Building and scaling a startup isn’t an easy thing by any stroke of the imagination. As your business grows, you face more complex financial challenges that require expert guidance. That’s probably why you’re here!
Basic accounting and bookkeeping no longer cut it. Have you pondered hiring a full-time Chief Financial Officer (CFO), but the numbers don’t make sense? This is the time to look at a fractional CFO. How much does a fractional CFO cost? Let’s find out.
In this blog post, we’ll answer founders’ most pressing questions about hiring a fractional CFO, the ROI investment by outsourcing your finances, and what to look for in your new hire.
What is a Fractional CFO?
You’ve likely heard about fractional CFOs, fractional CEOs, or other executives on LinkedIn who work ad hoc. A great fractional CFO brings a high level of financial skills to your organization without the full-time cost of a salary, bonuses, or benefits.
Your fractional CFO works part-time or as needed, providing you with the guidance you need to navigate the complexities of growing a company. They can support you through various stages of growth and handle challenges like:
- Raising capital
- Optimizing your financial strategies and systems
- Navigating audits
- Overcoming cash flow problems
- Cutting costs and improving margins
- Preparing for a merger or acquisition
A great fractional CFO takes the time to dive deep into your company's inner workings and complexities so they can tailor their services and guidance to what you need to grow efficiently and effectively.
The Cost of a Fractional CFO
How much does a fractional CFO really cost? You’ll likely run into one of these three pricing structures:
- Hourly
- Monthly retainers
- Project-based
Rates are based on the fractional CFO’s experience, the scope of work, and your company’s specific needs.
Hourly rates: Hourly rates could range from $175 to $400. Smaller, more targeted projects might command a higher hourly rate.
Monthly retainers: Monthly rates could be anywhere from $2,000 to $16,000 per month. That’s quite a range! Monthly retainers depend on how many hours or days you’ll need them each week and how dedicated they are to your specific company. A fractional CFO may only work with 1-3 different companies for more hours so that they resemble the day-to-day role of a full-time CFO without the added cost of being full-time.
Project-based: Project-based fees are, of course, dependent on the project. Do you need financial guidance and support during an acquisition? Are you only looking to optimize your processes and cut business costs but don’t want long-term help? You’ll set up a project-based fee and scope for this kind of pricing structure.
With an experienced fractional CFO, you can access a high level of financial expertise at a fraction of the cost—no bonuses, salaries, or equity (unless you want to offer those). You can also adjust the scope of the project as needed, scaling costs up or down.
What Factors Affect Cost?
A few different factors influence the cost of your fractional CFO.
- Business complexity
- Scope
- Experience
- Geographic location
Some businesses require only a few hours per week, while others need a lot of support. But it’s worth considering the value a great fractional CFO can provide. To measure ROI, you can choose certain KPIs to track over time. Some example KPIs are cash flow, profitability, successful fundraising, or improved financial systems.
Improved cash flow: A great fractional CFO can identify areas of cost savings and margin improvements. Don’t be surprised if they pay for themselves in profit!
Successful fundraising: Any fractional CFO worth their salt can help you craft a compelling financial story and identify key metrics to maximize your valuation.
Improved systems and time saved: By optimizing your financial systems and processes and handling the finances, you can focus on growing your business while your financial partner handles the rest. Improved processes may also prevent the need to hire additional employees right away, saving you money.
Your fractional CFO provides an independent sounding board to bounce ideas off of during major business decisions.
Is a Fractional CFO Right For You?
The “right time” to make any major hire can feel like an ambiguous thing. Do you do it at $1 million in revenue? $5 million? $20 million? The only person who can answer that question is the founder or CEO of a company. There are some clues, though. Let’s see what signals might be alerting you that it’s time to make the fractional CFO hire.
- You’re spending too much time trying to figure out finances and can’t quite identify the best foot forward.
- You’re preparing for a Series A or later funding round.
- You have revenue, but your profits are basically nonexistent.
- Your financial reporting is severely lacking, preventing you from making informed decisions.
If you’re experiencing rapid growth, have a major financial event coming up, or your financial situation is becoming increasingly complex, it might be time to start the interview process. An outsourced CFO could be a valuable unlock for the next stage of your business.
How Do You Find The Right Fractional CFO?
You’ve decided it’s time, so now the interviews begin. You’ll likely want to interview multiple candidates and check their references. What companies have they successfully led through acquisitions or fundraising rounds or through financial woes? Ask them to show you.
A fractional CFO will become your financial partner in growth. Some of the qualities you should look for are:
- Previous CFO expertise in your industry or growth stage and beyond
- Strong communication skills and the ability to share easy-to-understand financial insights from your data
- A personality and culture fit with your leadership team
Some red flags to look out for are:
- An unwillingness to provide references
- Limited availability or treating fractional CFO work as a side gig
- A lack of clarity on deliverables, services, or timelines
- A lack of relevant experience
Key Takeaways For How Much A Fractional CFO Costs
Hiring a fractional CFO, or any executive hire, is a big deal. Taking the time to understand the costs, the ROI, and how to find a really great candidate puts you in a position to make informed decisions about who you hire. From there, your new fractional CFO can provide strategic guidance, implement better processes and systems, and drive real business value for your company.
How much does a fractional CFO cost? Between $175 and $400/hour. You might find some beyond $400, and it’s up to you to decide who can:
- Meet the financial demands and complexities of your company
- Fit with the culture and personalities of your leadership team
- Provide the right strategy, guidance, and flexibility to meet your needs
- Take you to the next stage of growth
With the right fit, you gain a strategic financial partner to navigate your startup’s growth objectives and bottlenecks. While the costs of a fractional CFO aren’t trivial, they’re much more affordable than a full-time CFO, and they could earn back their own pay with the costs they cut and the revenue they bring in.
