When to Hire a Fractional CFO For a SaaS Startups

Early phase SaaS startups face a number of decisions in their drive for growth and profitability. One of the biggest decisions relates to executive hiring. No matter how young the start-up, you need a Chief Financial Officer (CFO). CFOs are key players in the success of a business, overseeing day-to-day financial matters as well as taking on the long-term assessment of key performance indicators and planning related to growth. But companies with less than $5 million in annual revenue often don’t need a full-time CFO. Their CFO needs are limited to signing off on cheques or preparing for a funding round, after which the CFO needs will decrease. Given the limited duties and that a base salary can start at $200,000, hiring a full-time CFO is burning money that could be better spent elsewhere.

It’s because of this that many SaaS startups are turning to fractional CFOs. Fractional CFOs are outsourced, part-time CFOs, whether individuals or firms. They are hired only for the number of hours required to carry out these early phase CFO duties, which may be as little as 10 hours a week or even a month. This helps to cut down on costs, while laying the groundwork for growth until you need to hire a full-time CFO. A fractional CFO obviously helps you to save money. But who should hire a fractional CFO and what benefits will they bring, aside from costs?

Who Should Consider a Fractional CFO and When Should They Hire One?

• Startups in the seed funding stage
• Startups going through Series A, B, or C funding rounds

At the Seed and Series A to C fundraising rounds, a fractional CFO is ideal for SaaS startups. At these early phases, the CFO’s job will be limited and hiring a fractional CFO allows you to bring someone on with the expertise to do the job, while avoiding paying them a full-time salary that is unnecessary. The cost- and time-savings can then be better allocated towards other strategic and growth areas. That said, as you progress in funding rounds and your company grows, interactions with your CFO become more regular. As a result, at the D series or higher you will generally need to hire a full-time CFO.

To successfully carry out fundraising rounds, you need to have all of your financials and projections in place. The CFO’s duties include creating a financial plan based on modelling and tracking key performance indicators, as well as building relationships with potential investors. If you’re going to hire a fractional CFO, you should hire them at least three months before a fundraising round. This will give them time to have everything in place so that you can meet your fundraising goals.

4 Benefits of Hiring a Fractional CFO

1. Cost Saving

The biggest reason start-ups fail is that they run out of cash. Hiring a fractional CFO is an obvious cost-saver. You’re paying for the hours you need, rather than paying a costly full-time salary. But beyond this, a fractional CFO also helps to save you the costs of an intensive job search. Instead of looking for a single person with vast expertise in numerous roles, which involves a recruitment firm and a lengthy search process, you can bring in a firm or individual with an established record in the early phases that you are in. Likewise, you have the flexibility to increase or decrease the hours you are paying for as your business needs change.

2. Experience

Of course, while you want to avoid unnecessary costs, you also want to have the best, most experienced support possible. Fractional CFOs, particularly when the role is filled by firms, provide you with precisely this sort of support and experience. They have entire teams behind them, with expertise in different areas, including accounting, bookkeeping, and taxes. These are often areas that a single individual, even while working full-time, doesn’t have covered. 

3. Flexibility

Because firms have full-time teams, when you contract out fractional CFO duties, their teams have the flexibility to ramp up or ramp down work in specific areas according to your needs. Basically, you have a team of experts read to meet your needs, based on the required hours, as they arise.

4. Outside Perspective

At the same time, when you hire an experienced fractional CFO, you’re getting someone with a record of helping startups in diverse fields, which can bring different perspectives and new connections to your company. In terms of different perspectives, a fractional CFO brings best practices and diverse-market knowledge to the table, which leads to a solid business model. In terms of connections, it’s often said that tech success is based as much on who you know as what you know. Fractional CFOs can open your company up to new business connections and investors. Moreover, if your fractional CFO has these types of connections and a successful record, it brings greater credibility to your company.

NOVAA: A Full Suite CFO That Is an Extension of Your Team

Given the importance of a CFO, the idea of hiring a fractional CFO may give you pause, as you worry about how much value they are going to bring as an outside consultant who isn’t invested in your company beyond the part-time work they do for you. Likewise, fractional CFO services often focus only on CFO responsibilities and rely on other companies for basic tasks like bookkeeping or tax services. As a result, in addition to the CFO’s part-time salary, you’re also paying for outside services.

At NOVAA, we view ourselves as an extension of your team, not as an external consultant. This means always making time for you and being fully invested in helping you to achieve your business goals. We embrace technology and build skills that best fit your evolving needs and provide full suite support backed by an experienced team of professionals with expertise across the CFO spectrum of needs.

Technology Forward

Our full suite approach begins with a technology forward perspective. We use Fathom’s cutting edge financial reporting tools to fully integrate all of your technology systems. The purpose in doing so is to allow your different software solutions, from billing to accounting to payroll and beyond, to talk to each other and harmonize operations. Because every business’s goals are different, we then customize your dashboards and analytics reports to match your business objectives. One of the great things about Fathom is that, in addition to integrating with virtually any software platform, it’s analytics come in easy to digest graphic representations that better allow you to see how your company is performing.

Experienced Professionals

Additionally, we have a full suite team of experienced professionals to cover all your areas of need. This solves major problems that can arise with a standard fractional CFO. To begin with, contracting out services that are below the CFO’s job description puts data into other people’s hands. We want to control data so that we have the most accurate data possible to measure key performance indicators. For these purposes, we have a team of professionals and strategic partners that cover the full spectrum of financial tasks, including accounting and bookkeeping. Historically, CFOs have limited knowledge in tax and tax planning, which results in them having to hire tax people to complete important tasks. Taxes are one of our specialities, which means that the task remains in our experienced hands without additional costs.

Working With NOVAA

CFOs are integral to the success of any business. SaaS startups need a CFO to help manage day-to-day operations and provide expertise for fundraising, but a full-time CFO isn’t always necessary. For Seed and Series A-C level SaaS startups, a fractional CFO can help to keep costs down, while still providing levels of expertise that a full-time CFO doesn’t have. NOVAA offers full-suite fractional CFO services that operate as an extension of your team and provide the expertise and support that you need to grow your business. For more information on our CFO services, don’t hesitate to contact us.