July 22, 2024


Imagination at work

Fractional CFOs Provide Value to SMBs

Compared with their larger rivals, small and medium-size businesses (SMBs) have a whole host of advantages. They are nimbler, can quickly launch experiments, and can more easily build strong corporate cultures. But for all the advantages that SMBs have, they also have to cope with some weaknesses.

Some of the most glaring weaknesses are cash constraints and lack of experienced human capital. Combing these weaknesses can make it difficult to do everything from manage working capital to raising a seed or series A or B round.

Most SMB founders try to work through these challenges. They spend countless hours making up for these weaknesses, even though they are busy with the other aspects of running their businesses. But even after doing this, they often discover that they aren’t completely satisfied with the results.

This is where fractional CFOs can provide a wealth of value. Fractional CFOs provide the twin benefits of experienced and steady hands, all at a lower overall cost than bringing on a permanent CFO. In other words, it is like owning one-fourth of a $100,000 Ferrari versus a $25,000 Mazda outright.

Creating Mutual Value

Hiring a fractional CFO is a win-win for both the SMB and the fractional CFO. The SMB gets a cost-effective and experienced CFO while the fractional CFO gets flexibility and entrepreneurial work engagements.

From the SMB side, hiring a fractional CFO is both cost-effective and accretive to the business. One of the best parts of fractional CFOs for businesses is that they are available on-demand. The total costs are a function of the service that the SMB needs. While costs are typically front-loaded, lower maintenance costs can be expected on an as-needed basis. In exchange, the SMB can leverage the fractional CFO’s financial expertise to overcome a wide range of financial challenges, including raising outside capital, helping the company navigate an audit, and reducing high expenses.

But beyond handling these critical tasks, the fractional CFO can contribute an intangible asset to your business — experience and new ideas. Typical qualifications for CFO roles include a minimum of eight years of experience in a senior role, a master’s degree in accounting, finance, or business, a CPA designation, and up-to-date knowledge of current financial and accounting ERP systems. The fractional CFO should have the technical chops to shepherd your business through a wide variety of obstacles.

But moreover, they likely have experience in other sectors. While this may not seem immediately obvious, these experiences can help generate new ideas to make your business grow. New ideas emerge from the collision of seemingly disparate notions or experiences, meaning that a diverse team with varying experiences can make this job much easier. Ultimately, it can open your eyes to a new way of doing business.

On the fractional CFO’s side, they can take advantage of the opportunity to work with different clients. The varied engagements can not only improve their financial skills but can expose them to young and scrappy SMBs that are looking to change the world. For CFOs who are looking for new challenges and the opportunity to work for growing enterprises, a fractional CFO role may be the perfect fit.

Granted, the fractional CFO role isn’t for everyone. A good number of CFOs are looking for continuity or enjoy working for their current company. But those that choose the fractional CFO path can embrace an entrepreneurial lifestyle, experience different challenges in a variety of sectors and industries, and create real value for their SMB clients. Being a fractional CFO can be extremely rewarding, both on a personal level and a professional level.

For many SMBs, the trade-off is quite clear. Fractional CFOs let them hire qualified financial operators at a fraction of their normal cost. Moreover, SMB owners recognize that a fraction of a qualified CFO is better than 100% of an under-qualified accountant or bookkeeper.

Essentially, the fractional CFO can be a trusted ally as an SMB is encountering growth challenges. Whether the SMB owner needs help with reducing expenses or preparing the company for a capital raise, a fractional CFO can apply his or her expertise to get the job done. Better yet, SMB owners can hire a fractional CFO based on their own needs and budget.

Shawn Cole is the president and founding partner of Cowen Partners, a national executive search and consulting firm. Shawn specializes in the C-suite and CFO searches. He also manages the firm’s CFO consultancy.

contribuor, fractional CFO, small and medium entities, SMB