Part Two of Three Parts: When to Hire a Fractional (Part-Time) CFO
In the second of a three-part series on hiring a fractional (part-time) CFO, Florida CFO Group partners Betsy Bennett, Mark Brown, and Jim Dietz discuss why to hire a part-time CFO and the differences between interim, full-time, controllers, and part-time CFOs.
What's the difference between a full-time and a part-time CFO?
Betsy: As part-time or fractional CFOs, we work ourselves out of a job, don't we Mark?
Mark: My objective is to stop being needed; to work with my clients so they grow to the point where they really need the full-time solution. I try to stay ahead of the client so I'm decreasing my time before the client asks.
Betsy: I had a client that I started on a very routine basis and then as we grew and we filled out the internal team, I kept going less and less. Finally, they kept me involved in quarterly executive management meetings so that I could stay up to speed on where they were going strategically. I had a gap of three years with this client before they needed me to help them with a transaction. But then I was able to get up to speed very quickly to assist with that transaction.
Jim: That's really the best... When I think about a client, it's a client that wants somebody to truly understand what their needs are and who can help them now and then over a period of years – from start-up to exit. If exit planning becomes relevant -- a lot of times an entrepreneur isn't thinking about an exit process and it needs to be suggested to them -- especially if they're of a certain age and they don't have a clear exit strategy. We can then lead the preparations.
Mark: We essentially become a free insurance policy. Even when I'm working with a client a day a week, I'll take their phone calls and emails during off hours, so they really have all the resources as a full-time person from that perspective.
Betsy: And that's the way I like it. I just had lunch last Friday with a client, where we sold their business in 2009 and now he's looking at another business.
What is that the principal difference between a controller and a CFO?
Betsy: I view a controller as being the recorder of what has happened. They have all the internal controls around finance and accounting. The CFO takes that historical information and moves it forward strategically to show the potential future of the business.
Mark: The controller tends to focus on "what happened" questions and the CFO focuses on the "why it will happen" questions and what to do about it.
Jim: That's exactly right. And we often step into roles where an accounting manager or controller has been asked to assume the role of chief financial officer because they are the most senior financial person in the company at the time. And that can take a very, very good accounting manager or controller out of their depth and cause them to falter.
The best solution is to return that person to their expertise and bring in a part-time CFO who can interpret those financial reports that had been so well prepared by the controller or accounting manager. To sit with the owner, thoroughly understand what the goals of the business are, understand where the business is, and help him or her decide how to achieve their vision.
Why hire a part-time CFO instead of full-time?
Mark: We can be more direct and less concerned with the politics of the business because we're part-time and we expect the engagement to eventually end without having any real financial impact on ourselves. We're able to tell the client what they don't want to necessarily hear. Or if the right decision is to sell the company or to do something similar, we're not worried about our job security. We're able to make those decisions without there being a conflict between what's in the best interest of the company and the entrepreneur and what's in our best interest.
Jim: The cost of CFO compensation is really important because I've had a couple of clients that thought they needed a CFO and asked me to walk them through the process. I made sure they understood what an experienced CFO does to see if that's what they're really looking for. Once we determined that they needed the skill set, we discussed their budget and the compensation level of those deeply experienced CFOs that were going to be able to give them the leadership they needed. Very often the full-time solution does not line up with the budget. But by engaging the part-time CFO role with that highly experienced person that's strategically oriented, they're able to have that expertise in terms of the quantity they need and also in terms of the dollar budget that they can afford.
Mark: The approach we take as a part time or fractional CFO is completely different than hiring a full-time person. Typically, if you hire a senior executive, they'll spend the first two months getting to know the business. And then they're slowly starting to make changes. Well, two months is about 40 work days and if you're doing a day a week, that's almost a year before you make any changes. When we come in we're having to be productive and adding value right away. In the first month, I typically have solutions underway to address specific problems and/or made substantial changes to processes and procedures. It's a different approach: go in and figure out what the problems are and then fix them. Not sitting back and just studying them.
Betsy: That's a really good point. In our group we're all truly seasoned CFOs. We also have entrepreneurial sides to us that drew us into doing the part-time CFO work for entrepreneurs. We find many folks in the market who call themselves CFOs that we view more as controllers. They don't bring the vision or a global perspective that we require of our partners. If a company's in the market for a part-time CFO, they need to make sure that they truly have a CFO and not more of a historically focused individual who doesn't have the experience to lead. I've been engaged by clients who've had a CFO who wasn't up to the task. Particularly in growing entrepreneurial companies, sometimes they'll elevate title because they can't elevate compensation as quickly.
Is an "interim CFO" and "part-time CFO" the same thing?
Betsy: To me, interim means you're filling a gap and the gap is usually that the incumbent has left and the company is starting a search, which usually takes three or four months.
True interim assignments tend to be in larger companies. We've got a partner right now that's in a true interim assignment with a public company engaged in a search for a successor CFO. So, you know how to fill the seat, it's a full-time seat typically. And you'll be there probably three or four months, maybe six months.
Mark: I did a two-year interim assignment. It was a situation where a board member brought me in. The CFO had resigned and I had to do a turnaround that the CEO didn't know was needed, as well as hiring my replacement. So, they can go longer depending upon the situation.
The difference between interim, long-term and fractional/part-time are the mindsets. They're not necessarily one or the other. I have had interim part-time assignments, interim full-time assignments. I've had long-term part-time and long-term full-time.
Being interim just means you're coming in with the expectation that you're going to be getting a replacement. It's not intended to be long-term. The part-time or fractional just means you're not on the payroll full-time. It's less than full-time. So, you're usually leveraging multiple clients at the same time.
Jim: I think part-time or fractional is more of a long-term engagement. Although, it can be a shorter term if the company's growing very quickly. And then it's certainly possible for the part-time CFO to be asked to become the interim CFO and that interim role can last longer. It really depends on the situation and the fit for us. With some clients it would not be the best use of my time to be their full-time CFO. The complexity and sophistication of the business does not require me full-time. But it makes a lot of sense for me to be their part-time CFO.
Interim assignments tend to be of relatively short duration in stable companies. I've been called in to be an interim CFO with the expectation that it was to be very short-term until I could hire someone. However, once in, I found so many issues that I went from part-time to full-time interim. It ended up that from the day I came in until the day we sold to a public company was about 15 months.
In the third and final part of a three-part series on hiring a fractional (part-time) CFO, Florida CFO Group partners Betsy Bennett, Mark Brown, and Jim Dietz will discuss how to know you need a part-time CFO and the important considerations in hiring one.
About the Florida CFO Group
Founded in 2010 the Florida CFO Group provides CFO services and support in raising growth capital, mergers and acquisitions, recapitalization, or structuring to meet ongoing opportunities to Florida's growth companies. The Florida CFO Group's partners have been providing CFO services on a fractional share (part-time) or interim basis over the past decade and specialize in cost-effective financial reporting, budgeting, forecasting, controls and financial management. Each embodies a wealth of financial skills as well as experience in servicing clients in a consultative CFO manner across markets including agriculture, construction and development, government contracting, healthcare, manufacturing, not-for-profit, private equity, real estate, technology, and wholesale and distribution.