Fractional accounting and fractional CFO have become something of a buzzword these days in business circles. Everyone seems to be discussing it around, yet many people do not know exactly what it entails.
Of course, that is not to say that the esteemed business community of the US does not know what it’s talking about, but rather that things have become too jargonized. Newcomers in the business world often find themselves lost in all the many acronyms and jargon casually uttered, and it can become truly impossible to navigate a conversation for many a new start-up.
So, today, our agenda is to formally introduce and explain exactly what fractional accounting is to any and all who wish to learn among our brethren in the business community. We will go over the basics of fractional accounting and why everyone is talking about it, and break down why it may or may not be in your best interest to leverage it.
To know more about the role of fractional CFO, read this guide.
Table of Contents
What is Fractional Accounting?
Defining fractional accounting is a bit complex, as it is a work model that operates in various ways. So, instead of making a one-size-fits-all definition, EA experts thought it best to present fractional accounting as third-party accounting services on an as-needed basis.
Basically, fractional accounting and bookkeeping services are provided by a third party, whether a freelancer, an outsourcing company, or a staff augmentation services firm. The “fractional” in fractional accounting implies that contractual accounting services are leveraged to handle short-term accounting needs without breaking the bank by hiring an in-house full-time accountant.
Fractional accountants and fractional CFOs are typically remote workers, working as per your needs and charging you by the hour or by the project.
Why is Everyone Talking About Fractional Accounting?
Fractional accounting has been making quite a buzz ever since the pandemic struck, and now that we have to some extent, overcome the challenges of those trying times, businesses have really warmed up to the idea of remote work.
As reported by SHRM, studies on remote work show that employees working remotely displayed a boost in productivity as high as 77%, with many reporting that meetings became far less stressful and the general quality of life at work improved dramatically once things went remote.
With this irrefutable evidence that remote work is not only just as good as regular in-house office work but actually far exceeds it in efficiency, many businesses have decided to place their faith in remote accounting professionals hired through outsourcing and staff augmentation firms. There are several reasons why these “fractional accountants” have begun to overtake in-house accountants in the eyes of business owners, so let’s go over why exactly everyone is making such a big fuss about fractional accounting and bookkeeping services.
As we mentioned before, why would you pay an accountant a full-time salary as a business owner when you only need a fraction of those services?
Bigger corporations are the ones who need the rooms full of accounting professionals managing everything, but for the vast majority of small businesses in the US they simply do not have the workload to justify hiring a dedicated in-house accounting professional.
This is precisely why when Forbes asked the question, the answer we got was that over 75% of US businesses do not have any employees. These businesses are entirely self-run, and what external additional help they need is contracted. With fractional accounting, these businesses can leverage high-level accounting proficiency when required, such as during an audit or tax season.
On top of that, even major corporations are shifting to hiring entirely outsourced accounting functions, with teams of fractional accountants scaling up and downsizing as the workload ebbs and flows. Fractional accounting makes it so you pay for exactly the services you get. There is no extra benefits package and fixed salary to worry about, and the saved money can be reinvested into the business for more growth.
So, for example, maybe your business only needs an accountant’s help when it’s time for taxes or before a major shareholder meeting. You can simply contract a fractional accounting professional through a service provider or over freelance marketplaces like Upwork and get a Fractional CFO on your case for as long as you need.
Speaking of small businesses hiring expert accounting professionals, that’s another major reason why everyone has been hopping on the fractional accounting bandwagon. For a long time, small businesses simply could not spare the cash to on-board a professional accountant, which became the most prevalent cause of business failure in the last decade. Due to inefficient financial management, thousands of businesses had to close their doors because of poor cash flow.
All those businesses could have been saved had they just had the means to get the financial professional help to set things straight. Unfortunately, the salary demands of in-house accountants have only continued to rise over the years. With how important the role is, businesses are forced to pay whatever price the market sets because the alternative is risking closure. Not to vilify any in-house accountants, mind you; they too are forced to raise their demands because of the unstable economy and financial turmoil. With prices across the country soaring, what can one do but ask for what they need to keep up with rising inflation?
Regardless, the fact of the matter is that small businesses simply could not access expert accounting professionals in the past. With fractional accounting, however, those gates have been thrown wide open. The global remote talent pool is ripe and ready to work, and small businesses can now easily leverage fractional accounting and bookkeeping services to help keep their business going while their wallets remain relatively intact.
Are Fractional Accounting and Bookkeeping Services Right for Your Business?
This is a question that only you can answer. You know your business best and know what your accounting needs are. Chances are that fractional accounting and bookkeeping services are indeed the right choice for you, given that many businesses do not have the requisite workload for a full-time accountant. But instead of leaving you with a half-baked answer, you can check out our detailed comparison between full-time and fractional accounting yourself here and make an informed decision.
With that, we have covered the salient points regarding fractional accounting and bookkeeping, and this blog should suffice to educate our up-and-coming generation of businessmen and businesswomen on this highly complex jargon of the industry. As always, if there are still questions unanswered, we will appreciate any and all feedback and address them in a later publication, so stay tuned!