How to Select a High-Impact Fractional CFO
Identifying and screening executive candidates for part-time, high-impact roles — like that of an interim and “fractional” CFO — can be incredibly challenging and immensely rewarding for companies and candidates alike. These roles are gaining visibility and traction in the gig economy. They often serve an essential need in a company’s lifecycle, particularly for startups and high-growth companies that are not yet mature enough for a vast full-time c-suite bench.
The term “fractional CFO” typically refers to a part-time financial executive serving on an as-needed basis as a W-2 employee or 1099 consultant. She can be recruited for short-term assignments or be a permanent feature of a startup governance structure.
I have been a CFO for high-growth companies for six years, and many of my assignments are fractional. Regardless of the initially contemplated longevity, I witnessed many CFO hiring decisions after one 30-minute conversion. I observed the assessment of the executive’s availability, technical skills, and alignment of the management style is missing during the interview process. Below I discuss these missing elements and suggest strategies to flesh out the compatibility.
Availability / bandwidth
Evaluating a candidate’s availability for the role is critical, which requires the hiring manager to match the company’s needs to the CFO’s bandwidth. CFO candidates expect to juggle multiple clients simultaneously and understand how their availability ebbs and flows over time. In my experience, the CFOs appreciate transparency if you may require their full attention temporarily.
For example, when a client is fundraising or preparing quarterly/annual filings, I prioritize these activities and that specific client over other projects because these deliverables are too important not to get right. However, I make it my point to manage this temporary bandwidth limitation via a direct conversation with the client’s CEO. And I commit to picking up the slack on daily operating items when the crisis ends.
I learned the hard way that I should limit the number of clients I work with for my sanity and the client’s benefit. I also learned to appreciate when my clients proactively screen for bandwidth during interviews to avoid friction down the road. And I advise the hiring CEOs to do so consistently.
Here are a few questions that may prompt the fractional CFO candidate to reveal their spare capacity:
- What are you working on these days?
- Tell me about your workload right now. How many clients do you work with consistently?
- What are your day-to-day tasks or activities?
- Do you anticipate any short- or medium-term changes to your workload?
- Are there any fundraising, IPO or M&A you help run for your clients?
- How would you manage your other clients if we need you to take on fundraising/IPO/M&A?
Required technical skills
The fractional CFO skill set should be diverse in general. This list is not necessarily comprehensive but could be a good starting point. CFOs typically take charge of financial controls, financial planning & analysis (FP&A), accounts payable/receivable, reporting (internal and GAAP), fundraising/capital formation, treasury, tax compliance, and risk management.
The CFO’s softness in any competency essential for the client is a recipe for frustration for all involved. For example, three years ago, I worked with a private biotech that ran multiple clinical trials and needed a robust FP&A/budgeting/modeling CFO to allocate cash to the clinical programs strategically. The previous finance lead was a solid financial reporting professional who struggled with modeling. It was an apparent mismatch between the company’s needs and the CFO’s skill set, and the company ended up looking for another fractional CFO to address the need.
The hiring CEO should clearly define their asks around CFO’s technical skills and drive the interview to test those capabilities. If we continue with the FP&A example above, here are some questions to test the incoming CFO FP&A skill set:
- Please walk me through your modeling of the clinical trial.
- The company has the funding for three clinical-stage products, but we are pursuing five trials simultaneously. Please walk me through how you would allocate resources to the clinical portfolio. Describe your process.
- How do you present forward-looking financial information to the board of directors? What KPIs would you emphasize?
- How do you model toxicity-related clinical hold?
- What sensitivity analyses would you model for the decision-making process?
Alignment of the management style
Alignment of personalities or management styles should be one of many factors in hiring a fractional CFO. Still, the candidate must have a positive rapport with the hiring team. Because the fractional CFO selection is often quick, the hiring CEO can use “being on the same wavelength” as a proxy for future communication and the finance lead’s overall effectiveness.
I learned to appreciate that maintaining open communication is critical to successful engagement. The client must feel comfortable sharing the feedback with me, and I should take it constructively. The reverse is also true: When the company hires a senior executive and a leader, it should be open to the CFO’s ideas, concerns, and feedback. The two-way communication will contribute to transparency and the effectiveness of the CFO’s contribution.
A strong rapport lets me play to my strengths, interests, and motivations. These elements empower me to perform at my best, yielding the most favorable outcome for the hiring company.
Lastly, the management style alignment can facilitate the resolution of conflicts and challenges that are inevitable in any working relationship. If the CEO and I approach conflicts constructively, empathize with each other’s perspectives and commit to seeking mutually beneficial solutions, we can work collaboratively to resolve issues.
Questions to probe during the interview:
- Give me an example of how you handled a conflict with a colleague, peer, and senior.
- Tell me about an instance where you had to tell the CEO he was about to make a mistake.
- What are your 2–3 strengths, and how do you like to play them?
- What are your weaknesses? (Leave it open-ended; I will want to hear if the candidate goes to address how s/he compensates for weaknesses.)
- What leadership style do you practice? What leadership style do you respond to best?
- How do you define a “positive work environment”?
Alignment over the long term
I credit this observation to @markmanson. “One of the simplest mindset shifts you can make to find greater success is simply to extend your time horizon. Measure your major decisions not in months or years but decades.”
This observation is highly applicable to fractional CFO recruiting. A hiring CEO must assess the three elements we discussed above — availability, technical skills, and personal rapport — over quarters and years (not over a few weeks to solve a critical pain point within the organization right now). If the candidate passes the muster on those criteria, then there is a reasonable likelihood that the fractional CFO may be a “marriage material.” Jokes aside, if your organization’s growth requires consistent lender relations, investor reporting, IPO, or M&A, the part-time commitment from the finance chief will need to evolve into a full-time job. Why wouldn’t you want to convert to full-time someone who has proven he can support the company through this evolution?
It is excellent if the CEO senses she can work with the CFO over a long-term horizon. You also have to assess whether the CFO candidate shares the sentiment. Good questions to ask to flesh some of these elements out:
- What are your long-term career plans?
- What is your vision for you personally 18–24 months from today?
- What do you find attractive about our company to make you slow down and consider this a long-term engagement?
- What values are you observing within our organization that fit very well within your personal value framework?
In summary, fractional CFOs are popular with growing companies and can enjoy many benefits of mature finance leadership in the short term. However, the value of a great finance lead needs to be assessed over the long term. Like with a full-time talent, the fractional CFO is more valuable to the organization if he/she brings to the team longevity and continuity in addition to technical skills.
Aleksey Krylov is a seasoned Chief Financial Officer. He works with life sciences and medical technology companies on fundraising, business development and M&A.
