“Fractional CFOs,” also known as outsourced CFOs, are becoming more popular, thanks to fallout from the pandemic, says Rick Gallagher, CFO of Progress Partners, an M&A advisory firm co-headquartered in Boston and New York City.
Gallagher has more than three decades of senior finance management experience working with various stages of companies—startups, Fortune 1000, publicly traded, private and high-growth venture capital-backed entities—with an industry emphasis on media and marketing. He has completed more than $1 billion worth of acquisitions, from sourcing to integration. And he has co-founded three startups, raised more than $35 million for them and taken them all to liquidity events, including one initial public offering.
Gallagher talked with StrategicCFO360 about what’s driving the growth of fractional CFOs and what finance professionals should consider when choosing whether or not to become one.
What is your opinion on the rise of fractional CFOs?
A fractional or outsourced CFO who helps companies part time on retainer or contract can be a beneficial match for the right person and the right company, like any other hiring decision. Many people, including those in the financial sector, have decided to explore part-time work in response to the changes wrought by the Covid-19 pandemic.
The companies most commonly exploring fractional CFO positions are startups or agile companies poised for rapid growth. We’ve seen a record year in 2021 for venture capital funding so far, and much of this growth was in late-stage companies, but early-stage startups also saw significant investment. An early-stage startup is smaller, agile and requires a different level of financial expertise than a larger, more established company, or even a late-stage startup contemplating an exit.
With a record level of market activity, as well as a new growth in part-time, flexible work, it only makes sense that CFOs, like anyone else, evaluate whether they’d like to work with just one company or many smaller companies at once.
What should financial leaders be aware of as fractional CFOs continue to grow in popularity?
Pursuing a fractional CFO role can expose a financial leader to many different forms of companies and types of industries—it’s a great decision if you’re hoping to change industries or careers but aren’t sure where you’d fit best with your experience and working style. If you enjoy an entrepreneurial, flexible work schedule, instead of a deep dive into one company, a fractional CFO position may be valuable for you to explore.
And as startups grow, there’s always a chance to go back to full-time work, especially if you’ve strongly connected with a company or executive team and enjoy providing your services to them. Just make sure you have the pipeline ready if you decide to pursue fractional CFO positions—not every startup is profitable.
Resignations of CFOs are on the rise. What’s your best tip to combat this trend?
Even before 2020, there was a 27 percent increase in CFO resignations. This work can be hard, the hours long and the stakes high. The past year has shown us how important boundaries between the office and work can be. Reinforcing those boundaries when we can is very important, knowing that some days won’t be perfect. I would advise CFOs to seek ideas and input from all levels. Being an effective CFO means understanding the different levels of the business—involving others in big decisions not only positively impacts strategy, but it alleviates pressure on one person.