Offering fractional CFO services: It’s more than simple advisory

When I launched my first company in 2014, I eagerly took on bookkeeping jobs. I handled everything for my clients, attending quarterly meetings, preparing custom financials for managers and teams, and even acting as a liaison with external parties and outside investors. Over time, I gained a deeper understanding of my clients' businesses. That’s when owners and executives began asking forward-focused questions, shifting our discussions from reflections on the past to projections and financial forecasting.

Meetings evolved. While they were once 100% focused on historical analysis, they began to wind down to be about 20% dedicated to quick scorecards of key performance indicators and about 80% focused on future planning. Some of my long-term clients asked me to step into the role of CFO. Everything seemed to be progressing smoothly until my own company’s 150% year-over-year expansion required me to devote my time to building a solid team instead of being embedded into other companies' teams. My focus began to shift, and the service offering that was once great began to lack the same gusto.

I realized I missed the mark on delegation and defining the role. I was hiring bookkeepers and controllers, expecting them to grasp CFO-level concepts. They attended client meetings without a deep understanding of the company's operations, strategic roadmaps, and the nuances of internal and external relationships. It was during this phase that I truly grasped the essence of what it means to be a CFO or even a fractional CFO.

The selective nature of fractional CFO services

Today, there's a significant trend toward offering fractional CFO services. However, at Carpe Digits, we reserve this title for a very select few clients. Because we firmly believe that the roles of CFO or fractional CFO are deeply embedded and should not be taken lightly, we make it a point to educate our clients on the distinctions as we define them. By creating clear language around these terms, you can manage client expectations and make sure they are really ready to take on the monetary commitment of hiring a true CFO.

When to consider fractional CFO services

At Carpe Digits, we primarily work with early stage startups, so most of our clients fall within the $1 million-$20 million annual revenue range. When they express a need for fractional CFO services, we often begin by offering advisory services first—unless these three specific conditions apply:

1. They are experiencing rapid growth and require substantial assistance.
2. They have secured significant funding from investors and need additional financial expertise.
3. They are contemplating an exit strategy or positioning for a major liquidity event.

If none of these factors are present, they are likely seeking an advisor—not a CFO. We define advisory services as a part of our mid-tier plans, where clients are paired with a more seasoned and experienced team that have the skills of a controller and a knack for forward thinking.

I've also seen many startups falter, even with a fractional CFO. The work of a financial officer isn't cheap; if a company isn't prepared for the costs, it can be detrimental to startups. As a conservative accountant, I feel it is our duty to protect early-stage startups from overextending and help them stay lean so they can build a solid foundation and extended durability. After all, the role of CFO should be to help build strong companies, not fragile ones that are more likely to fail in their first 10 years.

The challenge of scalability

While our firm isn't necessarily young, we're still grappling with the scalability of advisory, not to mention fractional CFO work. The operation remains top heavy, despite our implementation of a pod structure, where we assign a dedicated account manager, client manager, and bookkeeper and/or controller to each job. However, delivering fractional CFO services still hinges on a specific personality type. Fractional CFOs often need to be inventive, discerning, and self-confident. I'm still in the process of making fractional CFO work scalable, which is no small feat. A significant portion of these responsibilities still fall on me, and my approach remains one of full immersion.

If you're contemplating a foray into fractional CFO services and aren't sure where to begin, consider relying on software tools that can ignite ideas. Start small, immersing yourself in the businesses you serve. Monitor their success across all areas and identify key drivers. 

Teams at Intuit are actively developing tools to enhance our success in the field and make it more accessible to provide this type of high value in our work. From advanced reporting to AI assistance, these tools are continuously evolving, promising a bright future. Determine the right questions to ask to make informed decisions, and lean on these tools for success.