Guide to Fractional CFO and Controller Support

There are many reasons to bring in a fractional CFO or Controller. Two of the most obvious are the flexibility and expertise you instantly achieve; you decide the amount of support you need and you get someone who can step in and immediately create value for you. This is a good option if you don’t have enough work yet to keep a person busy full time in one of these roles.

With fractional support you can receive actionable advice in a number of areas that can strengthen your business without a long-term commitment. There isn’t another FTE on your books and no additional benefits to pay out. In fact, an experienced CFO may work with you one or two days a week within a given timeframe and dramatically improve your accounting and finance functions in ways that will have a lasting impact on your company. 

This guide will help you determine if fractional support is right for your company at this time, and how to find the right professional to meet your needs.

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Is Fractional Right for Your Needs?

Two of the most common scenarios where fractional support makes a lot of sense are for startups and for small to mid-sized companies experiencing growing pains. You may not have enough work to keep a CFO or Controller busy full time, but you need that level of expertise help in one way or another. Fractional support is an affordable option that provides excellent flexibility.

An outsourced or fractional CFO supporting a startup can fill four vital roles:

  • Steward: establishing controls and processes to preserve assets and minimize risk

  • Operator: developing processes that ensure efficient, effective financial and business management

  • Strategist: advising on overall strategy and making sure operational and financial strategies align

  • Catalyst: creating long-term value for the company through a finance-based approach that supports comprehensive business performance

For more established companies, fractional support from either a CFO or Controller may be ideal if your business is growing and the accounting department has not grown with it yet. If you see any of these accounting red flags, outside help may be your best path to make quick improvements.

  • A lot of reconciling of accounts is necessary

  • It's taking a long time to close the books

  • The numbers are inaccurate or misallocated

  • Overall, you just don’t feel confident in the numbers

In order to be the best leader for your business, you need to have accurate and relevant financial data available to you at all times. Bringing in an expert in this area, who has had experience and success supporting multiple companies, can be a game changer for you. They can be a trusted sounding board as you work together to identify what changes can have the biggest impact. They can coach your current staff so those people become even more valuable once the engagement ends and can continue the processes the outside CFO or Controller outlined. They can create clear to-dos and implement best practices—freeing you up to lead.

An outsourced CFO can help a CEO or business owner in each of these areas:

Two things to consider that will help ensure you get the most out of the support you bring in are: 

  1. Decide if you need someone physically in your office on a regular basis. Make sure if your fractional CFO/Controller works onsite at your facility that they’re integrated into your team and someone who employees know they can trust. This way they will get to see things firsthand, attend meetings, and speak directly with people. This also helps mentor existing staff so you’ll be in the best position possible with your team once the fractional engagement ends. It’s possible to rely on support that is remote, but know what the tradeoffs are in terms of personal interactions.

  2. Choose someone from a firm where they have access to other resources. A sole practitioner may cost less and still be qualified, however, you’ll miss out on the wider expertise that a fractional CFO from an established firm can provide in areas like M&A, corporate development, tax planning, outsourced accounting, payroll, process optimization, or human capital optimization.

How Your Business Can Be Strengthened

asking good questionThe CFO you bring in will come to your company with fresh eyes and expertise that is derived from their time implementing solutions for other businesses. They’ve been around, seen similar challenges to yours, and know what solutions work best. Depending upon your needs, this could mean tactical process improvements, strategic support, and/or laying the foundation for the future growth of your company.

The best business leaders are constantly asking good questions—especially around their company’s financial matters. This starts with asking yourself on a regular basis: Do I feel in control? Sure, people may do what you tell them to do, but that’s not leadership. Leadership requires possessing knowledge and creating a vision that others will follow. To be fully in control of your company means you can answer these four questions about your company’s finances:

  • How much money is the bank?

  • What’s the sales forecast for next quarter? And how was it derived?

  • What’s your company’s budget and how close are your actuals to it over the past year?

  • What is the cash flow situation?

If this information isn’t in your head or readily available when you open your computer then this is a sign that your control of the company may not be as secure as it should be. This impacts your ability to lead and is one of the biggest reasons there is to bring in fractional accounting support. If you don’t have this information you can’t make the strategic decisions that people are counting on you to make.

Is a Fractional CFO or Controller Better for Your Needs?

You don’t want to overspend but you also want to get the level of support you need. To do this, you must evaluate whether you’ll be better off with someone who has the experience of a CFO or the skillset of a Controller.

The easiest way to think about this is to remember that a CFO is a strategic position while a Controller is a tactical one. Here’s a comparison of what you can expect from each.

CFO Duties

Improving cash flow processes
Financial planning (budgets, raising capital, modeling)
Strategic sounding board
Business relationships
Risk assessments
Communicating financial information internally and externally
Mentoring accounting staff

Controller Duties

Accurate, timely financial statements
Compliance and reporting
Reconciling accounts
Managing accounting staff

Each company is unique, but in general, businesses that reach $5 million in annual revenue typically need some sort of Controller—either full time or fractional.

Generally, a company has reached the point where it needs a full-time CFO if it has $50 million in annual revenue. The need could arise much sooner, however, depending on a company’s age, goals, and structure. If you’re not at the point where you have 40 hours of work a week for a CFO to handle, a fractional CFO is a great economical alternative.

One effective way to leverage a fractional CFO is to bring them in before you hire your first full-time Controller. The CFO can help you implement processes and systems that will set the Controller up for success.

How an Engagement Works

Things in your business likely move fast and you should expect the same when you bring in outside professional help. As you speak with potential candidates for your fractional support roles, ask them about their timelines for how they like to work. Someone who is a veteran CFO should be able to help your company realize most of the changes you need within 6-12 months.

The key is starting strong. Be transparent and specific with what you want to achieve. You can set yourself up for success by having the previous 3 years worth of financial records (financial statements, budgets vs actuals, etc.) ready for them to review immediately. The first meeting should be with your top leadership and cover goal setting for the engagement. Very shortly after that these things should be done as well:

  • Priorities, to-do list, and communication cadence established

  • Assessment of current accounting processes

  • Assessment of internal controls

  • Identify areas for risk assessments

The next stage of this outsourced accounting engagement is where the strategic actions take place. There’s much more detail on this work below, but at a high level your fractional supporter should help you with all of these areas: 

  • Identify and implement improvements, optimizations, and best practices

  • Partner with ownership to evaluate business relationship opportunities (banking, insurance, legal, IT, key vendors, etc.)

  • Establish a positive and valuable “financial culture”

business can be strengthenedThe time when you have your outsourced CFO or Controller in your office will likely fly by. However, the changes they help implement should be long lasting. When the engagement ends your company should have best practices in place, the ability to create budgets and forecasts on a regular basis, and processes that return accurate financial information on time.

An outsourced CFO who helps evaluate your business partnerships can leave you with a much stronger support network in terms of your relationships with your bank, insurers, vendors, and other professional services.

Another residual benefit of your engagement should be a stronger internal staff in your accounting department. Your team should have better tools and processes in place and a greater understanding of how their work fits into the larger picture. The mentorship that an outsourced CFO offers can help workers grow into roles and become valuable, long-term assets to your organization.

Budget Improvements

Do you have a budget? If your company is small enough you may not go through the process of creating and updating a budget regularly. This is not a strategy for long-term success or growth, however. Someone with CFO experience can help you create an effective budget process for your company

Having a budget helps when you need to compare one quarter (or year) to another. It makes it easier to spot variances that may require leadership attention. It is the first step to improving forecasting and models for growth for your company as well. 

Budgeting discussions can be challenging because they may feel personal if there has not been a formalized budget in the past. It is often helpful to have an outside voice to moderate this process.

Integrate Strategies

An outsourced CFO can integrate your financial and operational strategies to make sure they’re aligned. They can help you create dashboards that track your most important KPIs. From a business modeling standpoint they can help you create 1-, 3-, and 5-year operating plans with P&Ls, balance sheets, and cash flows. They’ll be able to create sensitivity analysis as well to show you how your plans could be impacted by internal or external factors.

Identify and Mitigate Risk

Do you know what the biggest risks are to your company? This information falls under the purview of a full-time CFO. However, a fractional CFO can give you a strong analysis of the potential risks you face in many areas; from general business risks around markets, the economy, your capital, and your ownership to risks specific to your company, like your credit, liquidity, operations, security, and fraud.

Improve Internal Controls

Having good processes is one key to reducing risk for a company. If your internal controls are not codified and universally followed there is room for improvement—and it doesn’t take a good professional long to help implement these. A Controller or CFO can help analyze your separation of duties and approval processes, determine who should have what level of access to information, and standardize your documentation. These easy wins can go a long way to strengthening your accounting department.

Empower Your People

empower your peopleYour people are likely one of your most precious assets. Turnover is expensive and hiring can be hard. Outside help is a good way to support your staff in a thoughtful way. A CFO working as an extension of your accounting team can mentor your Controller so they can grow and be more valuable to you. On the other side, a professional Controller can help a small accounting department develop best practices and work most efficiently.

If you want to look beyond just your accounting team, human capital consulting can help evaluate whether you have the right tools in place to help all your people be most successful and whether all the work is distributed in the most efficient manner. Oftentimes a big win can come in the form of software solutions that automate processes and free up people to think and act more strategically.

Evaluate Partnership

Are the business relationships you have with your bank, insurers, legal counsel, and other professional services working as well as they can for your company? Evaluating these relationships—especially if they’re longstanding—is difficult if you don’t have much basis for comparison. 

As a knowledgeable and independent third party, an outsourced CFO is well-positioned to analyze relationships and make recommendations

They can give a professional nudge to partners who may need one, without offending them by explaining that the partner will also benefit by upgrading their service to you. If it is necessary to find new partners, someone who has experience as a CFO will have connections that you can tap into.

Be Ready for A Downturn

Economic uncertainty seems to be an ever-present fact of modern life. Is your company ready to ride out (or even take advantage of) such a situation? Here, outside experts can help you with risk-reduction tactics, identifying cost-saving measures, and opportunistic strategy shifts. One thing they’ll do is help you fortify your balance sheet, with a focus on maintaining adequate liquidity. Leveraging expertise in this way now is a good insurance policy against economic unknowns.

Finding the Right Help

A fractional, or outsourced CFO or Controller should lighten your workload, improve your processes, and give you valuable insights along the way. In considering your options, make sure you work with someone who has had previous experience and success in the role you need. Look for someone who is proactive and ready to dive right into addressing your biggest challenges. If you have questions or want to speak with people who have this experience, reach out to us at Redpath and Company.