Fractional CFO work hooked Sara Daw, co-founder of The CFO Centre, about 20 years ago after a string of corporate roles. “I needed to have a fulfilling career and bring up a family,” she says, and “I couldn’t do that in the [corporate world].” After starting as a part-time finance director (the Commonwealth countries’ term for a CFO), she shifted to providing her expertise to SMEs that didn’t need, didn’t want or couldn’t afford a CFO full-time. “I realized I could work with local SMEs and give them the skills to grow,” Daw says.
She now heads up an organization with 800 fractional CFOs across 18 countries, so she’s on the front lines of the trend toward CFOs opting out of traditional employment and working for a portfolio of growing businesses. In addition, Daw is the author of a recent book on how C-suite executives are becoming part of the “access economy”—the sharing of assets to optimize their use.
We interviewed Daw to discover what it takes to succeed as a fractional CFO and how large and small businesses can benefit from this alternative to a full-time finance lead.
What’s the profile of the typical CFO who becomes a fractional CFO?
Being a fractional CFO is for experienced CFOs who want more variety, flexibility and control over their lives. They want to move away from the corporate agenda, and they want to make an impact. The most significant piece is that as fractional CFOs, we are all intensely engaged in the organizations we work with. We actively choose to partner with them. Because we’re self-employed, we can choose who we work with and how.
Many fractional CFOs were CFOs coming toward the end of their career but not yet ready to retire. They didn’t want the next big job. Half of our fractional CFOs still fit that profile. However, it’s a viable career option much earlier for CFOs. They want a portfolio. They want variety. They don’t want every day to be the same.
Why the shift in the popularity of the fractional CFO career choice?
We’re past COVID, but some things have changed—in the ‘great resignation,’ many older workers left the workforce, and not all came back. COVID gave people a taste of work-life balance. Gallup polls show that only about 23 percent of our workforce is engaged; the rest are disengaged in some form. Those are indicators that the workforce, C-suite [executives] included, want more meaning at work…The risk of overwork and burnout is absolutely there at the C-suite level.
As a result, the fractional economy is growing rapidly. Over one-third of the U.S. workforce is in the fractional or freelance economy. By taking control of your life and your schedule, you can build flexibility, the one thing at the top of the list that everyone wants.
Individual CFOs are also attracted to working closer to the issues, closer to the decision-making in entrepreneurial organizations. The other benefit is the ability to stay in your swim lane. In a corporation, you tend to accumulate many different roles and may get further and further away from the parts of the CFO job that you’re good at and love. In the fractional world, you can be that specialist and do much more of that, more of the time, for more organizations.
Not all fractional CFO gigs are the same. What kind of engagements do The CFO Centre finance chiefs take on, for example?
There are two offerings. One offering is for entrepreneurial organizations. They could be pre-revenue, funded startups. That’s happening a lot now. Or they could be just regular trading businesses. But they’re entrepreneurial, and they’re growing. The fractional CFO comes in and may work a day a week, two days a week or two days a month for some engagements, depending on the size and complexity of the business.
The other offering is actually for mid to large corporates. Those organizations have group CFOs. Those group CFOs have a shopping list of duties and actions beyond their skill set or capacity. We become their fractional CFO team. They pull us in to do extra pieces of work, specialist pieces of work. We call it ‘the CFO’s CFO.’ The beauty of that model is that the fractional CFOs we bring in are non-threatening. They don’t want the [group CFO’s] job. We can empathize with [the group CFO] because we sat in that seat, so we know what’s happening and don’t need training and oversight. It’s a very flexible, dynamic solution that means no extra headcount, no fixed cost—it’s incredibly agile.
When an organization hires a fractional CFO for the first time, what questions do they have for you? Do they ever have any hesitations?
The main question we get is about the availability of the individual CFO. Entrepreneurs are always on, right? They want to feel like their CFO sits beside them the whole time. Good CFOs in the fractional world can create that feeling by being excellent communicators and responsive, quickly getting back to the CEO. It’s very possible for a fractional CFO to make the business owner or CEO feel like their business is the only one the CFO works with. The fractional CFO has to be good at soft skills—communication, listening and relationship-building.
The other [common question] from the entrepreneur is, ‘How will you do all the work in that amount of time?’ Entrepreneurs do not always understand what a CFO does. They muddle a CFO with an external accountant and a financial controller because we’re all accountants, and they don’t know enough to know the difference. We spend a lot of time educating them.
Can you tell us briefly about your book, “Strategy and Leadership As Service,” and your research in that area? How does it apply to the fractional CFO?
My most recent book concerns the research that I did talking to business owners and fractional CFOs about how the fractional model is part of the “access economy.”
Business owners and executives must work with these paid people and create an emotional connection. The problem we will have in the future is that more and more parts of the workforce are going freelance, including the fractional CFO. Executives will have to lead a blended workforce of stable employees supplemented by fractional C-suite freelancers and lower-skilled gig-economy workers. They are all valuable and vital to a business.
Linda Gratton, a professor of organizational behavior at London Business School, did a study on how this is happening in the tech world. The digital nomads have the cutting-edge skills that corporates need, but they don’t want to be employed by the corporates. These large businesses suddenly have to engage with the digital nomads to innovate. I think there’s a similar thing going on in the C-suite.
Businesses and their executives need to create an emotional connection with these people, and we’re not used to doing that. What I talk about in my book is how the fractional CFO and the client can develop ‘psychological ownership” [the feeling of ownership without legal ownership]. The fractional CFO can be made to feel like they’re part of the [client’s] organization, and the fractional CFO can behave in a way that makes the business owner feel like they’re more than just a contract worker.
How can a full-time CFO prepare to be a fractional CFO in terms of life change and work-life change?
I must stress that becoming a fractional CFO is a career change. Most CFOs come to us and think it’s the same as performing a full-time employed role. It’s different. They have to manage multiple relationships simultaneously, and some are entirely remote. They have to learn how to find, win and retain clients. When they begin, they need to consider it an investment of time and money. They need a financial runway because they’re moving to a self-employed role, and they probably won’t have businesses to work with from the get-go. It could take a year to assemble an entire portfolio, so they should allow themselves that financial runway.
I would also suggest they dabble before becoming a fractional CFO. You can’t think your way through this; you have to have a go at it. I would recommend picking maybe a tiny startup or a very small organization to give some advice to while still in your current role.
Then, I would encourage them to get their ‘nearest and dearest’ on board with the move. Six months in, you do not want someone close to you saying, “When are you going to get a proper job?” Fractional CFO is a proper job. It’s much more secure from an income perspective once you have your portfolio going because you have income streams from five or six businesses. All of those businesses are not going under in one day. You won’t suffer a corporate restructuring and suddenly be without a role. It’s an effective diversification model.
