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Three Explanations for the Growth of the Fractional CFO

Originally published by Finance Digest


New startups are emerging at a rapid pace. In the UK alone, almost 100 startups were being founded every hour in the first quarter of 2021, with big ideas being turned into commercial ventures.

The race is on for funding, but with competition hotter than ever before, VC firms can afford to be selective. To secure funding, especially in the post-seed round, startups must make their investor approaches count, and that means getting their financial house in full working order. Understandably, not every founder is a financial whizz but taking the plunge to hire an experienced CFO can still be an investment that is hard to justify.

However, times are changing. A new opportunity is opening for startups as we see the rise of the fractional CFO — a part-time financial expert that manages finances for multiple companies, providing expertise few startups could afford or attract at an early stage full-time.

Ambitious startups are choosing fractional CFOs when targeting particular milestones, like funding rounds, or recruiting them for a limited period to clean up their financial operations, while others see their contribution as pivotal for a next phase of development. So, what benefits can fractional CFOs bring to startups to accelerate their growth and funding journeys?

1. Creating a Strong Financial Model

Many ambitious founders don’t always grasp the fundamentals or importance of a strong financial model to run their business. Full of energy and enthusiasm, many prefer to focus on building sales and developing their product, rather than spending time wrapping their head around profit and loss, growth plans, marketing expenses, and customer churn.

Getting your financial house in order is a critical first step for any startup with success in their sights — and that means bringing in the experts. A fractional CFO may help enable superior planning, fundraising, and allocation of finances, bringing board-level insights without the full associated cost and board seat that can come hand-in-hand with a full-time CFO.

The majority of fractional CFOs will boast a wealth of experience having served as a company CFO in the past, with many having backgrounds in venture capital and private equity, bringing valuable insights from their knowledge working across multiple organisations.

2. Setting Up for Long-Term Growth

The experience and knowledge of a fractional CFO can also be exactly what is needed to take a step back and rethink existing strategies — particularly when entering a new phase of growth or development.

For example, at pre-revenue stage, the freemium approach is often used to attract customers. But when your product or service is demonstrating value to customers, a fractional CFO may advocate a new product line or subscription model to promote continued growth.

Being emotionally invested in your own company can make it difficult to make the best decisions. Work with a fractional CFO for an objective perspective. Be open to embracing their insight and advice, whether it’s revamping pricing, presenting your total addressable market, or preparing forecasts and models on how to scale.

3. Building Credibility with Investors

To grow, attract quality investment, and expand globally, startups need to balance financial leadership and infrastructure. Enthusiastic founders often push ahead and assume their finances can be tackled with a lone bookkeeper, yet fast initial progress can be short-lived.

For long-term success and sustainable growth, startups need a true accounting function, with systems that provide the level of reporting that allows investors to truly understand the state of the business.

Simple accounting systems won’t necessarily meet investor expectations — and, trust me, they will be looking for the details: Is equity properly accounted for? How is deferred revenue handled? What is the cost of sales, marketing, and R&D?

An increasing number of startups are finding value in the role of a fractional CFO in helping them choose and rollout the right accounting system. They are also benefiting from both the expertise they can deliver instantly and the fractional CFO’s ability to set up the company’s financial house for future growth.

An Exploding Fractional Market

While the fractional CFO has yet to become commonplace, demand is rising rapidly.

In a time when opportunities are high, but markets are turbulent, investors are looking for transparency, reassurance, and returns.

With no sign that the startup bubble is set to burst, a fractional CFO can be a strategic move for those startups with ambitious plans — integrating the experience of a financial expert at a pivotal time for maximum impact.


By Dave Rosenberg, Head of Marketing, EMEA, Oracle NetSuite



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