If you run a start-up or a small to mid-size company, you probably can’t justify hiring a full-time chief financial officer.
But, you do need some level of financial help from an expert, someone who can cast a trained eye on your cash flow, margins, key performance indicators, and overall profit picture while you concentrate on your team, your products, and your strategies for growth.
If you run a mid-sized business, you probably have a CFO or a Financial Controller. But what happens when you have to navigate a period of financial disruption and that CFO isn’t the right person to see you through it? Or your CFO leaves abruptly in the middle of a critical time?
In both cases, you need a CFO, just not a full-time one, so the question is, when should you hire an interim (temporary) CFO, or a fractional (part-time) one?
And do you know the difference?
Interim CFO vs. Part-time CFO – Interim CFOs are finance experts who come in, usually on a full-time basis, typically for one to three months, to help steer a company through a financial crisis, an operations change, preparation for a sale or a listing, or the gap between one CFO’s departure and the hiring of a new one.
Fractional CFOs are people who provide part-time financial services to companies on an ongoing basis. They might work for you only a few hours a week; their business model is that they do similar work for multiple clients.
Fractional CFO: A helping hand for as long as you need – There are a variety of reasons your business might need a part-time (fractional) CFO.
When startups and small businesses are moving past ideation and starting to grow, and getting traction with sales, it’s time to formalise the back office. You didn’t hire a bookkeeper at first because you didn’t need one; you had a dream and a plan, but no customers. Now you have purchase orders, sales receipts, growing customer and supplier lists, receivables and payables, tax returns, and HR needs. As you grow, you may hire a bookkeeper to perform some of these functions, but a part-time CFO can set up your account systems, begin tracking your financial activity, and provide you with reports and insights on your company’s performance.
As your business grows, a good fractional CFO can provide you with more services, including building cash-flow models, improving your balance of receivables and payables, providing advice on capital-market activities, and helping you think strategically about reinvesting profits in a way that benefits continued growth.
As you hire more employees, you might employ the fractional CFO to help develop and implement your systems and train new staff accordingly. Also, if you now have a bookkeeper inputting data, your CFO can pull out KPIs from the data and help company executives interpret the financial statements and make sound decisions based on financials. And a part-time CFO can serve as a coach and sounding board, someone you can call when you have a question.
If you need to raise capital, a part-time CFO with the right experience can help you locate and talk to potential investors, develop your pitch deck and marketing materials, and make sure you have an up-to-date capitalisation table (showing ownership percentages and equity dilutions of founders and investors through each round of investment). A potential new investor needs to have faith in the company through the CFO, and there is only one shot to get this right. Similarly if you are trying to get a bank loan. These things need to be done right the first time, or you run the risk of the transaction falling apart.
Interim CFO: A full-time job with a short-term contract – An interim CFO doesn’t typically deal with startups. It’s more likely to be middle-market companies who call on people to come in on a full-time basis for a very short, defined period of time. Usually there is a catalyst, something undesirable happening to the firm’s financial health. Companies generally don’t bring in an interim CFO when things are going well.
An interim CFO can also be an extra set of arms, legs and eyes to help the ownership through those processes, including the due-diligence phase if the company is being sold. Private-equity buyers will have someone from their own team to lead the due-diligence process, but your interim CFO can help gather and present your financial information in the best light.
Interim CFOs are often hired to fill in gaps between full-time CFOs, for example, when a company loses a CFO suddenly due to death, disability, or sudden termination. Also, if your company has had a CFO depart and the new hire isn’t available to start for a couple of months, a contract CFO can oversee the finances in the meantime.
Another reason your company might want to hire an interim CFO is to take advantage of his or her specific expertise, such as carveouts, systems implementation, mergers or acquisitions, or restructuring in the event the company needs to reorganise. Some interim CFOs have expertise in specific industries, for example, construction or manufacturing.
When interim CFOs are finished with a project, they are done and (most likely) not to be heard from again. The average duration of an interim CFO contract is between a month and three months; usually that’s enough time to work through the issues.
Now that we’ve made the distinction …
One reason to clarify the difference between these two types of finance professionals is that fractional CFOs often use the term interim CFO. Another is that people sometimes think they need an interim CFO when they really need a fractional CFO.
Of course, you should vet any part-time or temporary hire for skills, experience, references, etc. Some fractional and interim CFOs may not have the skill sets you need most. And some may be trying out the consulting life because they are unemployed or semi-retired — which doesn’t mean their skills and expertise are lacking, but you need to know who they are and where they’ve been.
And one last piece of advice for small- to mid-size-business owners and CEOs: One of the best reasons to call on a CFO is if you are spending more time doing administrative, finance, and back-office tasks than on growing your business.
With over 20 years’ senior finance experience I’m passionate about helping businesses scale up and reach their potential. One way I do this, is improving systems. If you’re unsure of where to begin or don’t want to allocate the task to your already busy internal team, I’m here to help and up for the challenge of ensuring a smooth and successful system and process transition. Feel free to get in touch via email firstname.lastname@example.org.
Ashley Garrone is a Chartered Accountant and trusted figure in the industry, acting in senior finance roles with experience installing and project managing ERP systems.
This publication is © Mage Advisory and is for general guidance only. Professional advice should be sought before taking action in relation to any specific issues.