So, what exactly is a "Fractional CFO"?

Newsletter #21

Keeping the intro short this week.

I have some big things in the pipeline again, but it’s still early days. More to come!

Two weeks ago, I posted my tips to grow your Finance team.

But after that post, I got a couple of questions from people asking: “what exactly is a fractional CFO?”.

I noticed that many (small) business owners are under the impression that their Accountant or Bookkeeper is the only person they need on the Finance front.

Unfortunately, that’s usually not the case.

Every successful large corporation has a CFO

Why? Because an accountant or bookkeeper, though crucial for tracking transactions and compliance, doesn't cover the breadth and depth of financial management and support that a CFO provides.

A bookkeeper or accountant focuses on the day-to-day numbers and ensures that your taxes and financial records are in order. And while important, this information is focused on the past.

And it would be unfair to think your accountant would do everything from analysing trends, making financial forecasts, guiding business strategy, and maximising your profits, when you don’t pay them for that.

The forward-looking and strategic work, that’s where a CFO comes into play, and ‘smaller’ businesses (<$20 million) are no different here; they need this expertise too.

Explained visually…

However, a full-time CFO will cost you $150K+ per year. That’s overkill. So that’s where a Fractional CFO comes in ($15K - $50K).

What Does a Fractional CFO Do?

A fractional CFO is a part-time CFO who works with businesses on an as-needed basis. The “scope” should always be tailored to your business to make sure they address your specific problems or goals.

Still, I believe there is one good way to judge the effectiveness of a Fractional CFO:

Whether they help you make important business decisions faster, and with more confidence.

Because what entrepreneur doesn’t believe that they would be able to operate the business better if they had more accurate and timely information?

The Specifics:

1. Oversight of Bookkeeping:

   A Fractional CFO doesn’t do your bookkeeping.

   But they work closely with your bookkeeper and accountant to make sure all information is correct and that the books are closed every month.
   
   They will take this worry off your hands, and make sure you get useful insights from your books. This, unfortunately, is often not the case.

2. Financial Planning & Analysis (FP&A):
   This is where every Fractional CFO will differ. But in my case, this is where I stand out.
   
   A (good) Fractional CFO will analyse all financial AND operational data and distil this information to show the true performance of the business.
   
   Examples of this part are:

   • Weekly Cash Budgets- this eliminates your worry about how much cash you have available and if you can meet all upcoming bills

   • Monthly “CFO Report”- this includes all information you need to run your business, from budgets to KPIs to performance per revenue stream.

     

     Ignorance isn’t bliss…

3. Strategic Support:
   It can be lonely at the top.
   
   An often underappreciated benefit of a (Fractional) CFO is that you have someone to brainstorm with.
   
   But this can also include specific initiatives to drive your business forward. Think about your Pricing Strategy, M&A Support, Stakeholder Management, Salary or Dividend setting.

The rise of “Fractional” services

Don’t want to turn this into a sales letter. But I do think it’s important what this model is about.

Since this model doesn’t just work for CFO services. I for instance work directly with some Fractional COO (Operations) and Fractional CMO (Marketing) services.

And that is because most growing businesses do need all the support they can get. But might not have the capital or work available for a full-time hire.

• Aligned Incentives: Unlike consultants who might charge by the hour or project, a Fractional role becomes a part of your team. Most work on fixed monthly retainers to avoid surprises and know they only stay if they prove their worth.

• Industry Agnostic: Fractional roles usually work with multiple industries at the same time. This has the big benefit of seeing many different strategies and ideas. Everyone benefits from this knowledge-sharing.

• Affordability: I already mentioned this at the beginning, but it’s a common misconception that a Fractional CFO/CMO/COO charges obscene amounts. That’s usually not the case. These roles often pay for themselves through increased efficiency and a strict focus on profitability.

Essentially, Fractional Services get you access to an expert at a much more favourable rate, and without the risks of binding contracts and all the pension/insurance costs.

Best of the Week

I’m not sure if this is your cup of tea, but it’s worth a read.

I’ve been following Mike for some time and I do like his takes.

No matter what type of business you run or what career you are in, having a personal brand is super important. Mike is a good example of this and he actually gives some really good tips on how to set up your profile:

I’m always down to have a chat or answer some questions.

Feel free to send me an email directly or book a (free) call with me: calendly.com/joeydw/call

Also, I’m really glad with the initial response to the series I launched last week. Thanks to those who already got it!

If you missed it, this might be interesting for you (here’s a 15% discount code: FINANCIALROOTS15):

Until next week!

Cheers,

Joey