your leadership team, offering strategic guidance across all financial aspects of your business. Consultants usually focus on specific projects or issues, while fractional CFOs provide continuous, high-level financial oversight and strategy.
Can a fractional CFO help with international expansion?
Yes, many fractional CFOs have experience with international business operations and can provide valuable guidance for global expansion. They can assist with understanding international tax implications, managing currency risks, setting up efficient cross-border financial structures, and ensuring compliance with international financial regulations. This expertise can be crucial in navigating the complexities of international markets.
About the Author
Brad Jungersis a former banker with a stint in private equity who has a passion for helping entrepreneurs reach their goals. He founded CFO Insights to bridge the finance knowledge gap between small companies and large corporations. Brad holds a degree in accounting, a Graduate-level banking degree, and an MBA. He is an Air Force veteran and the father to two beautiful daughters.
