Many startups begin with just a handful of employees who wear many hats. Often, even when startups grow to as many as 80 employees, they’re still classified as a startup. Thus, ultimately, all startups need to create a team structure that will allow them to grow into a large and more mature company successfully.
The key to scaling this type of growth effectively lies in generating more revenue and cash flow. At the startup level, a business needs to innovate from the ground up. This is where a fractional CFO comes into play, allowing startups to bring in the relevant experience without exceeding their budget.
Let’s go over what a fractional CFO brings to the table and what your startup can expect when you hire one to come onboard.
What can a Fractional CFO do for a company?
Eventually, most companies discover that they need the expertise of someone like a CFO. However, their budget might not be able to afford the salary of a CFO with requisite experience. In such cases, hiring a fractional CFO allows startups to leverage their knowledge and pay only for the hours they need. An on-demand CFO provides flexibility for pricing and scale depending on the company’s needs, such as capital raising, budgeting, and financial review.
Fractional CFOs work both on-site and remotely. Some fractional CFOs prefer to work on-site. This is because it helps them understand the personal dynamics of your organization and provide lasting value beyond sending emails, spreadsheets, and documents in between sitting in on video calls.
Others prefer to work virtually, working behind the scenes to fulfill the obligations of their role from their preferred location. No matter the scenario, an experienced fractional CFO can be plugged into a startup at any phase to assist with overhauling accounting and financial challenges. They also play a crucial role in helping a company achieve its strategic goals.
Advantages of hiring a Fractional CFO
“45% of startups fold due to lack of capital or profitability. “
According to the United States Bureau of Labor Statistics, roughly half of all startups fold by their fifth year. The surprising failure of those startups is often due to their inability to prepare for and be proactive about their financial condition. With Covid-19 and other economic cyclicities presenting new challenges for businesses, a fractional CFO can be a vital source of insight.
Here are a few advantages of hiring a Fraction CFO:
A full-time, qualified CFO may charge $250k/year for a base salary. This excludes stock options or other benefits. Please note that these numbers are on the lower end of the scale in some industries.
If your startup has already reached a Series C or D, then you might need to go a little deeper than $1 million/year (including stock options) to retain a full-time CFO. If your startup isn’t generating $50 million in annual revenue at that stage, this might not be the type of expenditure you’ll be able to make.
Unlike their in-house CFO counterparts, fractional CFOs charge based on their client’s needs, anywhere between $250-400/hr. This helps startups get the financial expertise they need to grow and scale. Additionally, the expenses incurred in doing so are also well within the budget.
Flexibility and Instant Assistance
A fractional CFO can help you with a high-level financial strategy earlier in the process. This helps save your business time instead of waiting until you can hire a full-time person. These entities can step in with minimal knowledge of your startup and get to work to optimize financial processes that will net you considerable revenue.
If your budget can afford it, your startup can take advantage of the services of a fractional CFO even when you have an in-house CFO. For example, if your in-house CFO is going on temporary emergency leave, the fractional CFO can fill her/his shoes while they’re away.
Getting a Unique Perspective
When it’s time to shake things up in your startup, your finances are the first place to start. For instance, if you’ve been having issues with fundraising and you’re beginning to see your break-even point dwindle to single-digits, you don’t have time to go back to the drawing board. You need action, and you need it now.
Adding a fractional CFO to the mix can bring in a fresh perspective and help put your company’s best foot forward for going after your next round of funding. In these cases, the cost of hiring a fractional CFO by the day for a month or two might equate to millions of dollars in funding. Additionally, it also brings forth a new perspective on your startup’s financial processes and position.
What to Expect After Hiring a Fractional CFO
As with any position, it is important to find the right fit for your startup when sourcing a fractional CFO. Ensure you pay close attention to those that are qualified and trustworthy.
If you’re looking to accomplish a specific goal, it is essential that the CFO has done it before and can share the results. It’s critical to find someone with a strong professional reputation that you can trust implicitly.
On-demand CFO’s at Finvisor highlight that whether you are reviewing term sheets, budgeting & forecasting for the next year, or negotiating a line of credit, it is good to have another advocate in your court when making critical decisions.
At the end of the day, your fractional CFO will effectively become the financial voice of your company and (in some cases) possess the authority to make the decisions that will help your startup succeed.