The gig economy has reshaped virtually every major industry, including corporate finance. The emergence of the fractional CFO, a part-time, highly skilled finance executive hired on a contract basis, has introduced new dynamics to the role of full-time finance leaders.
The question is, how should you view the rise of fractional CFOs? Are they a new asset you can use to overcome financial talent challenges, or do they pose a threat to full-time finance leaders? Here’s everything you need to know so that you can use this trend to support your organization’s long-term growth.
What Is a Fractional CFO?
A fractional CFO provides strategic financial leadership on a temporary or part-time basis, typically for small to mid-sized companies that lack the resources to hire a full-time executive. These professionals offer expertise in budgeting, forecasting, fundraising, and M&A. They are often available at a lower cost than a permanent hire.
While fractional CFOs are typically viewed as a resource for small to mid-sized businesses, they can also add value to larger organizations. For instance, you could bring in a fractional CFO to support your business during times of major change or in the months before and after an M&A deal.
Why the Surge?
Several factors have driven the rise of fractional CFOs. First, economic uncertainty has pushed companies to seek flexible, cost-effective solutions. The fractional CFO offers better versatility and lower overall costs in bringing in a full-time executive. This allows businesses to adapt or shift gears if they encounter cash flow concerns.
Second, advancements in cloud-based financial systems enable remote, scalable financial oversight. Fractional CFOs can tap into an organization’s data from anywhere and provide timely, relevant insights.
Third, the talent shortage in finance has made specialized expertise harder to secure full-time, making fractional roles a practical alternative.
Implications for Full-Time Finance Leaders
The fractional CFO trend is reshaping the landscape for in-house finance executives in three key areas.
1. Changing Expectations
Fractional CFOs often bring niche expertise, such as preparing for an IPO or managing a merger. Their focused experience raises the bar for full-time CFOs.
Boards now expect in-house leaders to demonstrate similar versatility. For example, a CFO may need to lead digital transformation while overseeing compliance.
You can adapt to these changing expectations by leaning into your strengths and acknowledging where you could be better. In some cases, this could even mean bringing in a fractional CFO on a temporary basis to bolster your permanent finance team.
2. Compensation Pressures
Fractional CFOs often command high hourly rates, which reflects their specialized skills. This trend is a double-edged sword. On one hand, it is promoting full-time professionals to advocate for performance-based bonuses tied to strategic outcomes like cost savings or revenue growth.
However, it also creates tensions. That’s because some businesses may compare the cost of a full-time CFO to a fractional alternative, which pressures leaders to justify their value.
Even though a fractional CFO may demand a higher hourly rate, they can still be cheaper in the long run because the hiring organization does not have to pay benefits, retirement contributions, or a large annual salary.
3. Redefined Roles
The presence of fractional CFOs can redefine in-house roles. Controllers may take on more strategic tasks, such as scenario planning.
Some businesses may even adopt a hybrid financial leadership model that combines a full-time controller and a fractional or part-time chief financial officer. In these situations, the controllers provide continuity, and the CFOs deliver niche expertise.
If you think your role could be impacted by fractional CFOs, it’s wise to evaluate what value you bring to the table and what sets you apart from other finance professionals. The goal is to become indispensable and agile.
Opportunities and Challenges
The fractional CFO model creates some exciting opportunities while also presenting some key challenges.
For instance, partnering with a fractional CFO can provide your team with specialized knowledge without the cost of expanding its permanent headcount. It also allows controllers to delegate key tasks and focus on process optimization.
On the other hand, fractional CFOs may disrupt team dynamics. Their temporary status can create uncertainty among staff and cause friction within your team. Additionally, their focus on short-term deliverables may clash with your long-term vision.
How to Use These Trends to Your Advantage
Fractional CFOs are here to stay. You can adapt and solidify your position by investing in training in high-demand areas, adopting the latest technology tools, and strengthening your relationship with the board and the C-suite.
Don’t treat fractional CFOs as a threat, but instead, use this trend as fuel to become a better, more well-rounded professional. Getting out of the weeds and into the boardroom will position you as an indispensable asset.
