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How a Fractional CFO Could Help Your Startup
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- Published on July 10, 2021
- Last Updated October 4, 2021
- In Accounting
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- Edited by EQ
- Reviewed by SiliconCFO
Chief Financial Officers don’t come cheap and for many new businesses hiring one full-time is a non-starter.
When you’re starting out on your big adventure, one thing you need to do is to make sure someone’s across the finances. Chief Financial Officers don’t come cheap and for many new businesses hiring a full-time one would be a non-starter.
It’s a conundrum. One solution could be to hire a fractional CFO or someone who gives you their services on a part-time basis.
We spoke to Jacob Sheldon, fractional CFO and Founder of SiliconCFO. Read on to find out his take on how a fractional CFO could help your business.
A fractional CFO is essentially a CFO who spreads their time between a number of different clients, typically three to eight. They’re then able to provide their expertise but the cost is split. That means more companies can afford them.
They’re likely to manage certain people within each organization. That could be the person who handles the finance functions and helps the CEO know that this part of the business is covered.
A typical CFO would not handle accounting or financial modeling. They’d be focused on financial strategies across an entire organization.
Working on a fractional basis, an experienced CFO will often handle similar things to a full time CFO but for perhaps one week per month.
In startups, fractional CFOs will often take on lots of financial functions. These could include financial operations, handling the bookkeeping or directly managing a bookkeeper or bookkeeping services.
Fractional CFOs might also manage the payable accounts and do some cash flow forecasting, financial modeling and budgeting. That means that, instead of just overseeing someone to do these kinds of things, they’d actually do them themselves.
In some cases, a fractional CFO might carry out more traditional or basic accounting functions. More experienced fractional CFOs, who have once been the CFO of a large company, could be in the weeds of accounting or revenue recognition.
That’s because these are things which just need doing. It could be that the firm doesn’t have someone to handle that side of things for them. In these instances, the fractional CFO will jump in or have someone on their own team take care of them.
Most small and medium sized businesses, as well as startups, can’t afford (and might not even require) a full-time CFO. What they do need at times are some of the services a CFO can bring to the table.
That’s where the idea of a fractional CFO comes into play. A company can bring someone in to fill the role and offer their insights, but it’ll be within a budget that it can afford.
Most companies and founders will need a fractional CFO at some point.
Earlier stage technical founders often require fractional CFOs because they don’t know what’s even needed on the financial operation side of their business. They often don’t even know where to start.
They just want someone else to handle all that kind of financial stuff for them. They want someone who is experienced enough to be able to come in and say, “You need this, this, this and this done and I’ll do it for you. Job done.”
Fractional CFOs need to be keeping track of the runway, or burn rate and flagging up any anomalies.
They’d also need to be keeping track of the cash flow situation so that there’s always enough money to make payroll. That can be pretty important especially for agencies and bootstrapped startups.
They’d be making sure that the entire finance function is handled properly. This would include ensuring that collections are being handled in a timely manner and that vendors are being paid on time.
This may all sound like basic stuff and a lot of the time a fractional CFO might have someone else on their team to handle these sorts of things. That would free them up to do strategic planning with the executive team.
You could probably compare hiring a fractional CFO to hiring a full time bookkeeper or a full time controller or even a full time Business Development Manager.
Hiring a fractional CFO is hugely beneficial from the point that a startup has some pre-seed funding, even if it’s just for a couple hours per week.
This will be to make sure that the books are in order and that a company’s planning for the future correctly. You could even consider hiring a fractional CFO to handle tax returns or work with a tax accountant to keep you compliant.
When you’re just starting out, there are plenty of balls to juggle. Jacob Sheldon believes hiring a fractional CFO will help stop you from dropping any. It might only cost you a few thousand dollars a year but, he believes, it’d be money well spent.