What Is a Fractional CFO and Why Does My Start-up Need One?

Ask any CEO what keeps them up most at night when it comes to their start-up, and most will answer cash flow. Starting a small business is risky. Upwards of 90% of start-ups fail. A top reason for failure? Running out of money.
Cash flow management is critical to start-up survival—especially in the early days when your burn rate is unpredictable. But it’s also a time when many start-ups don’t have the funds necessary to hire a full-time CFO.
So how can they still get the strategic guidance needed to navigate the challenging early days and remain afloat? By hiring a fractional CFO.
In this blog, we’ll answer 4 questions centered around the relatively new concept of fractional CFOs and how they can be the cost-effective solution to ensuring your early-stage start-up not only survives but thrives.
  • What is a fractional CFO?
  • Why do companies outsource their CFO?
  • What are the advantages of having a fractional CFO?
  • What does the 5th Line team provide in fractional CFO support?

What is a Fractional CFO?

So what exactly is a fractional CFO? Let’s take a look at the definition:
Fractional CFO (n.): A fractional CFO is a Chief Financial Officer hired by start-ups looking for financial planning, strategic guidance, and operational advice.
Fractional CFOs typically work part time for several companies on a contract basis and can provide the same level of expertise and services as a full-time CFO—just on a smaller scale—including the following:
  • Accounting
  • Budgeting
  • Forecasting
  • Strategic financial planning
  • Financial analysis (FP&A)
  • Financial projections & modeling
  • Start-up financial guidance

Why Do Companies Outsource Their CFO?

Fractional CFOs are a great solution for early-stage start-ups who either don’t have the funds or aren’t quite ready to hire a full-time CFO.
During the pandemic, there was a 27% increase in CFO resignations as many CFOs sought more autonomy and flexibility. As a result, fractional CFO positions skyrocketed. Many come from highly successful companies and have a wealth of knowledge to share; something that wasn’t easily accessible to start-ups in the past.
And unlike a full-time CFO, they share their expertise for a specific number of hours per week or month, allowing start-ups to benefit from high-level financial guidance without the hefty price tag associated with a full-time executive.

What are the Advantages of Having a Fractional CFO?

As we’ve explored, there are many advantages of having a fractional CFO, and it's becoming a prevalent trend among start-ups for 3 main reasons:
1. Cost-Effective: Hiring a full-time CFO can be expensive, with annual salaries ranging from $241,000 to $431,000, according to Glassdoor. Fractional CFOs, on the other hand, offer a more flexible and affordable option—on average ranging from $250-$500 USD per hour.
2. Flexibility: Start-ups may not require a full-time CFO in their early stages. Outsourcing allows businesses to access the expertise they need when they need it, without committing to a permanent position.
3. Specialized Expertise: Fractional CFOs often bring a wealth of experience and industry-specific knowledge, providing start-ups with tailored financial guidance without the expense of hiring a full-time executive.
Most importantly—hiring a fractional CFO can put your mind at ease about financials since they’ll ensure you remain fiscally responsible as you navigate the tricky early days of growing a start-up.

What Does the 5th Line Team Provide in Fractional CFO Support?

At 5th Line, we know how exciting yet stressful running a start-up can be. We’ve been there, which is why we designed our financial service offerings with your start-up in mind.
Gain access to fractional CFO functions with expertise in growth-stage companies tailored to your unique needs. Our services can be as complete as total financial management or simple advisory for board engagement and financial planning.
The vast majority of start-ups fail. And they fail due to financial issues like uncontrolled spending. Don’t wait until you’re at risk of losing everything to seek out financial expertise—set your start-up up for long-term growth and success.
Questions? Get in touch.