Hiring a CFO is a high price for any business to pay, especially if your SMB is just starting to find its footing or if you're in the middle of transforming your organization. Salary.com estimates the base average salary of a CFO as falling between $318,590 and $535,464 a year, not including costs such as health insurance, benefits packages, bonuses, and additional costs. But that's not to say CFOs aren't enormously valuable; the right CFO can help your company better manage cash flow and annual expenditures, create a sustainable track for revenue growth, and ensure your finances are compliant—no matter how complex.
In the modern workplace, you don't have to make the hard choice between making do without an experienced CFO and setting aside a six-figure budget for their employment package. In this article, we'll explore the emergence of fractional CFOs and why a fractional, part-time CFO can give your business the financial leadership it needs without the high cost.
A CFO is your practice's financial leader and your strategic partner. However, not every organization needs a full-time CFO in the office from 9-5 every weekday. That's why many of today's businesses are starting to step back and make the choice between a conventional full-time CFO and a fractional CFO. But what are the key differences?
Full-time CFOs are financial leaders in the traditional C-suite team. These executives manage a full range of financial responsibilities for your organization, from overseeing compliance with financial regulations to projecting budgets for the future. A CFO's ultimate goal is to preserve and strengthen the company's financial health based on the growth goals of the company.
Full-time CFOs are salaried employees, entitled to the same benefits, health packages, and financial incentives as other employees within your organization.
However, fractional CFOs operate more like consultants than traditional employees. These executives offer financial advice, expertise, and management to different companies; they may even work with more than one company at the same time. Companies can contract fractional CFOs for a set period at a set hourly or monthly rate based on the organization's unique needs and goals.
You know your organization needs more hands-on financial management and guidance. But hiring a full-time CFO can bring many liabilities — not just benefits — to the table. Here are three key reasons why so many businesses hesitate before hiring a full-time CFO:
Bringing a single CFO to the helm of your business can be perilous if you're unprepared for the risks. After all, there is no guarantee that any CFO in your area is the right fit for your company's niche, size, and unique profile. CFOs with sufficient experience may not be a good fit for your culture, and CFOs that feel like a perfect fit for the leadership team may not understand your company's growth goals well enough to bring them to fruition. Finding the perfect fit is challenging, and staking those hundreds of thousands of dollars on hiring the right one is a gamble.
Again, it's important to emphasize just how much hiring a qualified, experienced, and knowledgeable CFO can cost in a traditional full-time CFO position. The costs of this one employee can outpace spending for equipment, staff, and overhead, especially if you have a small and growing business. All of the costs of hiring an employee — salary, health benefits, paid leave, and administrative costs related to managing these costs — can quickly put a damper directly on your growth goals.
One thing every business will experience is turnover. A tightly knit group of professionals can't stay in the same organization forever, especially as your business grows to include more staff and more locations. Most companies see turnover as a negative; after all, the current health crises and economic turbulence have led to high turnover, with Garner predicting a 20% turnover rate that won't decrease any time soon. However, even without these negative market factors, it's unlikely that all of your employees — even in your leadership team — will stay forever.
When you first hire a full-time CFO, expect a lot of costs and drag on productivity during training and onboarding. Eventually, you'll need to repeat those efforts for a replacement CFO. If you decide to terminate a CFO, you may also need to pay unemployment in the meantime. There is also some risk that legacy knowledge will be lost, as traditional CFOs don't structure their work for flexibility in the same manner fractional CFOs do.
Fractional CFOs, on the other hand, can offer the same positives as full-time CFOs without the costly drawbacks. Some key benefits are:
At Dillon Business Advisors, we fully vet all of our financial experts to ensure that they have the experience and knowledge to build robust financial strategies for today's markets. Not only do our fractional CFOs have a wealth of knowledge regarding specific business niches, successful business strategies for meeting different objectives, and regulatory compliance demands, but we equip each of our client businesses with three different financial experts, so every responsibility is covered.
When you hire fractional CFOs, you don't incur the costs of traditional employment, such as salaries, health insurance, benefits, and others. Instead, you can find a "part-time" CFO that can fill the gaps in your organization without outstripping your budget. Hiring a fractional CFO is also a controllable expense, so you don't have to worry about the fixed cost putting your cash flow at risk.
Great CFOs are financial leaders who can offer advice, guidance, and processes built to strengthen your business long-term. Whether you want a short-term CFO to set your company on the right path or a long-term CFO to be with your company during stages of growth, fractional CFOs provide that leadership where you need it the most.
Financial maintenance is a challenging but inescapable part of the business. At Dillon Business Advisors, we help business owners in professional services firms focus on their core areas of expertise while building a more financially sound business. Reach out today to learn more about how our fractional CFOs and financial experts can be part of your team.