What is a fractional CFO?
Good question. I only came across that term about a month ago and asked the same question. Think “virtual CFO,” part-time CFO, consulting CFO or business adviser. They are typically found in an SME that doesn’t need a full time CFO. The title doesn’t matter. What matters is the value the professional brings. That value is strategic financial advice and years of experience to supplement the existing accounting resources. They are trusted by the business owners to support them to make better-informed decisions. When I’m working with clients in this way, my role is to support them to build a high performing finance function. And that looks different in every business. For example, it has included:
- mentoring the finance team
- review of roles and responsibilities
- review of systems and processes
- enhancing reporting
- putting in place some fundamental controls
- support with a specific strategic initiative, or
- helping them to recruit their next CFO.
Why are fractional CFOs in high demand
I’ve worked with many SMEs who need strategic financial leadership but can’t justify or afford a permanent CFO. An example I’ve seen more than once in family businesses is a senior finance person hired by Dad or Grandad. They joined when the business was small, doing simple bookkeeping. Over time, they became relied on to keep the books straight. The owners trust them implicitly to look after their financial interests (and many other things).
30-40 years on, the business has grown. Technology has advanced, cyber risks have increased, and perhaps another generation is now working in the business. This person is still the most trusted employee in the business. They are integral to so many aspects of the business that extend way beyond finance. But they are not a CFO and don’t have the skill set to fulfill all of the financial leadership needs of the growing business.
Why businesses turn to fractional CFOs
It’s a dilemma. The business doesn’t think they need a full time CFO, and/or can’t afford one. However, they’re at the point where they also can’t afford to go without one. The risks of not having strong financial leadership are too high. What I have seen is the CEO or one of the Owners jumping in to try and fill the gap. Alternatively, more is outsourced to the external accountants. Unfortunately, sometimes the “wheels fall off” first before the realisation that more financial grunt is needed.
That’s where a fractional CFO comes in, offering a pragmatic middle ground that balances affordability with value.
Recruiting a permanent CFO is a big step, and for many businesses, it’s out of reach. Yet at the same time, the financial decisions they’re facing are complex. Whether it’s about cash flow, compliance, process efficiency or growth, these demand the kind of strategic foresight a CFO brings.
Fractional CFOs give a business access to decades of senior finance experience without the full-time price tag.
More than a finance role
Bookkeepers and accountants usually focus on recording past activity and meeting compliance requirements. A fractional CFO takes a more holistic approach. They are commercial and strategic, with a role that goes well beyond financial advisory. In many cases, they act as true business advisers. They help owners and boards navigate regulation, restructure operations, or implement new systems and processes.
For example, I initially started working with a client on a one day per week basis to help them improve the robustness of their financial management practices. This included strengthening financial governance through an overhaul of delegations of authority, implementing dual bank signatories, introducing cash flow forecasting and addressing a range of inefficient processes. I now work with this client for just 2-3 hours a month, meeting with the Owner and CEO to discuss whole of business strategic matters.
A good fractional CFO is not a bean-counter who gets excited by spreadsheets, accounting standards and tax legislation!! The Owner I worked with as a CFO for many years used to say that my job was to keep him out of jail. And I think that covers it well. A CFO needs to know enough about the law and the risks of non-compliance to keep the Owners and Directors out of trouble. The CFO doesn’t need to be an expert but needs to know enough to be alert to the risks and know when to ask for help.
The best CFOs also bring highly developed inter-personal skills. They know how to listen, how to challenge constructively, and how to build strong relationships based on trust. In my experience, that element of trust is crucial. That’s why Owners can be reluctant to replace their trusted bookkeeper or accountant that has been loyal to them for decades and whom they trust implicitly with their money. Especially in SMEs and any Owner led business. This is very personal because it’s their money.
Looking forward, not backward
One of the biggest differences between a traditional accountant and a fractional CFO is perspective. Accountants and compliance professionals often look in the rear-view mirror focused on month end accounts, tax returns, audit- reporting on what has already happened.
A good fractional CFO, by contrast, looks ahead considering:
- Where is this business heading?
- What risks need to be managed?
- What opportunities are worth pursuing?
- What changes are needed to ensure financial sustainability?
That forward-looking approach is often what the SME Owners need to give them the confidence to make informed decisions. Be that growth expanding into new markets, investing in new technology, bringing on new staff or perhaps consolidation or rationalisation.
The value of experience
Fractional CFOs can contribute so much value by virtue of their wealth of experience. Many have backgrounds with professional service firms, several previous CFO roles plus also Non-Executive Director or Company Secretary experience. This gives them the ability to look at your business through several different lenses and pick up on what’s really going on inside your business.
I sometimes say about myself that “Once an auditor always an auditor”. As auditors, our attention to detail is a given (and can be our vice!) but we also have an uncanny ability to spot red flags. For example, I walked into a business that were using an external accounting firm to bolster their internal financial resources and immediately identified that their balance sheet didn’t balance. For me this raised concerns about the integrity of their accounting systems, their external accountant and potential implications on relationships with third parties reviewing their accounts eg. banks, customers and suppliers. I had a list of questions around potential issues for the client to resolve. They have progressively worked through these matters with their accountant and are now in a more secure financial position.
Helping businesses work smarter
Technology has added another dimension to the role. Many fractional CFOs are helping SMEs to find efficiencies through modernising their systems, automating manual processes and introducing tools that free up time and improve accuracy.
In my clients I’ve seen how small changes, like introducing automation into the accounts payable and accounts receivable functions, automating the bank reconciliation, replacing paper-based forms with simple workflow tools can create significant improvement in efficiency and morale. I worked with one client where it became apparent that their ability to attract and retain good quality staff was dependent upon them modernising their systems and processes. Young ambitious high potential employees were not going to stick around if they’re expected to do manual repetitive boring tasks. These staff welcomed the opportunity to redirect their energy to higher-value activities, developing their skills and knowledge in the process. Plus, the business owners and leaders realised the benefit of the finance team having the time to produce more meaningful financial information on a more timely basis. Win win.
Final thoughts
In summary, alongside technical skills, fractional CFOs bring business acumen. They know when to hold off on an idea, when to seize an opportunity, and how to balance competing priorities. They’re not just academics or number crunchers. They’re advisers with the judgement to apply financial principles to business challenges.
Fractional CFOs are in demand because they solve a critical problem: how to access strategic financial leadership without the overhead of a full-time executive. They bring decades of experience, wide networks, and forward-looking advice that helps businesses grow sustainably.
I often encourage business owners to think about finance not as a back-office function, but as a valued business partner. A core part of informing and monitoring strategy. A good fractional CFO helps you do exactly that. They ensure that you get reliable numbers quickly. Numbers that are relevant and presented in an easy-to-understand way to inform decision making. I helped a client to recruit for the replacement of their long serving finance manager. They initially thought that they didn’t need a qualified accountant, that replacing like with like – another bookkeeper would suffice. Once the new CPA qualified accountant was in place the CEO quickly appreciated the value he delivered to the business. “You were right Debbie; we definitely needed a qualified accountant.
For SMEs that have outgrown the capabilities and/or capacity of their current finance team, are looking for a second pair of eyes or injection of new ideas to support them to thrive, this kind of partnership can be game-changing.
This post was inspired by an article that appeared in the CAANZ magazine titled “Why fractional CFOs are in high demand”. You can read that full article here.
