5 Reasons Startups Need A Fractional Chief Financial Officer (CFO)

reasons startups need fractional chief financial officer part time cfo

As a startup, it’s normal to have many questions about the professionals you should hire and the certain conditions that come with hiring them. One of those is a fractional chief financial officer (CFO). 

If this is the first time you’ve heard about that job function, you may even be asking yourself why you even need one. You might be wondering what a fractional CFO can do for your startup. 

In business, a fractional CFO is a professional who holds a senior executive position, acting as the company’s financial leader. Their job is to study the marketplace, manage the accounting and finance teams, and plan a course of action for your business’s finances. 

Moreover, they hold quite an extensive range of primary responsibilities, which is why even a startup will require fractional CFO services

Here’s a list of reasons to make it very clear why a startup can certainly use having a fractional chief financial officer on board. 

1. They Help Make Cash Management More Effective 

One of the main reasons why startups fail is that they’re not able to manage their finances effectively. A fractional CFO can help put an effective cash management system in place. This begins with improved terms, pricing, and collection. When taken together as a whole, it results in higher liquidity for your business. 

If there is anything the past years of economic uncertainty have shown, it’s that businesses need to double time in securing good cash management. Otherwise, the risk of failure will be so great that you may wind up crumbling when economic uncertainty comes. 

On the other hand, a fractional CFO makes cash management more effective through the following means: 

• Facilitate your startup’s expansion and growth plans; 
• Organize the payroll structure of your startup; 
• Better financial decisions for continued business growth of your startup; 
• Develop a sustainable revenue stream to keep your business afloat even during economically difficult times; 
• Seize any new market opportunities that may be available for your business to venture into. 

2. They Aid In Strategic And Financial Planning 

Not having any plan at all is like planning to fail, especially for startups. There’s no cheating your way through growth and expansion without first having a well-thought-of plan. A business and financial plan can be made by your fractional CFO based on the objectives that the management wishes to develop. 

This is very important to put in the hands of experts given how dynamic the current business climate or environment is. Transformation brought about by technological advancements is the norm, thereby highlighting even more the importance of keeping a financial plan and forecast ready. 

Meanwhile, creating a good financial plan should include these details: 

• Pricing of all the products and services; 
• Projected income and expenses; 
• The capital budgeting process and details. 

fractional cfo

3. They Assist During The Crucial Period Of Rapid Growth 

Growth is always a goal for many businesses. And when you’re able to finally experience such rapid growth, this could be one of the indicators that a CFO is needed. This will ensure long-term development and stability. 

Remember that growth is more than just something to enjoy. When it happens, a lot of hard work is also called for. Just imagine needing to add more financing or capital, or expand automated systems. 

However, even before your startup gets to enjoy all the benefits of rapid growth, all of those things can be overwhelming. During that period, a fractional CFO will analyze the company’s current financial position so as to improve profits and cash flow during that crucial time. 

4. They Contribute To Good Leadership 

A good fractional CFO is also one who exhibits strong and good leadership skills. Financial insights are brought by the CFO, as the leader, to minimize costs while increasing your startup’s growth potential. 

Moreover, this good leadership also means that the CFO oversees tax and compliance efforts to: 

• Manage the business’s overall risk; 
• Reduce any exposure to the tax authorities; 
• Minimize any unnecessarily high compliance costs for your startup. 

5. They Bring In Timely, Trusted, And Accurate Reporting 

Lastly, CFOs bring up-to-date and accurate information to the table because their reports are based on facts. Bear in mind that accounting is all about meticulously tracking transactions to the last dot. 

While accurate accounting is necessary, this should be balanced with punctuality to increase efficiency. Otherwise, even the most accurate reports will be rendered ineffective if they are not submitted on time. Sometimes a fractional CFO will need to enlist the assistance of a CPA, CFA, accountant, bookkeeper and/or administrative assistant to keep financial tasks on schedule. 

CFO Conclusion 

When it comes to your startup’s finances, there’s no one else in the company better in developing a structure for creating sustainable and robust financial success in business. Gather all the benefits above as one, and you’ll see and understand that the goal of a fractional CFO is to bring tremendous value to your startup, finance-wise. 

Financial performance is vital to success. That’s why getting experts on board to work for those functions is an absolute asset, even for a small startup.

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