What a fractional CFO brings to SMEs – and how a technology partner supports them

The fractional finance director or interim CFO gives SMEs access to expertise that they may not otherwise have been able to afford. But with the promise of expertise comes high expectations.

In this explainer, we look at the emergence of fractional roles, what value they can bring to ambitious businesses, and what the right technology partner can do to support both the finance leader and their customers.

The rise of the fractional C-suite executive

What we’re seeing a lot more is [..] that the senior leaders are leaning on bringing in fractional executives, be that a CFO, CMO, CTO or CIO, to support them in that area of strategic thinking.

— Dominic Ball, Managing Director, Thinc

It’s a scene we’ve all seen in the movies and TV. A glass-panelled boardroom, on the hundredth floor of a city skyscraper, with an endless oak table lined by seasoned executives. While the reality isn’t always as dramatic, it’s nonetheless fair to say that the biggest enterprises are well-stocked when it comes to the C-suite.

For organisations that are earlier in their growth journey, the scene is very different. Far from having a deep bench of industry leaders, there’s more likely to be a blend of experience and youthful energy. There’s deep expertise in the core business of the organisation, but possibly gaps in strategic knowhow. Very probably, the owner or MD, driver of the organisation’s vision, is still entrenched in the day to day, especially if growth is accelerating.

Whether it’s through choice or necessity, for SMEs, a full roster of chief officers is unlikely. But that’s not to say that experience is beyond reach. Increasingly, small and midsize organisations are making interim and fractional executive appointments to bring in strategic perspectives without the six-figure outlay.

“At Thinc, we work with very ambitious SMEs and by their very nature it means that we’re working with very exciting brands led by business leaders who are very passionate about their organisation. Invariably it’s a fast-growth organisation,” says Dominic Ball, Managing Director of Thinc.

“Ultimately, that means that business leaders and their senior management teams are balancing working on the business as well as working inside the business. More often than not, they get dragged into the weeds, which negates their ability to think strategically about the future direction of their organisation.

“What we’re seeing a lot more is, in those kind of scenarios, that the senior leaders are leaning on bringing in fractional executives, be that a CFO, CMO, CTO or CIO, to support them in that area of strategic thinking.”

The role of interim CFOs and fractional FDs

There have been times when I’ve done a day a week for a period of time and said, ‘I think we’ve got you in decent order, I can probably just drop back to two days a month now’.

— Andy Mellor, Fractional CFO

As a specialist in SME-friendly finance software, including the best-in-class accounting solution Sage Intacct, as well as the ERP systems Sage 200 and SAP Business One, we work closely with hundreds of finance teams. We’ve seen at close quarters how big an impact these teams have when their role grows beyond handling transactions to informing organisational strategy.

However, not every organisation is capable of doing this right away. “SMEs don’t actually need a full-time resource of senior-executive level skill when they first get going – and obviously a lot can’t afford it,” explains Sara Daw, co-founder of the CFO Centre, a service connecting organisations to interim finance leaders in the UK, in an interview with AccountingWeb.

That’s where fractional CFOs and FDs come in. Rather than the heavy outlay on a new leader hire, or waiting for the long-term investment in the development of the existing team to bear fruit, this type of appointment brings that strategic perspective quickly without the employment costs.

“These CFOs aren’t employed. They serve the clients as if they’re the CFO and a member of their teams, yet they do it in a B2B service contract way,” says Daw.

One fractional CFO we’ve worked with at Thinc is Andy Mellor. In another interview with AccountingWeb, he explained how the engagement can sometimes be flexed so that SMEs get more of his time in the early stages, paring it back later when the team is ready to take the reins.

“There have been times when I’ve done a day a week for a period of time and said, ‘I think we’ve got you in decent order, I can probably just drop back to two days a month now’,” he says. “For example, they’ve got a finance manager and they’re running things on a day-to-day basis.”

What value do fractional finance directors bring to SMEs?

For a growing SME, it may be the first time that they’ve experienced some of the scenarios they’re facing […] Bringing in a fractional C-suite executive who’s seen it before helps them to actually bridge that capability gap.

— Dominic Ball, Managing Director, Thinc

There’s no set type of organisation that will benefit from an interim finance director or CFO. However, there are some common scenarios. According to Ball, one typical situation is where a small or midsize enterprise is looking for investment and needs a C-suite perspective on how they can best prepare. Other cases include pivoting into new focus areas or service lines, and “being stuck in a rut”, for example when navigating data overload.

Another big advantage that fractional FDs and CFOs can bring is an unbiased – and often unfiltered – view of where the organisation stands.

“Senior leaders and their management team typically develop emotional baggage as they work within the organisation. They develop an unconscious bias and so their decision makers sometimes can become quite clouded,” notes Ball.

“What we see is that fractional C-suite executives come in much more ruthlessly. They can cut through what’s noise versus what is important. They’ve got the battle scars – they’ve been there, seen it, done it.

“This means that the decision making can become much quicker and there’s much more clarity around what’s important to an organisation.”

Crucially for Ball, when CEOs, MDs or business owners bring in this type of expertise, it’s not an indictment of the current management team. Rather, it’s about augmenting and developing capabilities with that external experience and wisdom.

“What I’ve seen, most importantly, is that most business leaders believe in their management team,” he says. “But for a growing SME, it may be the first time that they’ve experienced some of the scenarios they’re facing. Sometimes they don’t know what good looks like. Bringing in a fractional C-suite executive who’s seen it before helps them to actually bridge that capability gap.”

How the right IT partner supports fractional finance leads

If you’re not the one in the finance department at six o’clock on a Friday evening trying to get payments out, you won’t understand the real-world pressures. That’s why listening is critical. When you talk to Thinc, they hear you.

— Richard Hubbard, Fractional FD

If an organisation decides to work with a fractional CFO or FD, then their expectations will understandably be high. Typically, a finance leader of this nature is going to get under the bonnet of the organisation’s systems and ways of working, and will likely make recommendations on ways to streamline things and save money.

One possible scenario is that the organisation may need to move from a system that they’ve outgrown – such as Sage 50, Xero or QuickBooks – or which is too big for them – such as Oracle NetSuite or Acumatica. They may even be on the right system but not be getting full value, due to poor implementation or not having the right partner.

Ultimately, whichever recommendations the interim leader suggests, they’re staking their reputation on it. That’s why they take decisions on software and vendors with the greatest of care.

“The organisations’ teams are often nervous because, for most people, this is a once-in-a-career project. I’ve been through these transitions many times, and now my role is to guide organisations in and then step back,” explains Richard Hubbard, a fractional FD with whom Thinc has engaged on many Sage Intacct projects.

For Hubbard, the reason why he will often recommend Thinc to his customers is because the services go beyond software expertise – there’s also an open, collaborative approach that ensures Thinc meets organisations’ needs head on.

“Ultimately, it comes down to interpersonal relationships. The key difference between Thinc and other providers I’ve worked with is that Thinc listens. Too often, other providers tell clients what they need. When that happens, especially with highly technical teams, projects tend to fail,” he says.

“If you’re not the one in the finance department at six o’clock on a Friday evening trying to get payments out, you won’t understand the real-world pressures. That’s why listening is critical. When you talk to Thinc, they hear you.”

How Thinc can support fractional finance leaders and their clients

Working with interim finance leaders like Richard, plus established finance teams at hundreds of SMEs in the UK and Canada, gives us a keen understanding of the strategic importance of the right business systems. We help finance leaders make decisions on the ideal software for their needs, driven by our independent view of SME technology, three decades of experience in leading business applications and our proven Amplify approach to digital transformation.

If you’re working as a fractional finance leader, or are based at a growing business looking to unlock its people’s potential, we’re here to help.