If you have never hired a fractional CFO, or a fractional service for any role, you’ll want to know what options are available for you, and what makes the best fractional CFO. Similar to interviewing many candidates, you’ll want to learn about many different companies to see which fit is right for your company. Here are some questions that you should think about asking when hiring a fractional CFO, along with what to consider in the responses. The questions are in no particular order.
There is actually a difference between working for a corporation as their CFO and working as a fractional CFO. A fractional CFO is a consultant. They have experience working efficiently with a company and a business owner to solve problems and answer issues in a simple, direct, non-technical manner. Corporate CFOs have a longer lead time to do research and work out answers. They need to change their approach when they get into consulting.
This is a question with an interesting answer. Our experience shows that all businesses are uniquely the same. They all have products or services, customers and employees. They need to get their products or services at a reasonable cost and sell them for a reasonable margin. They need to invoice promptly and accurately and collect their money on time. They have bills they have to pay, customers that they have to cater to, and suppliers that they need to depend on. They have a bank who handles their transactions and loans them money. They have employees they have to train and pay and provide benefits for. They have an accounting system that collects their transactions and provides reports. What company doesn’t do those things? The issue is that CFOs that have experience working in different industries can take all the things they’ve learned and apply them to your company and its specific needs as things change and situations arise.
Some CFO companies provide you with a CFO that they say will “hit the ground running.” That sounds great, but where are they running to? If they don’t take the time to learn about your company, to learn about you, then how can they make sure that their advice is going to take your company where you want it to go? No matter whether they have a defined process or not, it will take any CFO some time to learn about your company, to learn about your goals and aspirations, to learn about your staff and your processes. It’s important that they know all of that before they start, or they’re going to learn it along the way after they start work, which doesn’t seem very efficient.
In addition, there are companies that use purchased software that will “tell” them what’s wrong with your company that needs fixing. Sometimes software is a good tool to provide you with a dashboard or measurements as to how the business is running. However, that software generally comes at an additional cost. As I’ve explained to you, our process is to use the Deep Dive Strategic Analysis that we’ve developed to perform a financial and operational review of your company.
There are many people that work as fractional CFOs while they are looking for a full-time job. There’s nothing wrong with that. It’s a viable option for many people in finding work. The greatest continuity, though, is going to be with a company that has multiple CFOs working for them. That way, if someone leaves or gets sick, or you have a major project that needs more horsepower, they have other staff that they can bring to bear, use the knowledge that the company has gained about your business, and pass it on to the next CFO. Losing employees is always hard, but if the company has depth, they can provide you with another resource. If the CFO is working as a solo practitioner, there is nobody to replace them, and you’ll have to start over again from square one.
Of the many fractional CFO companies, not all of them have a staff of full time employees that work for them exclusively. Many will find a client, go to their database of available CFOs that are available for work, and ask “would you like to work for a manufacturing company for the next 6 weeks?” These are in all likelihood skilled CFOs, or they wouldn’t be in the company’s database. But their availability may be limited, or the company may suddenly find that their CFO has left for a full time job, “but we can find you someone else ‘from our team’ to help you.” In addition, some fractional CFOs work for multiple companies so that they can keep their schedules full, in case one consulting firm isn’t able to fill their time with work. Using independent contractors is more flexible, and may be less expensive, but provides a lower level of commitment by the staff than a company that provides employees to their customers.
Any company should provide insurance to not only protect their employees but their clients as well. The typical insurance that you provide for your employees and your company should be comparable to the level of insurance that the CFO company is providing for their employees. They should have General Liability, Professional Liability, Worker’s Comp, Crime, Cyber Insurance, among others. Although you can expect that larger companies will have this kind of coverage, individuals that are working as part time CFOs waiting for a full time job won’t always carry a full package of insurance. And companies that are using independent contractors might not provide full coverage to those workers.
Hourly rates range all over the scale. There are individuals that might charge only $125 – $150 per hour. There are nationally based companies with heavy overhead that might charge up to $400 per hour or more for their staff. Our rates fall somewhere in the middle. The rates will depend on a number of things. Certainly, the local market can affect pricing, since someone working in a small rural town will charge less than someone from New York City. But it can also be affected by the skill and experience of the CFO. Someone with 20 years as a corporate CFO will command more money than someone who just graduated from school with an MBA. Remember that it’s easy to put a label on someone. A real CFO will have experience in developing a strategic financial approach for businesses. There’s a lot more involved than just printing up financials from QuickBooks, and putting those three letters on your resume.
Many CFO companies charge their customers on an hourly basis for the work that their staff is doing. That’s very typical. This would mean that when you have a question, and call your CFO to ask it, you will likely be billed for that 10 minutes or half hour that it took your CFO to answer the question. There are many business owners that get annoyed at having that monthly bill with a collection of assorted hours on it that are hard to track, much like dealing with your attorney or accountant, rather than a member of your management team. Other companies have programs where they develop a set of monthly activities that their CFO staff provides for their clients. It might include attendance at staff meetings, regular phone calls with the CEO, and a set of month end analytics among other things, all for a fixed fee. This way you know what to expect monthly, not just in terms of deliverables, but in terms of cost, so that you can preplan your expenses and your budget.
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