Top 4 Fractional CFO Services: “Scope of Services & Pricing”

Introduction

Deciding to retain and engage an experienced Fractional CFO service professional can be just the catalytical change or skills your business needs to cross the chasm to becoming an institutional investor-worthy business and attract the required growth capital.

Statistics have proven and shown that over 98% of all small services businesses started since 2007 have failed or filed for bankruptcy by year-end 2020. In fact, only 1% have made it to the $10MM revenue level, and what is more relevant is that less than 0.5% have made it to the $30MM revenue level.

 In contrast, privately held “Institutional Backed” companies with access to skilled professionals were able to grow sales by 152%, while the average U.S. company (non-institutionally funded, grew sales by just 34% since 2008.

A Fractional CFO can be instrumental in increasing the probability of success of your business, growing your sales without sacrificing profits, increasing the enterprise value of your company, and creating a business model and reporting structure that is attractive to institutional investors.

The role of the Chief Financial Officer (CFO) has evolved from being an accounting and finance specialist to a Strategic Advisor and Growth Partner for the Founder/CEO Entrepreneur.

Said differently, the Fractional Strategic CFO is a “C-Suite” partner for the Founder/CEO Entrepreneur to orderly and profitably grow and develop their business model to the “right attributes” of successful investments

What is a Fractional CFO?

While every company has different needs a Fractional CFO can help in 4 key areas of the business:

  1. Company’s Growth Strategy

  2. Company’s Financial Strategy

  3. Company’s Operational Support (including Measurement & Metric Systems)

  4. Company’s Capital Strategy & Acquisition

A Fractional CFO is a professional who will provide a combination of strategic planning, both tactical and strategic financial planning, and operational support including helping identify “productivity and scalability” opportunities in your business model.

This is achieved by providing financial analysis on the performance improvement of the existing business operations and services/products.

The Fractional CFO will also understand both the near-term and long-term Capital needs of the company and based on its growth objectives devise a capital/financing plan to meet those objectives.

A Fractional CFO should help the Founder/CEO Entrepreneur and leadership team to make strategic, financial, and operational decisions through thoughtful analysis of the operations of the company and current market conditions.

 

Full-Time vs. Fractional CFO

The main difference between Fractional Strategic CFO services and a full-time CFO is their level of involvement in the business. Fractional CFO services are more project-based whereas a CFO is a permanent full-time employee of the company. A CFO is responsible for handling all of the financial areas of the business, while a Fractional Strategic CFO “looks out” for the future and ensures the organization is accomplishing the organizational objectives while providing the needed resources.

 

When Do I Need a Fractional CFO?

Our current “disruptive and uncertain” economic & political environment and its associated complexities require professional and experienced skills to navigate the challenges that Founders/CEO Entrepreneurs are facing. 

Here are just a few of the scenarios in which a Fractional CFO can be valuable:

  1. The company despite the inflationary economy is so fortunate that it is experiencing High Revenue Growth.

    • High Growth often does not translate into profit.

    • One of the costliest mistakes a company can make is adding revenue without a clear understanding of their client retention strategy, having a scalable business process, and technology to handle the increased volumes of activities.

    • This is particularly important if your business trades on multiples of EBITDA or Cashflow (Profit shouldn’t be sacrificed at the expense of revenue growth!)

  2. Company Profit Margins are Suppressed due to the “Economy & Political" environments and are not increasing relative to Revenue Growth

    • It is very common to see companies that experience 20-30% revenue growth year over year but see little profit added to their bottom line.

  3. Company has Unpredictable Financial Performance

    1. Revenue growth with a lack of insight into the company’s cost structures and margins leads to a lack of consistent financial performance and unstable cash flows month to month.

  4. The Company’s Operations are increasing in Complexity

    • As the Company adds Revenue or Clients the company operations will increase in complexity as well.

    • That means that back-office technology and processes will need to be consolidated and streamlined to reduce the resources and time to operate the business.

    • Operational Complexity requires effective measurement and metric systems that are operationally based, not purely financial based.

  5. The Company is Looking to attract outside Capital

    • Growth Companies or companies with “suppressed" earnings will require capital in order to fund growth initiatives, and/or operational “airball” plus investing in the business Capex needs.

    • In order for the company to be attractive to the Outside Capital Providers, it will need to be able to have the processes and reporting mechanisms in place to be able to negotiate the best terms possible.

Typical Fractional CFO Services

The exact services a Fractional CFO provides will vary depending on the maturity, and complexity of the business processes within the company. However, most Strategic CFOs will provide assistance in the following areas:

  1. Company’s Growth Strategy

  2. Company’s Financial Strategy

  3. Company’s Operational Support

  4. Company’s Capital Strategy

  

1) Company Growth Strategy

Companies experiencing High Growth or Considering taking on Growth initiatives need to understand their options and avenues for growth and the impact of these on the valuation of their business and value creation for their shareholders.

 A Strategic Fractional CFO can help lay out a plan for the company including:

 a)      Organic Growth Options

  •  Identifying and focusing the company’s efforts on the current business products/services that are being adopted by the marketplace and contribute the most Revenue and Profit to the company’s bottom line. A fractional CFO can also help the leadership team identify ways to maximize those opportunities by reducing Cost of Customer Acquisition Costs, Shortening the Sales Cycle, Improving margins and pricing, etc.

 

b)      Corporate Development Programs (M&A) Growth

  • An alternative to an organic growth strategy is growth through strategic Corporate Development Programs to maximize the value of your business. This will support your growth expansion strategy beyond organic venues. Corporate Development is a great tool that can include:

    • Mergers & Acquisitions

    • Joint Ventures

    • Strategic Partnerships

 

2) Company’s Financial Strategy

A Fractional CFO will help with identifying new business opportunities to provide financial analysis on the performance improvement of the existing business operations and services/products.

Some of the specific activities are:

  • Pricing Alignment & Opportunities through analysis of marketplace dynamics, competition, company’s cost structures, and margins

  • Identify Margin Improvements through service delivery enhancements, process improvements, technology implementation, and cost efficiencies.

  • Focus on those activities that Maximize the Enterprise Value of the Company

    • Overall, the goal is to focus the company and leadership efforts on those activities that maximize the enterprise value of the organization including, revenue, profit, cashflow overall shareholder value maximization.

 

3) Company’s Operational Support

As the Company grows its operations will increase in complexity as well.

That means that back-office technology and processes will need to be consolidated and streamlined in order to reduce the resources and time to operate and run the back-office administration of the business.

Some of the specific’s deliverables included in fractional CFO services could be:

a) Identifying opportunities for Service Enhancement & Efficiency

  • A Fractional CFO will understand the complete value chain from the back office to the front office and implement new processes with technology in order to maximize efficiency, so operations and service delivery capabilities become scalable.

b) Financial Modeling & Scenario Analysis

  • A Fractional CFO will understand your unique business drivers or “Measurement & Metrics” that drive the business forward and create the most value so the leadership team can focus on driving those key metrics.

  • By creating a Financial Model unique to your business, the leadership team can now make decisions based on pragmatic data (metrics) and be able to predict the financial impact of any potential scenario.

 c) Cash Flow Management & Forecasting

  • With the above financial model, the Fractional CFO can now develop a cashflow management and forecasting tool for the company in order to maximize the utilization of cash based on growth objectives, strategic initiatives, and investments.

 4) Company’s Capital Strategy

Companies experiencing Growth will need access to capital either to fund current growth or acquisition initiatives.

A Strategic Fractional CFO can help evaluate the best Capital Strategy by evaluating the most appropriate equity and debt options and/or procuring “Useful Capital” from a “right fit’ financial sponsor.

A Strategic Fractional CFO can help your company understand its financing needs and create a Capital Strategy plan to meet those needs. The goal is an effective use of capital to achieve the organization’s objectives, and as importantly find the most effective Cost of Capital based on the current capital market dynamics.

 

How Much Does a Fractional CFO Cost?

While we clearly understand that most small businesses simply cannot financially afford a full-time professional CFO skill of this nature.

We also recognize this role in a small business is generally not a full-time job. Therefore, our guidance is to retain a “Part-Time” or Fractional CFO for your business.

A Fractional CFO service represents an investment that starts at $3,000 dollars per month and could go up to $12,000 or more depending on your specific needs. The Fractional CFO salary is lower than the Median full-time CFO Salary is $425,813 salary.com

  • The typical Fractional CFO hourly rates are $175-300 per Hour

  • The typical Fractional CFO pricing rates are $3,000 - $12,000 per month

 

Next Steps to Institutionalize Your Business and Maximize Shareholder Value

Over our past 20+ years of working with, investing, and stewarding small businesses we have learned how valuable the investment in a “Strategic Financial View” of the business can be in maximizing the market opportunity and creating Founder/CEO Entrepreneur wealth businesses.

If you want to increase the probability of success of your business, grow your sales without sacrificing profits, increase the value of your company, attract capital, and create an Institutionally worthy business that creates jobs and changes daily lives contact us and book a complimentary strategy call.