Fractional CFO: A Complete Guide for Owner-Operated Firms
How to know when you need a fractional CFO and what to expect from the relationship.
Estimated read time: 5 minutes
A fractional Chief Financial Officer, or CFO, works with your owner-operated firm for a set number of hours each month. You get CFO help without hiring a full-time CFO. Many owners reach this point once revenue hits $1 million to $2 million because financial work starts taking up too much of their time.
The role goes beyond reviewing financial numbers. It gives you a clearer view of where the business stands and what may lie ahead. At this stage, owners often have more financial questions than their current bookkeeper or accounting manager can answer. A CFO can turn your questions into a financial plan before you make a major decision.
In this article, you’ll learn:
- What changes when you bring on a fractional CFO
- Why searching for a CFO may lead you to the wrong person
- Whether you should hire a CFO or do things yourself
- How to tell you’re ready for a fractional CFO
What a Fractional CFO Helps You See In Your Business
Your books tell you what has already happened in your business. A fractional CFO can model what a decision could mean for cash and profitability in the months ahead. That gives you a chance to test something before you commit.
| Decision in Front of You | What Your Books Tell You | What a CFO Can Show You |
|---|---|---|
| Hiring two people in the spring | What payroll cost you last quarter | Whether you can afford the added cost in March |
| Raising your prices | What you charged last year | How many customers you can lose and still come out ahead |
| Taking on a large new client | What that client has paid you so far | Whether the work will cover the cost of the team it requires |
| Signing a longer lease | What rent cost you this year | How the lease will affect your cash over the full term |
You Searched for a CFO, But You May Need a Controller
Owners often search for a CFO because that is the title they know. But the problem they want to solve may call for a controller instead. A controller ensures your monthly numbers are accurate enough to use for decision-making.
Each role has a different job. That makes the order you hire in important. When your monthly close runs late, a controller may solve more of the problem than a CFO. CFO work becomes more useful once your numbers are reliable.
A CFO also needs timely financial information to plan effectively. If your books close weeks after month-end, you may not have enough time to act on what the numbers show. Fixing that issue first can make the rest of your financial reporting much more useful.
| Role | What They Own | The Question They Answer |
|---|---|---|
| Bookkeeper | Records each transaction in the right account | What did the business spend last month? |
| Controller | Checks the numbers against the plan for the month | Do these numbers hold up? |
| Fractional CFO | Uses the numbers to plan for the next quarter | What should the business do next? |
3 Ways to Handle Your Finances
When you need more financial help, you have three options. The right choice depends on how much financial work your business has. A full-time CFO may be more than you need, while handling things yourself may take too much time.
Doing the work yourself may make sense when your financial needs are still simple. The calculation changes when financial work starts taking time away from running the business. A full-time CFO may also make little sense if you only need a few hours of financial guidance each month. A fractional CFO fills that gap without adding a full-time executive position.
| Option | Cost | What You Get |
|---|---|---|
| Doing it yourself | No additional cost | You handle all the complicated financial work yourself when you could spend time growing your business |
| Fractional CFO | A monthly fee for a set amount of time | CFO help without hiring someone full-time |
| Full-time CFO hire | Salary plus benefits and payroll taxes | A CFO working on your business every week |
Signs It’s Time for a Fractional CFO
You may be ready for a fractional CFO in the following circumstances:
- Your margins keep changing: A controller explains what changed in your numbers. A fractional CFO helps you decide what to do about it.
- Cash gets harder to predict: You may have plenty of cash after a strong quarter. But if sales slow down, you need to know how long that cash will last. A fractional CFO can help you work that out.
- You need a clearer view of the next quarter: Looking at last month only takes you so far. When you need a plan for what comes next, it may be time for a fractional CFO to help you make better financial decisions with confidence.
- You keep making financial decisions from incomplete information: You may know your revenue and expenses but still lack a clear view of how a new hire or major expense will affect cash. A fractional CFO can help you answer those questions before you commit.
What To Do When a Buyer Comes Calling
A buyer may reach out before you ever decide to sell. If that happens, a fractional CFO can help you understand what the business looks like from a buyer’s perspective and get your financials ready for the conversation.
That work takes time. A fractional CFO can keep your numbers organized and help you understand how the business is performing before an offer arrives. Then, if a buyer calls, you are in a better position to decide whether the offer makes sense.
This preparation also helps you understand the business before negotiations begin. You can see how factors like revenue and cash flow have changed over time. That makes it easier to answer questions and spot areas that need attention before a transaction moves forward.
Further Reading
Find Out Which Level of Support Your Business Needs
A short conversation can help you figure out what your business needs. You may need a controller rather than a fractional CFO. Either way, Milestone can help. We can show you where your finances stand and what makes sense for your business.
Contact a Milestone Team Member Today
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