There is no doubt that a Chief Financial Officer (CFO) is one of the most valuable assets of a company. Be it a blue chip company or a small business, every entity needs a skilled person to take care of its financials. Although startups and small businesses frequently can’t afford to hire a CFO, they still need some level of qualified financial help from an expert; someone who is experienced in accounting and finance and can manage cash flow, profit margins, debt, and the overall financial performance of the business.
Mid to large-sized businesses may already have a CFO, but what do they do if their business is going through a financial crunch? What if the CFO isn’t skilled enough to help you navigate the rough waters? Worst of all, what if the CFO gives notice during a rough season? It’s simple: you can hire an interim CFO or a part-time CFO (also known as fractional CFO), but first, you need to understand the difference between the two.
As the term suggests, interim CFOs are finance experts who temporarily fill in the role of a permanent CFO when the company is in the process of hiring a new one. Interim CFOs are usually brought on to work full-time for one to three months only (six months in rare cases). They overlook and manage the financials of the company in the gap between the last CFO’s departure and the arrival of a new one, and may also help companies during a financial crunch or other major change such as an ERP implementation.
On the other hand, fractional CFOs provide financial services to a company on a part-time basis, almost like a vacation timeshare. This means that they will work for you for only a few days every week and have the liberty to provide the same services to other companies simultaneously. Usually, small and mid-size businesses hire fractional CFOs because they are operating on a small-scale, and thus, they don’t require full-time professional CFO assistance.
Let’s look at both of them in more depth to figure out which one your business needs.
Interim CFOs don’t deal with startups and small businesses. They are usually appointed by middle market or large-sized organizations when they are facing challenges or undergoing leadership changes, such as financial disruptions or hiring of a new CFO.
Some companies may also hire an interim CFO when they feel that their current CFO doesn’t have the knowledge and experience to deal with systems implementation/integration or mergers/acquisitions. In such cases, an interim CFO is like an extra pair of eyes and arms that are there to guide and assist you through various processes, including the due-diligence phase when the company is being sold. By providing their valuable insight, they help the company owners and executives make more informed decisions that will increase the overall profitability of the company.
Since interim CFOs are hired for a specific purpose or project, their job is done after the engagement is finished. As mentioned above, the average duration of their job is between one to three months, after which you probably won’t hear from them again.
Usually, fractional CFOs are hired by small and medium-sized businesses when they are beginning to grow and get more traction. These startups or small businesses need more than a bookkeeper due to their sophistication, but are not yet ready for full time support due to their small operations scale.
While a bookkeeper can help with small tasks like recording transactions, a fractional CFO can begin tracking your financial activities, set up a proper accounting system, and provide you with valuable insight on your business’ financial performance. Depending on which growth stage your business is at, a fractional CFO can provide a range of services, including debt negotiations, building cash-flow models, and advising on capital-market investments.
Fractional CFOs can also help you in strategically reinvesting your profits to maximize your returns. In addition to this, if you need to raise capital for business growth, a fractional CFO can help you find potential investors, and can also draft all the necessary documents needed as proof for private equity or banks. Fractional CFOs usually work a few days a week, but they are available for as long as you need.
The Bottom Line
Depending on your company’s needs, either a full-time or fractional CFO may benefit your bottom line. The distinction between interim CFOs and fractional CFOs is quite clear: if your business is undergoing a change and needs a CFO temporarily to help take charge over the next 1-3 months then you should hire an interim CFO. However, if you need assistance with major financial decisions but not as often, then you should go for a fractional CFO. Find out what qualifications you should look for in a Chief Financial Officer (CFO) here.
Cowen Partners is a leading CFO Search Firm and has a strong record of identifying and recruiting Chief Financial Officers for public, private and non-profit organizations. Contact us if you would like to discuss recruiting an exceptional CFO for your company.