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What is a fractional CFO and what do they do?

Posted on June 28, 2023 |

If you’re an entrepreneur generating over six figures in revenue per year, you might need a fractional chief financial officer (CFO). But what is a fractional CFO, and what can they do for your business?

Essentially, a fractional CFO’s job is to help you optimize cash flow, manage risk, and make more informed decisions. Whether your business is rapidly growing or you’re trying to take things to the next level, a fractional CFO can play a pivotal role in driving financial stability and long-term success.

What is a fractional CFO?

A fractional CFO, also known as a part-time CFO or an outsourced CFO, is a financial professional who offers their expertise and services to businesses on a flexible and scalable basis.

Unlike a full-time CFO who is permanently employed by a company, a fractional CFO works with multiple clients simultaneously and dedicates a fraction of their time to each. This allows businesses to access the financial support they need without the commitment and expense of a full-time executive.

Fractional CFOs are also different from interim CFOs, who are typically brought in on a temporary basis. For example, they might be hired to address immediate financial challenges or to provide short-term guidance during a transition. By contrast, a fractional CFO establishes an ongoing partnership with their clients.

What does a fractional CFO do?

Fractional CFOs handle a range of financial management responsibilities, but their primary job is to provide strategic guidance and support as you build your business. This can be a lifesaver as you juggle the many responsibilities that come with leading a company.

So what exactly does a fractional CFO do? Here are the main financial tasks they can take off your plate:

Financial planning
Cash flow management
Financial reporting
Risk management
Strategy support

Let’s take a closer look at each of these areas.

1. Financial planning

As the CEO of a growing business, it can feel impossible to find time for financial planning on top of all the other tasks you need to do. However, budgeting, forecasting, and financial analysis are absolutely essential for your business’s long-term success and stability.

Here’s the good news: you can reach your full potential and make a bigger impact by delegating these tasks to a fractional CFO. As a result, you’ll never fall behind and always have the data, reports, and information you need to make strategic business decisions.

2. Cash flow management

Cash flow is the lifeblood of your business, but as your business expands, it can be difficult to stay on top of expenses. A fractional CFO will help make sure your spending doesn’t outrun your revenue by monitoring inflows and outflows and identifying opportunities to boost your profits.

Your fractional CFO can handle some or all of these cash flow management tasks:

Cash flow analysis: Reviewing your cash flow to identify trends and ensure that the business has enough cash to cover its obligations.
Accounts payable: Ensuring bills and debts are paid on time to maintain good relationships with suppliers and creditors.
Accounts receivable: Managing the process of invoicing clients and ensuring timely collections to maintain a steady cash inflow.
Debt management: Ensuring optimal use of debt for financing, managing repayment schedules, and negotiating with creditors if necessary.
Financial negotiations: Negotiating terms with lenders, vendors, or customers to improve cash flow conditions when needed.

At Prosperity First, we’re passionate about helping LGBTQIA+ and minority-owned businesses thrive — learn more about our fractional CFO services here.

3. Financial reporting

Timely and accurate financial reporting is essential for assessing the financial health of your business. The problem? You’re probably not an accounting expert, and you probably have more than enough on your plate as it is.

That’s where a fractional CFO comes in. They’ll take on the task of compiling and analyzing financial data, then meet with you quarterly or monthly to share their insights. The best fractional CFOs will also be able to turn your financial reports into an engaging story that helps you decide what’s next for the business.

Whether your fractional CFO joins you for board meetings or supports you one-on-one, they’ll undoubtedly become an integral member of your team.

4. Risk management

Think of risk management like an umbrella — it’s all about being prepared and protected when unexpected downpours come. And because entrepreneurship is full of uncertainties, that umbrella is critical to your long-term success.

A fractional CFO can help you develop the solid risk management strategy you need to make bold moves in business. Here are a few examples of risk mitigation for small businesses and entrepreneurs:

Diversification: If your revenue is heavily reliant on a few clients, your fractional CFO might suggest strategies to diversify your client base.
Insurance: Your fractional CFO can review your business’s insurance policies to ensure you have adequate coverage for risks like liability or business interruption.
Compliance Oversight: They’ll be able to ensure your business is compliant with relevant laws and regulations, helping you avoid potential fines or penalties.
Investment appraisals: If you’re considering a significant investment like hiring an employee, your fractional CFO can help assess the financial risks and potential returns.
Debt strategies: If your business carries debt, your fractional CFO can devise a strategic plan to help you manage it effectively.

5. Strategy support

Working with a fractional CFO on your business’s strategic, long-term plan can be extremely beneficial. Together, you can define realistic and exciting revenue targets, develops budgets that support growth, identifies key performance indicators to measure progress, and estimate taxes while setting aside income accordingly.

Your fractional CFO can also help you identify growth opportunities, raise capital, and decide how to allocate extra money in the bank. Ultimately, a fractional CFO’s objective perspective, real-world experience, and financial expertise are invaluable when it comes to setting and achieving your goals.

If you’re struggling to reach your full potential in business, Prosperity First is here for you. Our fractional CFO services don’t stop at the surface level: we mix the sciences of accounting and human design with money mindset coaching to help you create a business that puts your prosperity first. Learn more here.

What your fractional CFO won’t do

While the benefits of hiring a fractional CFO are vast, they do have their limitations. Remember, a fractional CFO’s primary focus should be your business’s financial strategy — not managing your money on a day-to-day basis.

Here are a few things you should not expect when hiring a fractional CFO:

Bookkeeping: Your fractional CFO likely won’t handle the day-to-day entry and recording of financial transactions. This is usually done by bookkeepers or accounting staff.
Tax preparation and filing: While they can provide insights into tax implications and work closely with tax professionals, a fractional CFO is not a legal or tax advisor.
Paying employees and contractors: Processing payroll, including calculating wages, taxes, and benefits deductions, is often managed by dedicated payroll professionals or HR teams.

Some fractional CFOs have their own team, including bookkeepers and tax accountants. For example, here at Prosperity First, we partner with Gusto to provide seamless payroll processing and help our bookkeeping clients with tax preparation and filing — all of which can be packaged with our fractional CFO services.

(Note: Prosperity First does not offer tax preparation as a stand-alone service. This is only offered to our bookkeeping clients.)

Do I need to hire a full-time CFO?

Hiring a full-time CFO can be a significant investment in terms of salary, benefits, and overhead costs. If your business requires the constant presence of a CFO and has complex financial operations, a full-time CFO might be the right choice.

If you need support on a part-time basis, however, a fractional CFO could be the answer — they’ll be able to offer you personalized financial advice and guidance at a cost and time commitment that fits your business’s specific needs and goals.

At Prosperity First, we specialize in fractional CFO services for coaches, online marketing agencies, PR firms, and other self-employed service providers. Book a free clarity call here to learn more.

Transform your business with a fractional CFO

If you’re like most entrepreneurs, you probably didn’t get into this world to drown in spreadsheets or learn the ins and outs of Quickbooks. And you shouldn’t — to grow your business, you need to focus on driving results for your clients, managing your team, and maybe making a few TikTok videos in between.

Ready to take back your time, get back to what you love, and invest in fractional CFO services? Let me introduce myself: I’m Shaneh Woods, and I’m the fractional CFO for ambitious, driven, and woo-curious entrepreneurs.
If you’re tired of traditional accountants who only see the numbers and not the soul behind them, then you’re in the right place. I want to help you take your business to the next level, bring the soul back to your strategy, and make it f*cking FUN every step of the way. To get started, you can book a FREE clarity call with me here. I can’t wait to meet you!