Hiring a Chief Financial Officer (CFO) is a major decision that companies large and small must grapple with. CFOs play a number of critical strategic and operational roles within a growing business, including handling controllership duties and leading debt and equity capital raises. Despite their importance (or perhaps because of it), company management teams are often hesitant to bringing on a full time CFO. An increasingly popular solution revolves around hiring part time CFOs, either sourced through the company management’s existing personal networks or hired via networks of highly experienced CFOs.
Bringing on a CFO is a big decision for any company, and CEOs can benefit from asking themselves a series of basic questions as guideposts to inform the process:
Does your company need to hire a CFO at all?
While pre-series B companies can likely get by with an experienced accountant, companies at later stages of development should prioritize hiring a CFO. Even for earlier stage companies, it is still important to consider bringing on a part-time CFO sooner rather than later for a variety of reasons.
A CFO will provide the CEO with the financial information they need to make informed strategic decisions, manage a wide array of internal processes from HR to legal to compliance, and ensure that the books are properly kept, which facilitates funding rounds down the road.
While nearly all companies can benefit from the services of an experienced CFO, the exact need for a CFO will vary depending on the type of business:
- For startups, hiring a part-time CFO can serve as an important inflection point for the business’ growth, propelling the company through funding rounds and into the public markets or towards attractive acquisition offers.
- For mid-sized businesses, a part-time CFO might be needed to temporarily replace an outgoing CFO, or to restructure the internal finance team in order to streamline reporting and increase operational efficiencies.
- For portfolio companies of private equity and venture capital firms, a CFO will be required at all steps of the way to ensure that the portfolio company is able to keep up with the investment firm’s rigorous reporting requirements. Furthermore, having a seasoned CFO at the helm of the firm’s portfolio companies is essential for ensuring that the portfolio is being managed correctly for future exits, ultimately helping the investors hit their targets.
In sum, an experienced CFO can benefit different types businesses at nearly all stages in a company’s life cycle.
Should you hire a full or part-time CFO?
The CFO function is essential if a business ever hopes to make it to the next level, and hiring the right individual at the right time is of paramount importance for future growth and valuation. For a later stage company, having a full-time CFO on board is important for the purposes of leadership and management, although it may be overkill for smaller sized businesses. A talented full-time CFO often requires a significant salary and equity compensation package, and the search and selection process to find the right candidate can be prohibitively lengthy. Many businesses simply don’t need a full-time CFO yet, making it challenging to justify the time and capital required to hire one.
Luckily for the shrewd business owner, hiring a full-time CFO isn’t the only answer. For companies seeking immediate financial guidance, hiring an interim or fractional CFO is a great solution to get the company into better financial shape without committing to a full-time CFO. CEOs have two primary avenues for finding an experienced part-time CFO:
- Tapping into their personal networks to see if any former CFOs would be willing to work on an interim basis
- Hiring experienced fractional or part-time CFOs through a freelance network
While the former option offers the comfort of knowing the potential hire in question, looking to freelance networks vastly increases the size of your candidate pool, which leads to significant advantages in terms of the quality of experience, the speed of hiring, and the candidate’s flexibility around the specific work arrangement and employment dates.
However, outsourced hiring is not without drawbacks. The primary risk associated with outsourcing hires to an external network is quality, so it’s important to ensure that whatever freelance network you do use carefully vets their candidates beforehand. Given the trend of elite finance professionals migrating over to the freelance economy, you’ll find that the networks that do perform rigorous screening can open up your business to talented finance professionals with deep industry experience and a wide contact network that would otherwise be hard to find. When compared to looking within your personal network, hiring through this channel maximizes your chances of finding the most qualified professional possible to help your business grow and succeed.
What can you expect a part-time CFO do for your business?
Part-time CFOs contribute to companies in essentially the same way a full-time CFO can. Some of the sample duties of fractional or part-time CFOs include:
- Managing AR and AP
- Improving internal processes, achieving full legal and tax compliance and automating processes wherever possible
- Developing internal forecasts and budget plans through financial modeling
- Preparing materials for the board and investors
- Interfacing with bankers and other potential sources of investment
The exact function of the CFO will vary a bit depending on the size and nature of the business. At smaller companies, a part-time CFO will typically act as a Swiss Army knife, handling traditional CFO functions while also overseeing a variety of business functions ranging from legal to HR to corporate governance. At a larger company, the responsibilities of CFOs will remain in the traditional domain of corporate finance teams.
CFOs at the portfolio companies of venture capital and private equity firms must be able to tailor their reporting for their respective owners. For example, CFOs for venture capital portfolio companies will focus on reporting growth metrics, while CFOs for private equity-backed companies will be focused on cash flow metrics.
The primary difference between the function of a part-time CFO and a full-time CFO revolves around the CFO’s impact on management and culture. For mid-sized and smaller businesses, many of the functions of a CFO can be done on a part-time basis and can even be completed while working remotely. A business may want to consider hiring a full-time CFO once their organization has scaled to the point that their CFO would be managing dozens of individuals on-site.
Do you need to prepare your business for the start of a part-time CFO?
Part-time CFOs typically have years of experience in their role and are skilled operators when it comes to joining new teams, quickly acclimating to new business environments, and executing the specific duties within their mandate.
That said, businesses can take a variety of steps to make sure they get the most out of their engagement with a part-time CFO. Prior to onboarding a part-time CFO, companies can prepare all tasks that less experienced personnel would be able to handle. For example, migrating the company’s financials to an accounting system like QuickBooks. This will free the part-time CFO up to immediately dig in and spend their time on high-impact initiatives, such as building out the internal finance team, connecting with investors, analyzing bolt-on acquisition opportunities, and developing exit strategies.
There is no doubt that CFOs serve as important strategic and operational partners to CEOs, helping the CEO understand the business’ direction and future prospects while also preparing the business for investor and board presentations. While choosing the correct CFO can be a critical and costly decision, CEOs can mitigate this risk by hiring a part-time CFO. This allows for a test run for a full time hire without the associated costs and equity investment. Given the high quality of talent on freelance CFO platforms, you can sleep well knowing that an experienced fractional CFO is leading your company’s finances.