As a fractional CFO, I knew that at least one of my very early-stage clients would eventually outgrow my ability to serve them. That day has arrived.
If a very early-stage company is successful, there is a strong probability that the company will outgrow its fractional CFO. Often, a fractional CFO will recognize this issue before the company does. Below are four indicators that may indicate that a fractional CFO is approaching, or has reached, the time when they cannot meet the needs of a client.
Hours worked – Fractional CFOs typically agree to work a set numbers of hours per month. If the number of hours worked by a fractional CFO materially exceeds the contracted hours on a continual basis, this is the first indicator. Unless the fractional CFO is working below their full capacity or the additional work arose from a temporary project, such as a capital raise, the fractional CFO may not be able to continue providing the excess hours.
Difficulty meeting deadlines during regular work hours – Fractional CFOs often serve multiple clients and are continually juggling work to meet the deadlines of each client. If a fractional CFO must work seven days per week to meet all deadlines, this is the second indicator. A seven-day work week is not sustainable and may result in inferior quality work.
Cannot attend important company meetings – Fractional CFOs often agree to devote specific times in the work week to be available for clients. If the number of company meetings is increasing and the company cannot hold them during those agreed upon time blocks, this is the third indicator. This is especially problematic if the purposes of the missed meetings are to make business decisions.
CFO is not involved in key financial decisions – Fractional CFOs have fiduciary obligations to act in the best interests of a company’s shareholders, while serving their clients. This obligation is the same as that taken on by a full-time CFO. If a fractional CFO is not involved in key financial decisions, this is the fourth indicator. When this occurs, there is a much higher likelihood that these decisions will be sub-optimal, which in turn, exposes a company to unnecessary risk. In addition, if a decision goes awry, a fractional CFO’s reputation could be damaged. A CFO’s reputation is one of their most important assets.
When a fractional CFO notices these signs, the fractional CFO should speak with the company and raise the issue of bringing on a full-time CFO. These discussions can have multiple outcomes, in part, based on whether the company agrees with the fractional CFO’s assessment.
If the company agrees, both parties can easily find a win / win solution.
A fractional CFO can become the company’s full-time CFO. This may be appealing to fractional CFOs who want to serve as full-time CFOs.
However, for fractional CFOs who enjoy supporting multiple clients, this transition may not be desirable. A fractional CFO can then assist the company in hiring a full-time CFO and help to transition the work.
If the company disagrees, a win / win solution may be difficult to obtain.
If a company does not want to bring on a full-time CFO and chooses to remain with a part-time CFO, both the company and the CFO will need to decide whether there is sufficient agreement about the work and expectations to maintain the relationship. If a fractional CFO believes that that they cannot act in the best interests of the company’s shareholders and are taking on reputational risk, their best option may be to move on.
Fractional CFOs aim to part ways with clients amicably. Often, former clients will serve as references for future work. In addition, a fractional CFO who has stock options in a company may be able to negotiate an extension to the post-termination exercise period in return for ongoing transition support.
An early-stage full-time CFO who is successful may be in job market every few years due to their company’s acquisition, which renders the sitting CFO’s position redundant post-transaction. There is a parallel here with fractional CFO work. Successful fractional CFOs may be seeking new clients every few years because the companies that they are supporting outgrow what they can provide.