Fulltime hiring is expensive, especially if that person is a CFO or VP of Finance. Fortunately, the “Fractional CFO” business is booming allowing companies of all sizes, sectors, and stages to leverage the broad skill set of a CFO without taking on the burden of his or her salary.
What is a Fractional CFO?
The term Fractional CFO is not new nor is it a new business model, however, it is becoming more prevalent in our current economy for many reasons. In its simplest terms, a Fractional CFO is a consultant hired by a company for some duration of time. This duration may or may not be known. The employment may be fulltime or parttime. Compensation can be paid by the hour or be based on a retainer. However, previously this work always to place at the company’s office, but today this work is increasingly being performed remotely.
Why is the business booming?
Companies of all sizes are now using this model, from the Fortune 500 to startups which is driving demand and awareness for this type of work arrangement. Several other noted “reasons” include:
- A glut of supply was created during and post the Great Recession
- Online platforms have made it easier to find consulting work
- These same online platforms have significantly lowered the transaction costs for all parties involved
- Companies are beginning to understand the value long-term strategic planning brings a company over the…long term
- Fulltime hiring is both very expensive and very risky and more often than not the risk outweighs return on investment of the hire
- Working remotely is clearly shifting towards the rule rather than the exception thanks in large part to effective collaboration tools
- Companies are able to hire specialists needed to get specific tasks or projects completed whereas a full-time hire would need to be more of a generalist
Another trend we now see is companies leveraging the Fractional CFO dynamic as a contract-to-hire type of working interview. This I believe is immensely valuable to companies looking to make any finance hire, especially at the CFO level.
Consider you have 2 options when trying to make a decision about who to hire:
Option 1 You sit in a conference asking the candidate banal behavioral questions over a series of several interview rounds that take place over several weeks
Option 2 You test drive the candidate through this contract-to-hire engagement and get actual value-add work done while also observing their work product, attitude, interpersonal skills, etc.
Clearly, Option 2 is the better choice, especially when you consider Option 2 is likely to take place over a far shorter time span and cost significantly less than traditional hiring. This is because fewer company resources have been consumed (think of the total cumulative time of all the people involved in the hiring process). Additionally, there is no recruiter fee involved in the process which can easily be 25% – 30% of the first year’s salary.
“Beyond their impact on individuals and the broader economy, talent platforms can help companies transform the way they hire, train, and manage their employees.
The early adopters are discovering that betterinformed decisions about human capital produce better business results.
*McKinsey Global Institute “A Labor Market that Works”
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Article written by Adam Jernigan 8.20.16