A part-time/fractional startup CFO has several key roles in a startup. Not only does the CFO serve as a financial advisor, but they can also help with financial modeling, reviewing financials every month and make sure everything is accurate, tighten up the budget when needed, and any board prep that may be required. They can also help with operational duties, including handling the insurance for the startup and managing any leases.
There really are a million things a startup CFO can do, including resource allocation and strategic planning, fundraising support and more.
The cost to bring on a fractional CFO can vary by the level of experience that the CFO has, market conditions and the exact services that the startup needs. Hiring a fractional CFO can be a cost-effective alternative to a full-time CFO, providing high level financial expertise without the full-time commitment.
CFO billing structure
Most startup CFOs tend to work with three or four clients, and charge in one of two ways:
- Hourly
- Monthly
Standard hourly rates typically range from $250 to $350 an hour. The rate is always negotiable, but keep in mind that startup CFOs are in pretty high demand right now, so the negotiation leverage is on their side. We’ve seen the best charging $500 an hour for smaller projects recently.
If the CFO is working on a fixed monthly fee, they will typically allocate one full day per week to their clients. They often will leave Fridays open as a day to spend more time with a particular client or provide more of an advisory service.
So, to specifically answer the question:
What do Fractional CFOs cost?
Fractional or part time CFOs either bill by the hour or at a fixed monthly price. Hourly rates vary from $250 to up to $500 and monthly costs usually run between $8,000 to $16,000 per month. Most experienced fractional CFOs like to have recurring, monthly engagements where they work with a client for one or more days per week. Several factors influence where a startup might fall within this range:
- Experience: CFOs with specific experience in your company’s industry or operations may command higher rates, but also bring valuable sector-specific insights.
- Hours worked: The number of hours the CFO dedicates to your startup each month directly affects the cost. Some may work just a few hours weekly, while others might dedicate several days per month to your business. The best will likely want to work for your startup over the period of several months.
- Company size and complexity: Larger or more complex companies often require more time and expertise, which can increase costs.
- Services required: The scope of work and agreed-upon package of services will impact the price. Some startups might need comprehensive financial strategy, while others may only require specific services like financial modeling or fundraising support.
- Financial systems: If your current financial systems need significant updates or overhauls, this could require additional time and expertise from the CFO.
- Supporting team members: The need for additional support to implement financial strategies might affect the overall cost structure, increasing what it costs to get finance advice.
Comparing the Cost of a Fractional CFO to a Full time CFO
The finance position is an expensive one - we’ve recently seen companies that are preparing to go public offering a $400,000 base salary, 50% bonus, plus 0.8% equity (again, this is for a late stage company looking to hire a chief financial officer with public company experience).
Earlier stage companies will spend between $250,000 to $400,000 all in for a full time person, plus 0.6% to 1.25% equity in the company. So compare this to the cost of a fractional CFO at a max of $16,000 per month and the savings are clear.
Another way to try to get finance help at an earlier stage company is to hire a VP of Finance, which will likely cost between $200,000 to $300,000 depending on the person’s experience level. So again, a part time professional is a much lower cost.
Why even hire a fractional CFO?
Fractional CFOs come with a bag full of experience, and they offer their CFO services on a part-time, retainer, or contractual basis. It’s like having an executive financial wizard on your team without burning a hole in your pocket. Plus, since it’s not a full time hire, you can scale back (or ask for more) depending on the needs of your startup.
Here’s what a fractional CFO brings to the table:
- Improved reporting - you don’t have to deal with getting the books right anymore.
- They’re adept at constructing and fine-tuning your startup’s financial projections and budget.
- Experience setting up the financial operations and fintech stack, so that your business gets running on tools that will scale and give you the metrics you need to manage the business. The right banks, payroll, expense management, etc. help a company scale.
- Raising capital, like venture capital rounds can get a lot easier with an experienced finance professional managing it, and they also handle CEO’s legal and negotiation duties.
- The cherry on top is the solidification and enhancement of the company’s financial infrastructure.
Fractional CFOs are the go-to for startups aspiring to conquer financial challenges, boost growth, refine strategy, implement systems, raise capital, or navigate an audit. The ultimate goal? To translate your metrics into valuable insights that your management team can harness to make key strategic decisions.
When Does Your Startup Need a Fractional CFO?
Well, if your startup is in the Seed and Series A-C phase, you might be ready, It’s a smart move to consider hiring one at least a quarter before a new fundraise. This means that during the hectic fundraising period, you have an experienced finance professional focusing on projections, prepping KPIs, and tackling financial reporting queries. Their existing venture capital relationships could be a game-changer for your startup, giving the CEO an advantage during negotiations.
So, how do you know when your startup is ready for a CFO? Here are some signs:
- The CEO is constantly pulled into financial reporting or projections.
- The CEO and/or COO work hand-in-hand with the sales team on numerous client contracts.
- The CEO is swamped with a barrage of accounting queries weekly.
Your startup is mulling over going public within the next 12 to 18 months.
Getting What you Pay For out of A Fractional CFO
Want to get the best bang for your buck from the cost of your fractional CFO? Here’s how you can maximize their effectiveness and your ROI.
First things first, communication is key. Keep your CFO in the loop with everything that’s happening in your startup. Yes, everything. From operational changes, growth plans, to unexpected challenges, the more they understand about your business, the better advice they can provide. Remember, they’re not just a number cruncher, but a strategic partner. The more in advance that you can let them in on what you are thinking, the better they can prepare and the better advice they can offer you.
Next up, have clean books. Make sure your financial records are up-to-date and well-organized. Now, you may be hiring this person to help you get your records in order, but a Fractional CFO is expensive, and bookkeeping doesn’t offer the same ROI as other things they could be working on. On the flip side, without accurate, timely data, their insights are not useful. If you, or your new finance person, realize you need help cleaning up past issues with the books, consider hiring an outsourced accounting team (like Kruze!) to get your numbers in order.
Get systems access for them. A new finance person is going to need access to systems - like your accounting system, your billing system, your payroll, etc. We suggest organizing your passwords and systems in a secure password platform like Onepassword - and then taking note of which ones you need to share with the part-time finance professional. You’ll need to share these same ones when you bring on a full-time hire for the role, so if you keep note you won’t have to duplicate the effort!
Finally, understand that a fractional CFO’s time is precious - and so is yours. Have a clear agenda for meetings and discussions. Prioritize issues and questions that truly need your CFO’s expertise. You don’t want to chew up their time (and your money) on tasks that could be tackled by someone else in your team. One way to make this easier, logistically, is to data and strategy update (some might say dump) all of this onto the person and then have them come up with agendas for your conversations.
Remember, a fractional CFO is an investment, not an expense. By taking these steps, you’re not only making their job easier, but you’re also ensuring that their knowledge and skills are put to best use to drive your startup’s success.
Ensuring You Receive Services You Pay For
One thing all clients should do is validate that they aren’t hiring a startup CFO who is overextended and has taken on too many clients and responsibilities. You want the cost to be worth the ROI! Sometimes, CFOs are faced with mandates from their firm, requiring a certain number of clients per month. In those cases, they’re only able to spend a couple of hours a month with a client, especially smaller clients. We’ve seen this with smaller accounting firms that are overly focused on growth.
Most fractional CFOs got into the business because they want to help their clients, and especially help startups grow. So they recognize when they’re stretched too thin and aren’t adding value to your startup. The good CFOs will be honest and upfront and let you know that they’re too busy, but they’ll offer to check back in with you in six months or so. This is how we manage our practice at Kruze.
Given the current state of the market, CFOs are even harder to find.
Fractional CFO Services
A fractional Chief Financial Officer (CFO) is a seasoned finance professional who manages a company’s financial actions on a project basis, often to address specific challenges or goals. Fractional CFOs wear many hats, providing a wide range of financial services tailored to your business needs. Their main responsibilities include:
- Financial Reporting and Analysis: Managing and improving your company’s financial reports, ensuring accuracy and compliance with accounting principles.
- Financial Projections and Budgeting: Building and maintaining financial projections and budgets to guide your company’s growth.
- Cash Management: Optimizing cash flow and implementing effective cash management strategies to ensure financial health.
- Capital Raising and Negotiations: Executing capital raises, such as venture capital rounds, and handling legal negotiations for leases, insurance, and other contracts.
- Financial Infrastructure: Managing and supporting your company’s financial systems and software to streamline operations.
- Strategic Planning: Translating financial metrics into actionable insights for strategic decision-making, such as determining optimal timing for hiring, scaling marketing efforts, or understanding the impact of potential contracts on unit economics.
Consider a One-Stop Shop Like Kruze
If your startup doesn’t need to hire a CFO, consider breaking up the service and hiring a company like Kruze Consulting, which does startup bookkeeping, CFO consulting, financial modeling, and FP&A.
Sometimes when a startup founder says “I need a CFO,” they’re actually looking for financial modeling to share with their investors or raise capital for just that month. Or maybe they just need the monthly budget to actuals. Seeing where you’re overextended or where you may have spent too much money, or even under-investing, is very valuable.
We’ve published other executive pay information - you can not only use our CEO salary calculator, but can see the average startup CEO salary, or startup CTO salaries, or average founder salaries. These are not based on surveys, but instead are reports generated off of payroll data - so we think they are the most accurate reports available.
Kruze Consulting has created several financial model templates that you can use for free. Check them out! If you have any questions about CFO consulting, please contact us.
