What is a Fractional CFO and do I need one?

The world is seeing the fractionalization and structural disruption in many industries; some of the  best known being the likes of taskRabbit in home service, and Uber in local  transportation services, or Airbnb in short term accommodations.   The business models are all unique in their implementation, but based on  insightful changes to how goods and services are purchased in ways that become equally ( or perhaps more)  effective for the consumer but with significant change in the ways services are purchased.  Can a CFO be effectively fractionalized?

Setting the stage

In this discussion  the term Chief Financial Officer ( CFO) is used to describe a senior level executive, typically with 20+ years of experience, who is fluent in strategy, capital markets and banking, acquisitions,  budgeting, forecasting, and forward planning.  They have insights based on their experience in sales, marketing, engineering, and operations.  A CFO’s focus is on assuring that the company’s profitability, growth plans, capital structure, and short and long term strategic action plans are consistent, coherent, and are building value for the shareholders.  The CFO works intensely on the financial health of the company, but is not the one primarily focused on financial reporting (the controller).  Most companies under $50M in sales do not employ a Chief Financial Officer (some will have a controller with that title) due to the relatively high expense of a CFO.

Can a fractional CFO add value?

In most smaller businesses the role of CFO gets blended with the role of controller; the same person is chartered with the management of the cash cycle (AR/AP) and financial reporting, and in their spare time between the daily pressures,  is expected to change gears and time horizons and look to the future, dive deep into profitability or capital planning.   While on average these true CFO tasks may entail a day a week, experience  shows that the forward planning and deep analytical tasks are often deferred, short changed, or tackled only once a crisis has arrived.  

The premise of a fractional CFO(f-CFO)  is to engage the highest possible skill set and experience base to “work” the CFO tasks a day a week and allow the financial accounting staff to “work” the daily routines and reporting mechanics.  Depending on the size of the business the team may be  “f-CFO plus controller”, “f-CFO plus senior accountant”, or even “f-CFO plus bookkeeper”.    The concept is to use a hammer to drive a nail and sledge to crack a rock – the right skill set for the right tasks!

Much like the economic drivers behind autonomous cars, and UBER ride shares a fractional-CFO may be more cost effective in addition to being more EFFECTIVE than the traditional models of employment.