CFO Services For Startups: Everything You Need To Know About Finding, Vetting, and Hiring a Startup CFO
What is a Fractional CFO?
A fractional CFO is a Chief Financial Officer who works part-time for multiple companies, handling various financial operations and financial management responsibilities for each one. Fractional CFOs allow for smaller companies, including startups and small businesses, to get expert financial help without paying hundreds of thousands of dollars per year for a full-time CFO.
Fractional CFOs are usually paid on a contract basis, many times with a monthly retainer agreement involved. The most common use of a fractional CFO is within early-stage startups.
Who are fractional CFOs?
Fractional CFOs are finance experts, strategists, and operationally minded. Many fractional CFOs do part-time CFO work for a living, while others are employed full time and freelance with startups because it is interesting and fun to work with startups and help them grow from the early stages.
To become a fractional CFO, one typically needs at least 15 years of experience working in finance and at least a few years of prior experience as a CFO or VP of Finance. Occasionally, you might find a fractional CFO with fewer than 15 years of experience. These experienced young professionals tend to be more techie finance experts.
Why you should hire a fractional CFO early
Hiring a fractional CFO early on in your company’s existence can be crucial to your success. Having a finance expert on the team from the start helps in ways that founders typically don’t realize until they hire a fractional CFO.
- CFOs strategize for short term and long term, potentially saving money immediately as well.
- Get the books in order, saving you lots of money in the future when you need to upgrade to a more comprehensive accounting system.
- Allow for you to be more financially focused from the start by taking the finance function off your plate and applying their expertise to your business.
- Providing you with connections from their previous clients, which could be the difference between your fundraising round being a success or failure.
Why fractional CFOs are the future
Fractional CFO services for startups is not a brand new industry, but it is clear that it is the future of financial services for startups. Read more below.
How to find the right fractional CFO
Founders should take their time to find the right fractional CFO for their startup. Hiring the wrong person can result in countless problems. It’s important to choose a CFO that fits your needs, work ethic, and experience requirements. Finding the right CFO for a startup is a tough task and is the main reason why Shiny exists! Read more below.
How to engage with a fractional CFO
Once you know which fractional CFO you would like to hire for your startup, you will need to determine what type of engagement would work well for both your startup and your new startup’s CFO. Read more below.
Shiny helps you hire a fractional CFO by matching you with pre-vetted CFOs in our talent pool. Get matched and introduced to our CFOs for free.
Why Fractional CFO Services for Startups are the Future
Fractional CFO services for startups is not a brand new industry, but it is clear that it is the future of financial services for startups.
How fractional CFO’s work with startups?
Fractional CFOs provide on-demand finance advice to startups and small firms. You can hire a Fractional CFO as a member of your team or simply bring one in for a one-time project such as financial modeling or pricing strategy.
The most common engagement I see at Shiny is when a startup hires a Fractional CFO to take charge of the financial operations and financial management. This is usually after a Seed or Series A stage fundraising round, at a point when the founders cannot handle the finances themselves and would highly benefit from someone joining their team long-term and taking the financial side of their business off their plates.
How do fractional CFO’s add value to startups?
Apart from peace-of-mind, Fractional CFOs can add value to a business in a wide variety of ways. Here are some primary examples of what we’ve seen at Shiny:
- Fundraising connections. Many Fractional CFOs have large networks of angel investors, family firms, venture capital firms, private equity firms, and other investors. Don’t rule out the possibility of giving your Fractional CFO a key role in fundraising for your business!
- Expense management. A classic example of CFO services is managing expenses across an organization and negotiating deals to lower costs.
An eye on cash flow and runway. Every CFO is responsible for keeping an eye on their firm’s cash flow and runway, making sure they have enough cash on hand to make payroll or invest appropriately.
- Keep the books up to date and clean. This is undervalued by first-time founders, but most serial entrepreneurs understand how important this is and how much money it can cost you to not keep your books up to date and clean.
- Best practices. Various firms come to Shiny in search for someone who can simply bring best practices with them and implement them at their quickly growing startup. This can include systems, procedures, values, and more.
- Expert analysis and strategic planning. Financial Planning and Analysis (FP&A) is a key aspect of the CFO role, and Fractional CFOs are no exception. In fact, this might be the most critical aspect of a Fractional CFO’s role within an organization and can save your butt in countless situations.
How much does fractional cfo’s cost?
The cost of Fractional CFO services for startups can be anywhere from Free to $10k per month, but the average is around $3k to $5k per month. As you might expect, the monthly cost depends on a number of factors, such as hourly rate, complexity of tasks, and breadth of responsibilities you assign your Fractional CFO.
The typical hourly rate for a Fractional CFO is between $80 and $150 per hour. Most CFOs will charge within that range, but there are always outliers. CFOs outside the US, in countries with a lower cost-of-living, might charge as little as $30 per hour. On the other hand, CFOs who are incredibly experienced and efficient can charge up to $500 per hour.
How to Find the Right CFO for a Startup or Firm?
Founders should take their time to find the right CFO for their startup. Hiring the wrong CFO can result in countless problems. It’s important to choose a CFO that fits your needs, work ethic, and experience requirements. Finding the right CFO for a startup is a tough task and is the main reason why Shiny exists!
What might trigger your search for a startup CFO
- Need to create a financial model for fundraising.
- Need bookkeeping oversight.
- Need a general financial advisor.
- Need in-depth financial analysis and planning.
- Need regular cash flow forecasts.
- Need fundraising assistance and connections.
- Need help with financial operations.
These are just some examples of why you might start searching for a startup CFO. All of them are valid and all of them are aspects of your business a CFO should be able to handle on a part-time basis.
What to expect before you start searching
Before you go out searching for a part-time CFO, it is important to set your expectations and requirements for your new CFO.
Set your requirements
- List out your needs
- List out requirements and preferences for your CFO’s skills and experience
- Ballpark your budget, hourly and monthly
Understand that, when hiring a CFO, 20% is experience and skills and 80% is how you like them as a person and a partner. Your new CFO, although a part-time CFO, will act as your strategic partner and advisor while you grow your business to reach your goals.
Starting the search
Shiny was created to make it easy for you to find the right CFO for your startup. The process is easy: fill out this form, get matched and introduced to our CFO, vet them, and hire one.
Your other options for hiring a CFO include tapping your network and posting a job listing. Post to LinkedIn, get on AngelList, and talk to your founder friends. When in doubt, use Shiny as a supplement to your other efforts in finding your startup’s CFO.
Whether you find a candidate through Shiny or through other means, you’ll want to vet them to see if they fit your criteria.
Since Shiny has pre-vetted candidates, the candidates we send you will be easier to vet. All you will have to do is a final round of vetting and scoping to see if they are a good personality fit for you to work with.
Without Shiny, the process will look like a standard candidate hiring process, except it should be more rigorous. The CFO position needs to be filled by someone who is a great fit, so don’t settle for someone who is a decent fit. Take your time and speak with many candidates if needed.
Learn more about engaging with a CFO in our Fractional CFO for Startups Hiring Guide below.
How to Hire The Best Fractional CFO For Your Startup?
Once you know which fractional CFO you would like to hire for your startup, you will need to determine what type of engagement would work well for both your startup and your new startup’s CFO.
Engaging with the ideal CFO for you
1. Take their rate and your budget into account.
Some fractional CFOs are sensitive to their hourly rate, while others are more interested in getting a monthly fee structure in place to give them more predictability in their income. As a startup, you also need to make sure you are getting the right output for your money. We recommend pairing your startup’s CFO with a bookkeeping firm to lower your costs and take the grunt work off the plate of the founder and the startup’s CFO.
2. Find something that works best for both of you
Most CFOs for startups will be good at determining what is best for both sides. This is where your pre-set criteria and requirements come into play.
Don’t be afraid to offer equity or stock options to fill any pay gap that may arise between your expectations and theirs
If you can’t pay the hourly rate your fractional CFO is asking for, try filling the pay gap with an equity grant or stock options. Since startup CFOs are used to working in early-stage businesses, they tend to see the value of startup equity more than most. You might be surprised to find a long-term partner in your startup’s CFO!
3. Ask for an estimate of hours per project, task, and monthly responsibility they will handle.
Most founders simply want the finance function of their startup handled by someone else, which is why they look into hiring a fractional CFO for their startup. If you already know exactly what your new CFO will handle, you can ask them for a price estimate and go off of that to determine their pay structure.
See if they can charge you a flat rate, otherwise set a retainer with a lower hourly rate. This will provide you with a lower hourly cost and stable monthly payments while giving them predictability in their monthly income.
Once you settle on the CFO’s scope, go ahead and sign an agreement with them so you can get them on board!
Don’t overlook onboarding. It’s just as important as your vetting and scoping process because it can set them up for success right off the bat.
- If you use Slack, add your CFO and introduce them to your team. Explain to your team what the CFO will be doing and what they can go to the CFO for.
- Establish clear responsibilities and expected outcomes. This should have been done before you engage with them, but it’s important enough to mention it again.
- Utilize a task management software if needed. Most startup CFOs will be happy to use the task management software you are already using. If not, it might be a good idea to ask them for regular updates on their tasks.
- Establish regular check-ins, weekly or bi-weekly. At the very least, you should be speaking with your CFO every other week. Keep up to date with their work and keep them up to date with what is going on with you. Startups move quickly and it is important for you to keep your CFO in the know. In fact, if you only do it for one reason, you should keep in close contact with your CFO to get regular advice from them that could keep your startup on the right path.
Once you have a fractional CFO on your startup’s team, you can rest easy and let your startup’s CFO do the worrying when it comes to finances. This is when you get to focus on growing your business to the next level.
Eventually, assuming you are able to grow your business dramatically, you may be in a position to hire a full time CFO. At that point, you’ll already have a fractional CFO to step up and fill that role.
As always, let the Shiny team know what you’re looking for and we’ll be happy to help you.