As a small or medium-sized business owner, you may reach a point where you realize you need more financial leadership and expertise to take your company to the next level. Financial strategy and planning becomes increasingly important as you grow, and it can be difficult to manage without a dedicated finance expert on your team.

Many businesses hire a full-time Chief Financial Officer (CFO) to fill this need. But more companies are also turning to fractional CFOs as an alternative solution. With a fractional CFO, you get expert CFO services on a part-time, as-needed basis.

So how do you determine whether to hire a fractional or full-time CFO? What are the key differences, pros and cons, and factors to consider? In this comprehensive guide, we’ll compare fractional and full-time CFOs to help you make the best decision for your growing business.

Pros and Cons of a Fractional CFO

Hiring a fractional CFO provides many advantages, especially for smaller companies or those with straightforward finances. Let’s look at the key pros and cons:

Pros:

– Pay only for the time you need – Fractional CFOs typically charge an hourly or retainer-based fee, so you aren’t paying a full-time salary and benefits. This can save significantly on costs.

– Access high-level expertise – Fractional CFOs are often seasoned experts with experience at major companies or firms. You can tap into elite financial strategy without a full-time commitment.

– Flexible, scalable arrangement – Scale the hours up or down each month based on your changing needs. This flexibility can be ideal for businesses with fluctuating workloads.

– Cost-effective financial leadership – For the price of a part-time fractional CFO, you may only be able to afford a lower-level bookkeeper or accountant full-time. The fractional arrangement offers high-level expertise for an affordable rate.

Cons:  

– Not available full-time – If you need daily, on-site finance help, a fractional CFO who works remotely or only certain days may not meet your needs.

– Less integrated with team – Since they’re only part-time, fractional CFOs don’t get fully ingrained in the company culture or develop close working relationships.

– Challenging for complex, long-term projects – Large initiatives like raising capital can be difficult with a part-time resource. They require close collaboration and full availability.

In summary, fractional CFOs offer valuable financial expertise, executive-level guidance, and flexible support at an affordable cost. The part-time nature provides cost savings but can also pose limitations depending on your company’s needs.

Pros and Cons of a Full-Time CFO

In contrast to fractional CFOs, hiring a full-time CFO has some distinct advantages along with higher costs. Here are the key considerations:

Pros:

– Always available – Having a full-time CFO on staff means they’re there whenever you need them. You can get help in real-time and meet frequently.

– Deeply integrated with team – A full-time CFO works closely across all departments and builds stronger working relationships. They become an integrated part of the company culture.

– Helpful for complex long-term projects – Whether it’s raising capital, planning an IPO, or entering new markets, full-time CFOs can better handle major long-term strategic projects.

– Focused leadership and strategy – With finance as their sole responsibility, full-time CFOs can provide focused leadership, planning, and execution.

Cons:

– Much higher salary and benefits cost – You need to factor in a competitive full-time salary along with health/dental insurance, retirement benefits, payroll taxes, and other perks.

– Overqualified for some smaller businesses – The expertise of a seasoned CFO may exceed the needs of an early-stage startup or small business.

While full-time CFOs deliver dedicated leadership and availability, the substantial costs mean they are better suited for larger companies. For startups and small businesses, the cons often outweigh the benefits.

Key Factors to Consider

When deciding between a fractional or full-time CFO, start by considering these key factors:

– Current and expected growth stage of your business – Is your company an early-stage startup, or is it maturing and starting to scale substantially? Fast high growth often benefits from a full-time CFO.

– Complexity of financial needs and reporting – Do you require complex processes for capital raising, financial modeling, or regular audits and compliance? If so, lean towards a full-time resource.

– Availability of financial leadership on your team – Do you already have senior financial managers on staff? If not, a fractional CFO may sufficiently fill the leadership gap.

– Budget for a CFO salary and benefits – Estimate the total costs of a full-time CFO’s compensation package. Factor in your financial resources and stage of growth. 

– Skill gaps among current finance team – Identify financial skills your team is missing. Assess whether a fractional or full-time CFO better fills the gaps.

Carefully examining these factors will help determine whether your business is better served by a fractional or full-time arrangement. Companies with straightforward finances and limited budgets often find fractional CFOs provide ample support. But if you’re experiencing rapid growth or need to take on complex initiatives like raising capital, the steady guidance of a full-time CFO can be incredibly valuable.

Assessing Your Business Needs

Before deciding on the best type of CFO, it helps to step back and take an objective look at your current business and your goals. Ask yourself these key questions:

– What are our current pain points related to finances? Where do we need the most help or expertise?

– What financial projects, initiatives, and goals do we want to undertake in the next 6-12 months? Will these require part-time or full-time support?

– Realistically, how much time do we need a CFO during an average week? Will 10 hours per week suffice, or do we need closer to 40 hours?

– Do we expect rapid growth or major new projects on the horizon that will require more of a CFO’s time?

– What is our budget for a CFO salary and benefits? How does this compare to the hourly rate of a fractional CFO?

– Do we need financial leadership and strategy guidance more than number crunching? Or is handling day-to-day finances and reporting most important?

Answering questions like these will provide you with a clear picture of where your business is now and what type of CFO aligns best with your needs and resources. Being honest about your budget constraints and projected growth is also key.

If the assessment shows you only need a CFO 10 hours per week to supplement your existing team and handle relatively simple financial tasks, a part-time fractional CFO is likely the ideal fit. But if you need to raise substantial capital or plan for an IPO soon, the steady guidance of a full-time CFO may be worth the higher investment.

Making the Best Decision for Your Situation 

Determining whether to hire a part-time or full-time CFO is ultimately about weighing your specific business needs against the pros, cons, and costs.

Here are some guidelines on making the right decision based on common situations:

Lean towards a fractional CFO if:

– Finances are relatively simple – Only basic bookkeeping/reporting needed 

– Limited budget – Can’t afford a full salary and benefits 

– Part-time support sufficient – Only 10-20 hours needed per week

– Business is stable or growing slowly – No rapid expansion on horizon

Consider a full-time CFO if:

– Finances are very complex – Monthly closings, audits, debt management 

– Have budget for a full-time resource – Can pay $150K – $200K+ salary

– Need full-time support – Require 30-40+ hours per week 

– Business growing rapidly – Scaling up substantially  

– Major projects ahead – Raising capital, IPO, entering new markets

For most startups and small companies, a fractional CFO provides tremendous value. The cost savings and flexible support align well with the stage of growth. Mid-size and maturing companies may require full-time expertise as finances grow more complex. Think through your specific needs and capabilities to determine if you should go part-time or full-time.

With the guidance above, you can make an informed decision on whether to hire a fractional or full-time CFO. As your business evolves, you may find transitioning from fractional to full-time finance leadership becomes necessary. Be open to reassessing as your needs and growth dictate. The most important thing is choosing the model that provides the level of financial strategy and support appropriate for your company’s current stage.

Next Steps Once You Decide 

Once you decide the best type of CFO arrangement for your company, you can move forward with searching for and selecting the ideal candidate. Here are a few tips:

Finding and Selecting a Fractional CFO

– Search online for fractional CFO firms in your location. Look for specialists with experience in your industry.

– Ask entrepreneur peers for fractional CFO referrals. Look at case studies and client reviews.

– Vet credentials carefully – check experience, certifications, client list, and interview CFOs before committing.

– Clearly define your needs and ideal working relationship so the CFO can allocate sufficient time.

Hiring a Full-Time CFO

– Use recruiters or online job boards to cast a wide net for full-time CFO candidates. 

– Thoroughly check references, qualifications, work examples, and cultural fit through the interview process.

– Ensure salary, benefits, and employment terms meet your budget and the candidate’s expectations.

– Select someone with both leadership skills and relevant industry experience.

Onboarding Your New CFO

– Align on roles, responsibilities, strategic priorities, and goals for the first 12 months.

– Formally integrate them into your executive leadership team. Emphasize collaboration.

– Provide background on your business, industry, and current initiatives the CFO will support. 

– Arrange 1:1 meetings with department leaders to build connections and understanding.

– Conduct check-ins to ensure the partnership is working well and the CFO is assimilating successfully.

Hiring the right CFO and onboarding them effectively will ensure you have financial strategy and expertise tailored to your business needs. With the insights in this guide, you can make a well-informed decision between fractional or full-time support. Carefully assess your situation, remain flexible as your company evolves, and partner with a CFO who will help take your business finances to the next level.