How much do Fractional CFO services costs for startups in 2024?
One reason startups succeed is making the right decision at the right time. Hiring a Fractional CFO may increase your startup’s success ratio, but it comes with costs.
At the beginning of a startup where every penny counts, a fractional CFO might be a more cost-efficient choice than a full-time CFO. This article discusses the costs and ROI of hiring a full-time CFO vs. a fractional CFO. Let’s get started.
Table of Contents
Why Do Startups Need CFO Services?
How do you find a new place without GPS or asking for directions? It’s hard if not impossible. Similarly, how can you take your startup forward without a CFO?
Startups need a CFO. They need experienced financial supervision, especially if the founders do not have a finance background. As a founder, you may have access to the same financial data. However, you or your team may not know how to actualize the information. A CFO will use the financial insights to drive growth.
Here’s how a CFO can make your startup a success story:
1. Identify Highest ROI Areas
A CFO will identify areas of your startup that are generating or have the potential to generate the highest ROI. He will be able to recognize what your competitive advantage is.
For example, there is a SaaS startup. To attract and retain customers cost-effectively, a CFO can help introduce flexible pricing models, such as subscription plans or loyalty programs.
A CFO will look at your finances, make predictions using financial insights, and ensure your new baby is on the best path to success.
2. Present Financials to the Investors and Board
A CFO can be the bridge between your startup and the investor. A CFO can ensure your financial records and forecasts are accurate and current if you are considering acquisition or investment from funding. He can also explain the financial aspects of your company to you.
A CFO can present financials to the board and investors. When investors communicate with the company’s CFO, they gain confidence. It shows them that proper due diligence is in place and that the startup team is doing what it should be. Thus, there are proper checks and balances within the team.
3. Management and Reporting
For startups, a CFO might also manage the management and reporting aspects of the business. This will include the company’s monthly management reporting and review of the company’s monthly performance. A CFO will compare the company’s performance against budget, prior year, or competitors.
A CFO’s management reporting helps the startup team and the board. The reporting allows them to “see” how the startup is actually performing regularly.
If the company performs as planned, the startup team can decide how to boost growth further. They can make key decisions, such as whether you need to add more money to the business.
On the other hand, if the company is not performing as expected, management can work with the CFO to identify areas for improvement. For example, are there costs that the company needs to cut? Or are we not meeting the sales target?
4. Ensuring You Don’t Run Out Of Money: Assessing Cash Flow
Cash flow is one of the most crucial aspects of the starter phase.
At this stage, your company’s money might be limited. A CFO can help identify and explain the company’s cash flow “situation” to management. For example, he will determine how much cash is available and how much cash can last them. He will also tell what are the startup’s cash burn rates.
A CFO will also specify ways to reduce expenses. For example, he might examine your travel policies and ask whether you travel a lot. And is it really necessary for the business at this stage? Or he might suggest deferring some salaries. Often, there’s management, and if they are getting paid monthly salaries, then it is decided that they won’t be paid at the initial stage. Or a CFO will develop a method to receive payments from customers sooner.
So, the CFO will look at various key variables within the startup and identify areas where cash flow and costs can improve.
5. Review contracts
Many startups receive government incentives, so they require research and development grants. A CFO helps the team prepare the relevant information that they will need. Then, the company can get help from experts to prepare the research and development grants.
Companies often have large contracts with their suppliers or customers. A CFO will review those contracts from a financial perspective, ensuring everything seems reasonable. He will weigh each milestone the company achieves to ensure it’s on the right track to success.
How Much Does Fractional CFO Services Cost For Startups?
Companies must consider the cost of CFO services carefully to ensure it aligns with their budgetary constraints.
Full-time CFO salaries can exceed $200,000 annually, while part-time in-house CFOs may charge high hourly rates. For fixed monthly fees, CFOs often allocate one full day per week to their clients, leaving Fridays open for additional advisory services. Monthly costs typically range from $8,000 to $16,000, depending on the startup’s specific needs.
The cost of outsourced CFO services reveals a significant cost advantage for startups compared to full-time or part-time in-house CFOs.
Outsourced CFO rates, ranging from $6,000 to $8,000 monthly, offer a flexible and cost-effective solution for small to medium-sized businesses. Hourly rates for experienced part-time CFOs typically range from $250 to $350, with some charging up to $400 for smaller projects.
Startups differ according to their type, industry, people, and investment. Startups in different industries receive different volumes of investments. For example, in 2018, Fintech startups received a total investment of +$254billion.
A small startup with no outside investment requires a different CFO service than a 150-team company that has raised $15 million from outside.
Companies often seek professional CFO services to enhance financial management, but they must carefully consider the cost of CFO services to ensure they align with their budgetary constraints. In general, it’s often seen that early startups have limited resources, so they offer a lower salary than more established companies. It is also common for a CFO to have equity in the startup as his compensation.
A CFO’s Impact on Your Startup Can Be Massive- Don’t Miss Out
Not having a CFO can really slow down things in the firm, especially in the later stages. Keeping your accounts tight from the beginning of your startup makes sense. Not doing so can cause you to accumulate the equivalent of technical debt in your finance function.
The CFO can be your firm’s money person.
How?
A CFO can help with valuation, managing the cap table, mergers and acquisitions, and deciding where and when to invest. The CFO can also help with thousands of decisions, such as going to market or hiring more sales specialists.
A CFO provides value to the startup. Hiring a CFO is costly. Is there a win-win situation here?
Yes, there is 👇
Solution: Outsource CFO services for Startups
According to Exploding Today,
“16% of failures in the startup world are the result of cash flow problems and other financial issues.”
Startups require money to get started, whether from personal savings or investments. Whatever the case, one thing is common: money is limited. It may be challenging to afford in-house CFOs, prompting small startups to explore alternative CFO services, where the cost of CFO services is typically more scalable and manageable.
Where every penny counts, it is ideal to outsource fractional CFO services.
Expertise Accelerated provides fractional CFO services. Our services range from providing financial advice to operational duties.
“Our team of fractional CFOs has extensive experience in budgeting, forecasting, compliance, and financial reporting, especially for CPG companies. Thus allowing us to provide our clients with customized, expert financial guidance.”
As we provide you with affordable accounting expertise, you can free up your resources for other initiatives that drive business growth.
As a Fractional CFO, EA excels in improving reporting, constructing financial projections, setting up financial operations, raising capital, and enhancing the overall financial infrastructure. (Read here to learn more about the responsibilities of fractional CFOs.)
Startups in the Seed and Series A-C phases, experiencing challenges with financial reporting and client contracts, or contemplating going public find our Fractional CFO services invaluable.
Startups breathe life into amazing ideas. They make the world a better place. A fractional CFO can provide your startup with the guidance it needs in a cost-friendly way. We hope his insights can help your baby have a higher success ratio, thus bringing something amazing to the world that may not have happened otherwise.
Maximizing the Value of Fractional CFOs
The decision to outsource CFO services involves weighing the potential benefits against the cost of CFO services as businesses strive to optimize financial operations without exceeding their financial limits.
Communication is key to maximizing a fractional CFO’s effectiveness and return on investment (ROI). Keeping them informed about operational changes, growth plans, and challenges allows them to provide strategic insights. Clean, up-to-date books, system access, and a clear meeting agenda ensure their time is utilized efficiently.
Duration of Fractional and Outsourced CFO Agreements:
Engaging fractional CFO services is an ongoing commitment, typically lasting at least six months. The complex tasks they handle require time to accomplish and are more effective when approached continuously. While some startups may opt for a shorter engagement initially, most find value in a one—to two-year commitment to enact substantial changes within their business.
In today’s dynamic business environment, understanding the nuances of CFO services and their costs is essential for organizations to make strategic choices that align with their financial objectives and long-term sustainability.
Key Takeaways
The article thoroughly explores how CFO services costs for startups vary based on factors such as full-time, part-time, or outsourced services, shedding light on the financial considerations entrepreneurs need to make in 2024.
The traditional full-time CFO services come with a hefty price tag, especially for late-stage companies preparing to go public. Salaries can reach $400,000, accompanied by bonuses and equity. In contrast, startups can benefit from significant cost savings by opting for part-time CFO services, which provide expertise at a fraction of the cost.
Frequently Asked Questions
Q: What factors influence CFO pricing for startups?
A: CFO pricing for startups can vary based on several factors, including the CFO’s level of experience and expertise, the specific services required, the duration and scope of the engagement, and whether the CFO is hired on a full-time, part-time, or fractional basis. Additionally, industry-specific needs and the complexity of the startup’s financial operations can affect the overall cost.
Q: Are there any hidden costs associated with CFO pricing for outsourced services?
A: When evaluating CFO pricing for outsourced services, it’s important to consider potential additional costs beyond the base fees. These can include setup fees, software subscriptions, and charges for additional services such as financial analysis, fundraising support, or compliance tasks.
Discussing all potential costs upfront with the service provider is crucial to ensuring transparency and avoiding unexpected expenses.