Hire the Top 3% of Part-time CFOs

Why Hire a Part-time CFO?

Why would business owners just want a part-time chief financial officer (CFO) when this position is a key player in any business? If your business is growing fast, or you have complex accounting projects to implement, or even an important fundraising event coming up, hiring a CFO is the obvious solution. Traditionally, this would manifest in the form of a search for a full-time, in-house executive, but choosing fractional CFO services can bring certain strategic advantages. For example, consider the following scenarios:

• Hiring your first CFO: Key hires are critical for startups and new small businesses. Getting them wrong can be costly from a time and financial perspective. Hiring a fractional CFO allows management to dry test the role, see what results it brings, and determine the specific needs your company has for the ideal candidate.
• Firefighting: An experienced outsider can come in and solve a complex issue or launch a new initiative using a specialized skill set or earned knowledge from having already done the same thing for other organizations.
• Caretaking: If there is a short period where the CFO chair is vacant (garden leave, parental leave) a part-time fractional or interim CFO can come in and maintain continuity in the finance function.
• Getting a jolt of new ideas: At times, companies can become myopic in their views. Bringing an outsider into the CFO role for a period of time can allow for fresh ideas from someone whose goals are very transparent.
• Closing: If there is a significant funding or exit event approaching, a part-time CFO can lead the business over the line. With timing and bonus-related advantages, this can be a strategic and cost-effective way of achieving the desired result without paying a full-time CFO salary.

A seasoned part-time CFO comes with the flexibility of no termination fees and the license to roll the contract over on a weekly basis. The position could also change throughout the year, giving the opportunity to bring in specialists to tackle specific business needs in financial operations, budgeting, financial management, mergers, or financial planning.

There are four key pillars to the role of the CFO; in this hiring guide, we will look at these roles in the context of how a fractional CFO may be required and can help. Each section will also detail desirable characteristics that such a role requires.

Accounting

While they will not necessarily be preparing cash flow statements, developing financial forecasts, or performing day-to-day bookkeeping, a CFO does drive financial strategy and has to sign off on all financial reports and defend them to management, investors, and regulators. Control is a key element of the role, along with ensuring that financial records are presented in a timely, accurate, and informative manner.

The accounting process for a team with a full-time CFO should be a well-oiled machine. Controllers and accountants will prepare the finances and the CFO will communicate business decisions down the chain, review the figures, and report them upward. However, when seeking a part-time CFO, there is likely to be a more hands-on role required of them in the accounting process. Perhaps:

• The process is a mess. Cracks may have been papered over before in processes such as reconciliations.
• A modernization process is required with software.
• New strategic insight is required for the board pack and reporting channels.
• The team needs to be trained for new business units/incorporating acquisitions.

What to look for: Outsourced CFOs will require a strong set of project management and delegation skills. An ability to communicate clearly and inspire a potentially jaded/overworked accounting department also cannot be overlooked. When assessing CFOs for this role, pay attention to their most recent roles and the prestige of their last company. A CFO who has worked in a large, traditional organization may not have received enough exposure in recent years to changing accounting technology and may not be able to cope with the stress and flux of an accounting clean-up operation.

Treasury

CFOs also oversee the treasury function of an organization and, depending on the size of the company, they will delegate day-to-day management of it to a treasurer.The main concerns and responsibilities of the CFO are the following:

• Risk management: FX, interest rates, counterparties, operational risk
• Liquidity: Working capital management and availability of credit lines
• Capital structure: Asset liability management and balance sheet composition

A strategic CFO will view the balance sheet as a ship that they sail—one that can be powerfully maneuvered to the benefit of the organization. During the financial crisis of 2008, balance sheets became the focal point of all businesses. Strategic CFOs were those that were both defensive and proactive to this. They pivoted their capital structures toward longer-dated liabilities and shorter-dated assets, giving their businesses the breathing space to operate and prepare for future opportunities.

The best CFOs are those that sit with a commercial hat on and view their role as a business generator, not a supporter. If working capital management is poor, a company might be bleeding money away on unnecessary interest payments on borrowing. On the other side of the coin, unnecessarily high cash reserves are a sign of a CFO that doesn’t have creativity or proactivity.

What to look for: From an accounting perspective, a CFO will need book smarts and project management, but for treasury functions, a strong understanding of the financial markets takes over. Prior experience dealing with financial instruments will ensure that they are privy to the machinations of foreign exchange risk and the suffocation that poor working capital management can enact on new business growth. A CFO with a treasury background in banking will be exceptionally strong on the liquidity side, but perhaps not so much on working capital. Conversely, a CFO with a manufacturing background will deviate to the opposite. Choose a candidate whose experience best aligns with the most pressing treasury needs in the organization.

Capital Markets

Treasury duties are mostly concerned with cash flow from operations. In terms of cash flow from financing, a far bigger picture is required. Tapping capital markets and managing investors is a role that a CFO must instigate and lead; funding the company with significant capital ranging from small angel rounds, through to IPOs and then institutional bond issuances.

Capital can be raised through debt or equity, from public or private sources. The CFO should be able to clearly inform the management team both when the company should be raising and what type of instrument they need. The previously mentioned areas of accounting and treasury lead into this role, as effective management of those responsibilities will provide perfect insight as to when capital needs to be raised.

Part-time CFO services are often sought for roles like tapping the capital markets. If the founding team is not experienced in this area, their negotiation power can be boosted by bringing in a skilled operator to lead the process. Again, this demonstrates the value of a part-time CFO, where special financial expertise can be brought in for a specific project. By the time a startup is raising Series A, where a priced round is being negotiated, they must be prepared to ensure that the appropriate funding arrives at a fair valuation. Yet, for early stage companies looking for seed rounds, it is more important to have a CFO that has the creativity to find investors and communicate the long-term vision for the business. Bringing in different part-time CFOs for different stages of fundraising can be strategically critical for startups.

What to look for: In addition to direct experience with capital raising needs similar to your company’s, consider soft skills. While the CEO is an important public figurehead for companies, the CFO also plays an important role communicating the financial side. They are expected to be made available to investors to provide deeper color to the financial statement numbers. Being able to communicate a vision for the company based on numbers, not rhetoric, is important. A part-time CFO also works closely with your company’s chief operating officer, CEO, and other C-suite team members, so when assessing candidates for this role, pay attention to their confidence and communication skills.

Business Strategy

Effective CFOs provide a different perspective in both the boardroom and on the business front line. They can be the voice of reason that drive revenue growth through margin expansion, pointing out cost savings and maintaining the cadence between making sales and making profits.

A CFO will have no particular bias to a certain business line, geography, or customer. Their metric is the financial stability and health of the company and, for that, they can be a crucial form of impartial advice at a strategic level. The viewpoint of a CFO can be more long-term than other divisional heads, because their responsibilities involve time horizons measured in years rather than quarters.

According to Ernst & Young, when CFOs were asked to assess their contribution to overall strategic planning, the majority of respondents say that their most valuable input is across all strategy, as opposed to specifically within the realms of financial guidance:

What to look for: Candidates that have a diverse mix of operating and financial roles throughout their career have the kind of long-term thinking that makes them good strategic partners—especially those who have worked in sales or product development, where they can then marry the needs of the revenue generators with the support staff. When interviewing part-time CFOs, you need to find someone who can grasp the business quickly and hit the ground running. Ask them questions related to your business—perhaps pose a commercial problem to them—and see how they respond. A confident and well-rounded CFO will relish this opportunity.

In Conclusion

Gone are the days where CFOs were mere bookkeepers. These financial experts are a powerful contribution to the management arsenal. While full-time CFOs are the end goal for most companies, part-time CFOs can offer unique benefits: The more diverse career experience that they have, the more they will be able to offer. Aside from paying attention to their classical training in finance (the bedrock for the job), look for a commonsense approach to commerce and ability to grasp the bigger picture and link parts of the business together.