Have you ever heard of the term "Fractional CFO"? Despite the increase in the number of startups and the budget difficulties they face in recent years, Fractional CFOs help them in finance departments. So, what are the features of fractional CFO?
The term chief financial officer, also CFO, refers to a top-level executive who is responsible for managing and planning all the financial operations of a company. CFOs oversee all parts of financial issues.
These financial affairs include managing financial risks, controlling cash flow and spending, handling investment and tax matters, developing and enforcing internal accounting and financial policies, gathering and managing financial data, reporting financial performance to the board, and making strategic decisions.
Acquiring and maintaining investor relations and partnership compliance is also one of the duties of a CFO.
As a part of the top-level executive board, the CFO of a company will need to interact with a huge variety of members of the company, both senior and junior. Thus, the job description of a CFO should also extend to leadership and communication skills.
If you are a CFO who is working for a small company, generally, your responsibilities are made up of carrying out a range of accounting tasks, whereas finance executives in larger companies handle reports and data from various divisions within their companies.
Since handling all the financial actions of a company is such a huge responsibility, companies are reserving CFO positions for well-educated and experienced finance professionals.
To become a CFO, you need to have a bachelor’s degree in finance, economics, accounting, business, or a related subject. Having an MBA or another type of advanced degree is not compulsory. However, many CFOs have one.
Additionally, having professional backgrounds in fields including accounting, investment banking, or financial analysis is another necessity.
However, being a successful CFO requires more than these. In our fast-paced life, a deep understanding of business is a must for a CFO. This includes collaborating with all departments in the company and understanding what they work for. Moreover, a CFO should keep up with the trends and have the vision to create and implement suitable business plans for today’s life.
Also, a CFO must be able to make smart decisions on behalf of his/her company in critical moments and look holistically to understand the company’s situation better. Moreover, translating the data he/she analyzes into understandable shape for all levels of the company is crucial.
The major difference between a CFO and a finance director is the amount of experience and the area they influence.
CFO is the highest-ranking finance position in an organization and generally has +15 years of experience. CFO is a top-level executive and takes part in the executive board.
Generally, a CFO oversees all finance personnel. Also, he/she focuses on the long-term financial plans of a company.
Finance directors, also known as vice presidents of finance, share similarities with CFOs in terms of responsibilities. However, in general, finance directors do not take part in the top executive board. Normally, they have 5-10 years or less experience.
Finance directors mostly ensure actions are legally compliant, monitor cash flow, and report them to a chief financial officer. They are in charge of day-to-day, short-term, plans.
In general, large companies hire CFOs whereas small and midsize companies hire finance directors since hiring CFO costs a lot. In small companies, finance directors report financial affairs to the owner of the business directly.
The term chief executive officer, also CEO, refers to the highest-ranking executive in a company.
The primary responsibilities of a CEO include making critical decisions on behalf of a company, collaborating with every level of workers, managing all aspects and operations of a company, driving profitability, and expanding the company.
In general, the board of directors selects the CEO. The job description of CEOs varies depending on the size, culture, and corporate structure of the company they work for.
While a company gets larger and larger, a CEO needs an executive board to run the company together. Other than managing all the aspects of a company directly, CEOs trust other leaders to manage different areas such as CFO’s managing all finance related issues.
There is no doubt that the most crucial top-level partnership is the one between the CEO, chief executive officer, and CFO, chief financial officer.
In order to be competitive in today’s fast-paced business life, the CEO and CFO have to maintain a relationship based on mutual trust, collaboration, and open-minded views on how to bring their company to the best place. Maximizing the company’s opportunities can be possible with the right chemistry between the CEO and CFO.
Recently, finance's responsibilities have evolved and the distinctions between CEOs and CFOs got a bit complicated. The CEO-CFO relationship is more than the CEO managing the company holistically and the CFO overseeing the financial aspect of the company anymore. The CFOs have pushed the company forward for making more strategic and compact decisions.
This is also why there is confusion about what a proper CEO-CFO relationship should be like.
The Business Partnering Institute explained the differences between CEO and CFO in several aspects. First, CEOs set the direction for a company whereas the CFO supports that direction. Second, CEOs decide on budgets while CFOs allocate them. Third, CEOs drive company culture while CFOs implement it. Fourth, CEOs generate new projects while CFOs prepare business cases for the new projects.
The financial expertise of a CFO is always a necessity. However, that is not enough to create a strong interaction with the CEO. Finance leaders should make their relationships with CEOs stronger with the help of storytelling.
By storytelling, we mean translating financial data into strategic business understanding, reaching the reason behind the numbers, making numbers meaningful to all business partners.
In order to get the reason behind the numbers, modern CFOs focus on data storytelling and bringing the numbers to life which refers to going beyond reporting on the numbers to explain how those numbers will impact strategic decisions, in a way that every employee will understand.
The notion of "storyteller CFO" might sound great. However, in today's fast-paced business life, the pressure still remains on CFOs in terms of maintaining financial reporting processes to keep board members, investors, and the leadership team up to date on the numbers.
Thus, being a storyteller CFO may not seem practical. However, if a CFO wants to be known as "modern and successful", he/she should figure out a way to make it work. This way, the CEO and CFO can maintain an effective and successful collaboration on strategic challenges.
To transfer into a forward-looking strategic insight, there are three crucial things you can do as a CFO.
First, a CFO should automate data collection, as much as you can. Collecting data via complex systems prevents CFOs from focusing on the reason behind the reports.
Second, a CFO should leave spreadsheet-based financial models since these models aren’t flexible enough to keep up with modern business life. A modern CFO should analyze the financials and detect issues that may affect the company in the short term and long term. Additionally, via storytelling, a CFO should explain his/her concern to the CEO. This way, they can work on solutions together.
Finally, a CFO needs to focus on visualizing the data. This is how you can transform financial documents into understandable financial indicators. For CEOs and others on the board to consume and understand the numbers fast, a more visual way is required.
CFO’s can get help from smart tools to better show their performance to the company. You can visit Finsmart to get further information on our financial management too.
The average yearly salary of a CFO depends on a huge variety of factors including the size and the industry of a company, the city in which it is located, the experience of the CFO, etc.
According to Salary.com, the average yearly salary of a CFO in the USA in May 2021 was $393,377.
To indicate the difference due to the location, we can analyze New York and Atlanta. In New York, an average CFO makes $473,232 per year without bonuses whereas in Atlanta an average CFO makes $389,124.
To explain better, an average worker in the USA in June 2021 earns $984 per week which makes $51,168 per year. A CFO makes 8 times more money than an average worker. There is no doubt that being a CFO is a very profitable job indeed.
CFOs may receive stock options, incentive bonuses, and other kinds of pay in addition to their salary. About 80% of the overall remuneration a CFO earns in a given year consists of a base salary plus bonuses. The rest is made up of perks, bonuses, and benefits.
The median annual total salary for a CFO is $541,930 when bonuses are taken into account. Social Security, disability, healthcare, pension, and vacation time are other CFO advantages.
For an average CFO, these perks and bonuses are worth around 20% of their overall pay.
As we mentioned before, CFO is a very high-salary job indeed. However, the cost of a CFO for a company is not only limited to salary and perks. When a company is willing to hire a CFO, it should make a multi-stage interview process. Since a CFO has critical importance for a company, choosing the right person is compulsory.
In a multi-stage interview process, there are several different costs. To give an example, if the CFO you are going to interview is in another city, you should pay for the flights, the hotel, meals, etc. All these things not only cost money but also time. Thus, there is no doubt that hiring a CFO is an exhausting and high-cost process.
Every business has these three parts of its business model: Invest in your business, produce value, and earn money. It can be simply defined as a flow model of expenses and incomes, which is more complicated than it sounds.
Usually, the Chief Financial Officer(CFO) is the most important person in a company who takes care of its finances. However, CFOs are expensive to hire since they provide such valuable and crucial services to companies.
Startups that cannot afford to have a CFO, can prefer to hire a fractional CFO which is a cost-effective way to receive the benefits of a CFO service.
A fractional CFO is an experienced outsourced CFO who provides part-time financial expertise on a contract arrangement to mostly startups and other organizations that need financial services but cannot afford to hire a CFO.
Fractional CFOs usually act as consultant CFO, which means that they work temporarily for multiple companies at the same time.
Fractional CFOs in other words, outsourced CFOs help with the management of lots of issues and projects related to the financial operations of a startup. They may:
While these are also the main responsibilities of full-time CFOs, their responsibilities are dependent on the company’s needs in different situations which are varied and complex in larger companies.
Therefore modern CFOs are usually beyond the need and financial availability of a startup. Startups can benefit from part-time CFO services and tools together.
Even if they work for interim projects for a temporary period of time, fractional CFOs are expected to have experience and expertise in the varied responsibilities of a full-time CFO since they may need to work on all these kinds of projects. Therefore a fractional CFO has:
A fractional CFO is mostly a consultant CFO that is hired to get help for financial challenges, achieving growth, implementing systems, assessing and optimizing strategy, raising capital, or navigating an audit or transaction.
Sometimes startups face such financial challenges that the founder and existing teams are not capable of overcoming them. These companies usually do not have a full-time CFO since it is not desirable for many startups because of the high costs.
In this case, the fractional CFO acts as an advisor or consultant CFO.
In a company, there may be many professionals that are responsible for keeping the past and the present financial data organized and well-documented. While they are working on the past and present, fractional CFO focuses more on the future.
A fractional CFO can help you to understand how to achieve your goal from the point where you stand. As the efficient use of capital is necessary to grow a business, providing a financial forecast for the business strategy is one of the most important tasks of an outsourced CFO.
Short-term (90 days), mid-term (half year) or long-term assessments can help the company to make better decisions and use its capital more efficiently. It can help determine how to receive loans or investments, and help prioritize future decisions such as staffing, production, geographical expansion, etc.
As a business grows, financial management gets more sophisticated. Fractional CFOs can assist to scale the business while maintaining a profitable growth.
In order to provide value to a client base that is always expanding and becoming more varied, the organization must reinvent the tools, procedures, and vendor relationships it currently utilizes.
Many bootstrapped firms start with simple systems and a part-time bookkeeper, but later realize that they cannot support further business growth and complexity. As a business expands, systems, resources, procedures, and strategies must scale up in sophistication.
Another common use of a fractional CFO is to assist a business in achieving a specific goal such as raising money or getting ready for a sale, merger, or acquisition. The majority of outsourced CFOs have assisted in securing hundreds of millions of dollars in debt and equity investment for numerous businesses as well as in managing a number of mergers and acquisitions.
For these tasks, a part-time CFO is beneficial:
Before the development of technology in the last few decades, the term CFO was used only for full-time CFOs at large companies. CFOs were only working full time for one company with high salaries and handling all the company's financial planning.
With the development of technology and the creation of many new business areas, startups have emerged to fill these business areas. In addition, these startups and other companies have moved their businesses to the virtual world, breaking the traditional working methods in the business world and developing a new working system, the virtual working environment.
The startups that emerged with these developments could not have the capacity to hire a full-time CFO due to both the company size and workload and financial inadequacies. This situation caused new enterprises to have difficulties economically, waste a lot of time in their financial planning, and not realize the financial dangers they would face before necessary. As a solution to this problem, the outsourced CFO sector and Fractional CFO Companies, which provide enterprise-specific b2b CFO services for startups, emerged.
With the virtual working environment and hybrid working concept, which has emerged over time in the working environment all over the world and has been on the rise due to the COVID-19 pandemic, the services of most of the outsourced CFOs have started to be provided in the virtual environment. With this development, the concept of “Virtual CFO” has gained popularity as a new name for the Fractional CFO sector.
Virtual CFOs are outsourced consultant CFOs who provide remote services to startups and small-sized companies (if needed, to the finance departments of companies) by adapting to the concept of remote/hybrid business, which has risen with the pandemic in the world.
Virtual CFOs work as a partner in the financial control, plan, and strategy of companies, handling financial situations with their experience and expertise in the finance department in cases where the CEO cannot foresee or go into details, greatly reducing the CEO's workload and loss of time. In addition, it contributes to rapid growth by fulfilling the financial responsibilities of the company to a large extent.
Virtual CFOs have many experiences regarding financial planning and financial cases of startups, as they are involved in different startups and serve multiple startups.
Since they have a virtual working environment, it is very easy to reach them. Moreover, they can get things done quickly over the internet without wasting time.
They present their services in a modern and understandable way by taking advantage of the innovations brought by technology and always keep the necessary reports with them.
Since Virtual CFOs have developed themselves in the virtual space, they work more systematically and in harmony with the customer, using many tools to help financial management.
Moreover, some Fractional CFO Companies develop their tools and offer their clients a financial tool service equipped with artificial intelligence, as well as consultant CFO service, helping to interpret and draw conclusions from these tools.
Thanks to these tools being accessible over the internet, financial plans can be accessed wherever the virtual network reaches, and these plans can be sent to partners and investors.
Because the Virtual CFO is not a full-time employee in your company and provides fractional service, you can get an uninterrupted service by not having to pay vacation leave, paid medical leave, and other extra payments.
Another feature of Virtual CFO is that you can get service for your company to the desired extent and in the areas you want. You can narrow and expand the business area with the workload you want at any time.
Depending on the economic situation and exchange rate of your country and the country where service is provided, the amount of cost that a fractional CFO will require may vary. The width of the business area that the customer wants the virtual CFO to control, and the working methods play an important role in determining the Fractional CFO salary.
The size and industry of the company, the presence of accountants in the company who can assist the Virtual CFO, and the company's financial history are also effective in determining the outsourced CFO salary. The experience level of the Fractional CFO, the items they want to include in the proposal presented to them, and their wishes are effective factors in determining the salary.
All these factors aside, if we look at the fractional CFO salary in general:
Hourly CFO salary $175 - $300
Daily CFO salary $1200 - $1500
Monthly CFO salary $3000 - $10000
Average Fractional CFO salaries are around $5000 - $7000 per month.
Virtual CFOs usually work under a specific contract and demand a monthly salary. In addition, if you want them to deal with a project that is specific to your business, they may request a project-specific fee. The deal is made after all working conditions have been reviewed.
Furthermore, many of the payments you may have to pay for a full-time CFO, such as vacation pay, sick vacation pay, office expenses, etc., are not payable while working with an outsourced CFO. On the other hand, if you are looking for a CFO for the short term, you can work with a Virtual CFO in short term and not have to pay a long-term salary, so you can get rid of the financial burden by hiring an outsourced CFO instead of paying an annual salary for a full-time CFO.
Since the term "Fractional CFO" has become widespread in recent years and does not have much history other than recently, some startups are hesitant to work with an outsourced CFO. So, is working with a Fractional CFO worth it, and what are the benefits of a Fractional CFO?
A virtual CFO, as an expert in his business, helps to develop the financial strategy of your enterprise in detail from the very beginning and can take more careful measures against the financial area-specific cases that your company may encounter.
Fractional CFO also helps you to create financial reports and plans within your needs, on the subjects that it has previous experience, allows you to see your budget more clearly and in detail, and analyzes and interprets these reports for the plans you will create in the future.
Thanks to the analysis and comments you get with Fractional CFOs, you save your time, and you reach your goals sooner than you think.
A Virtual CFO will help you get rid of the crisis much easier with his experience and industry knowledge in case of a possible financial crisis. Virtual CFOs, working with many startups and adapting to the startup ecosystem, provide solutions to potential problems you will encounter in a much shorter time.
Fractional CFOs, with their presentations or the company tool provided to them by their companies, tidy up the messiness that appears in the field of finance and make it look superficial and so simple that their customers can understand.
Hiring a Consultant CFO will greatly reduce your workload as a company manager and employee, allowing you to focus more on areas other than accounting. You can work for different departments without worrying about your company's financial situation.
At Finsmart, we create a positive and welcoming atmosphere to foster collaboration and creativity. Our team is treated with respect, kindness, and professionalism, leading to increased productivity, innovation, and success.