For many finance professionals a moment emerges in their career where the appeal of embarking on a fractional CFO career emerges. This can be associated with a desire to have more flexibility in that person’s working life. It can also be associated with a perceived need to have a more diversified position in terms of your income and more varied work experience. For sure, I have had many CFOs in the Startup CFO community tell me that they picked a fractional career as a reaction to a full time role in a venture backed business where all of their eggs were in one basket.
Whatever the core undying motivation it’s common for experienced finance leaders to find a fractional career, working with a number of businesses, a satisfying pivot. However there are quite a few considerations to keep in mind for an experienced CFO when making this move. Even a CFO with venture backed experience, or significant experience as the number one in finance, will find the transition to working part-time with a group of clients a substantial change that requires real attention.
Part time assignments benefit from holistic experience
If you choose to commence a fractional career the starting point would ideally be that you had substantial CFO or FD experience already. On this point it’s also worth stating that it is a fundamentally different role vs the finance lead in a large corporation, where usually the person is following in the steps of predecessors. And things are fairly steady-state in the finance department.
Those who most readily adapt to life in the fractional CFO seat tend to have been finance leaders in companies in the $5m to $10m bracket, where the business is still quite young and growing. The CFO needs to have a growth mindset and be used to the business demanding new processes and new approaches. I have found the very best fractional CFOs in our community tend to be brilliant problem solvers, used to the demands of new and growing businesses where the finance department holds a truly dynamic and forward thinking mindset.
For the person going into a Fractional CFO role, they need to know they have all the fundamental skills. In the SCFO community we’ll occasionally encounter fractionals with a fifteen year heritage in investment banking looking to embark on a portfolio career. They can be surprised to learn that a heritage working your way up through a finance department is a better route to the holistic experience needed.
Those on the search for a fractional CFO will need to see evidence of material time spent ensuring an in-depth understanding of Accounting, Reporting, Financial Planning, Board and Shareholder relations and Fundraising. It is completely understandable that smaller growing businesses will restrict a fractional person’s hours to the minimum, in part as the fractional CFO might be the most expensive contractor supporting that business at that time.
So that company is not going to want to allow for the additional time if someone doing that role needs to learn how to build a three-statement planning model, for example. They’d understandably seek to ensure you’ve all those skills up your sleeve before you start and the typical spectrum of CFO skills from accounting to fund-raising would similarly be expected as part of the person’s offering.
Not all CFOs are great at marketing themselves and communicating clearly all the skills and experience they have. This is particularly true of those who have mainly passed between roles via a recruiter. For anyone embarking on a fractional CFO career there should be a moment of reflection where you ensure that all your capabilities are clearly communicated on your CV and LinkedIn profile. In the end that profile is a critical part of your shop window.
Sourcing your portfolio
The next key step for someone seeking to shape their finance career in this direction is to really commit to networking. It can be one of those terms that has a corporate ‘whiff’ about it, but in its essence you’re simply sharing who you are and the skills and experience you’d bring into a work context.
To start to source your first clients for your portfolio you need to tap into your existing network. There will be people you have worked with in the past, people you have impressed and those who remember you, who have graduated into roles where they are the decision maker on a CFO role.
Many of those who you have shared a working-past with will now be CEO’s or the Chair of a business. Additionally you might be connected with some people on the fund side, either venture capitalists or private equity investors or even those in family offices. All of these stakeholders can have a good say about who becomes the part time CFO for a business. Some of these might even carry the greatest weight in that sort of decision.
Also consider your peers and most certainly make sure you get the best out of the Startup CFO community. We have more than 150 of the best fractional CFOs in the UK and EU within our group. We know they are the best as they’re capable people with track records who are great communicators who can win their assignments without an agency, or CFO Centre type distributor, in the mix.
In the SCFO community we are sourcing leads for fractional CFOs from a variety of different sources and matching them up with some of the best finance leaders in the Tech space. So if you need some support sourcing connections to build up your initial portfolio of clients in Tech, our Slack group is certainly the place to start.
Non uniform demands
When I speak to those in the first few months of their fractional journey one theme that comes up is managing with the varied work loads. This world is far from uniform and you need to ask yourself how you’d cope if more than one of your clients has a peak in activity at the same time.
It’s not unusual for Tech businesses to all be doing Series A fund raising around the same time. Or conversely subject to a cash crunch and restructuring, at about the same time. And activities of this type will always generate a spike for the finance leader. So you need to ask yourself if your lifestyle allows you to meet those demands if they all come up at around about the same time.
It is also fair to say that a fractional CFO will quite often not have a team beneath them. It’s more common for them to have an accounting firm supporting accounting, reporting and tax compliance – than to have a full time controller in the mix. That sort of team structure will mean that not only do you have the strategic and operational responsibilities, but you’ll also have quite a few of those ‘roll up your sleeves’ type tasks to juggle at the same time too. Being flexible and identifying the most important tasks are key traits for those who work successfully as a part time CFO.
Fractional CFO mindset
The next part of the process to build a portfolio that is delivering a good living is to adopt the mindset of a small business owner.
There are certain things that CFOs can learn from those in small businesses when deciding to go fractional. You’ll need to be able to meet a CEO, or Founder, and ask yourself ‘What is the lifetime value of this client’ or perhaps even ‘Will they be able to pay my consultancy invoices on a timely basis’. When you are in full time employment, you’d never even make such considerations when appraising a new role. However with a fractional CFO career these questions should be front and centre. Running your own fractional business is a good deal more than merely producing a set of annual accounts, getting your PI insurance in place and crunching a few VAT returns.
Exits and getting in on the upside
There are also opportunities to get in on the upside on some of these businesses. Particularly if they are a venture backed business that has a culture of incentivising the team.
It’s typically not an option to benefit from EMI Share Option benefits if you are a fractional CFO working as a contractor in the UK. However the schemes that are rather unglamorously referred to as ’Unapproved’ can still give some nice exposure to the upside in a company. Particularly if a part of your strategy is to have a spread of holdings diversified across the early stage tech space.
Often CFOs in our community will mention these negotiations are trade-offs between what the person can earn in their daily, or hourly rate, and what their long term incentive would be. And, realistically, most Boards are not going to want to make a share award to a fractional CFO unless they see that you are clearly adding strategic value and feel sure you are likely to stay in that team for a couple of years.
There are also instances where a fractional CFO career can be married up with seed investor activity. CFOs often work on pre-seed and seed rounds, and if they have insight into the business and have worked up-close with the founding team that can be unique and valuable insight. This is the other side of the coin for getting in on the upside, being prepared to invest a little in these early rounds at attractive valuations can be appealing.
Do your research before taking the plunge
And similar to those venture investors, you should do your research before committing to a client. Make sure you are spending time meeting other fractional CFOs, make use of the community and feel out the checks others carry out to achieve peace of mind.
You’ll need to form a view on how busy you’ll need to be to support your lifestyle. A lot of part time CFOs do not end up working 5 days a week, or at least not on a consistent basis. If you are reporting into a founder that can be challenging. In the hiring process they’ll certainly do some background checks on you, and take references. This will be a substantial commitment from the CFO too, are you able to speak to those who worked for the founder before and carry out your own background checks? All these factors are worth considering, as a contracting CFO you need to operate in a business-like manner. You’re not necessarily restrained by the conventions of employment relationships.
Your fractional career as a Tech CFO
Taking on a fractional career can be transformative for a finance professional. So many Startup CFO members advocate for it as being an intellectually stimulating career path, offering flexibility in your lifestyle and being able to be truly diversified on the upside available in the Tech ecosystem.
