What should CFOs consider before going “fractional?” It’s not for everyone, but those who opt for fractional work often enjoy more work-life balance, says
John Ball, co-founder and CEO of SeatonHill Partners in Fort Worth, Texas, a national firm that provides CFO and transaction support services.
Ball spoke with StrategicCFO360 about the questions to ask yourself, the advantages and disadvantages of fractional work, and the one time you should never accept a fractional assignment.
Why are CFOs considering the fractional CFO role as a profession?
When we founded our business 12 years ago, we mostly worked with CFOs who had retired but wanted to remain professionally active, at least on a part-time or fractional basis. Since that time, the concept of fractional leadership has become extremely popular, and we now see CFOs seeking independence and more control over their professional lives. Tired of the 60-hour work week, they aspire to a more balanced lifestyle. Many want to devote more time to strategic work instead of the traditional finance and accounting roles. A few have an entrepreneurial itch they want to scratch.
There are, of course, many CFOs who are successful on their own as financial consultants or fractional CFOs. They enjoy the lifestyle but miss having a network of partners to work with. Being independent, they must constantly network for business, which is difficult when they are engaged with clients. Joining a firm may alleviate those pressures and create more opportunities for them.
What should a CFO consider before making the move to fractional? Is it best to go out on your own or join a firm?
The consultative life is not for everyone. The first due diligence is with self and family. Answer questions like: “Why do this?” “What do you expect will happen?” “Do you have the financial runway or second income and benefits of your spouse or partner to cover periods of unengagement?” “Are you willing to devote time to business development?” “What are your target industries and type of work?” and “Are you willing to travel?”
As with most decisions, there are pros and cons to each alternative. Being an independent contractor on your own, you keep 100 percent of your revenue—but you also pay 100 percent of your expenses. You are solely responsible for business development and marketing and for the back-office tasks of accounting, billings, collections, contracts and legal matters. However, if you can develop a reliable network of continuous business referral sources, keeping 100 percent of your revenue makes this option very attractive.
CFO services firms come in all types and sizes. One must thoroughly investigate the options available before deciding to join and there are many issues to consider.
How will a CFO be compensated for their work? Many firms follow a client revenue share formula with their members who can receive from 65 percent to 95 percent of the client revenue they generate. What are their average client billing rates? Keep in mind health insurance and other benefits are rare.
Does the services firm offer marketing and business development support? Some firms are loose federations of individual contractors with little to no business development support. The amount of support often varies with the member’s share of revenue, i.e., the higher the share percentage, the lower the amount of support.
What is the firm’s reputation in the marketplace? Brand is important. Since banks and accounting firms are primary sources of client referrals to CFO service firms, ask the locals who they refer. Who do they rank as “best in class?”
What’s the firm’s culture? This is very important. A prime reason to join a firm is the association and support from your fellow members. Look for a culture where members network together, support each other with advice on technical or industry matters, and who obviously like each other in a partner-helping-partner culture.
What is the firm’s geographic reach? Are there client engagement opportunities beyond the local metro area? What is the firm’s long-term objective? Is there a succession plan for its owners? Do they intend to sell the firm in the future? What back-office support is given? It may seem trivial but having to invoice and collect from clients, administer contracts and perform other administrative chores can consume a lot of time and resources.
What advice would you give a CFO to be successful as a fractional CFO?
There are two imperatives for success in the fractional CFO role. First and foremost is to deliver the highest quality of client service. You may have compensation and growth goals, but your client’s success must be your sole mission. This requires a thorough assessment of a prospective client’s needs and your certain ability to solve that need. If you don’t believe you can solve the need, don’t accept the assignment. Better still, refer the opportunity to another fellow member who can. And avoid a client where there is a hint of malfeasance. Your and your firm’s reputations are paramount.
Finally, we’ve found that partners willing to develop and maintain a network of other business professionals who serve the same size and types of clients and who are willing to continually meet to keep up and share opportunities and make business introductions for the others are by far the most successful in the fractional CFO role. This is not “selling.” When it comes to selling, most of us CFOs are good CFOs. The best network is one where each member already understands what the other does—no selling required.
