Bringing in a fractional CFO for your business is a smart move! But before you jump in, it is important to understand how you may go about paying them. With such a flexible position, it is not “one size fits all.” Different pay structures work for different circumstances.
The following are various plans that are commonly utilized:
1. Hourly Rate
With this structure, you’ll pay the fractional CFO based on the number of hours they put in. You are billed for the time they spend working on your financial matters according to an agreed-upon rate charged per hour.
This is great when a similar amount of work needs to be done every month, as the number of hours is typically arranged ahead of time. After the onboarding process, which is always time intensive, the CFO should be able to give a good estimate of how many hours a week/month the work would require. For example, consulting work may only be 2-3 hours a month, while keeping track of a company’s finances would be far more.
2. Monthly Retainer
In our experience, this tends to be the most popular arrangement with fractional CFOs. With this setup, you agree to a fixed monthly fee for their services. If certain months are busier or slower, the pay remains the same regardless of how long the work takes.
As long as the general scope of work is understood, there are not many downsides. Do you need advice on a big financial decision? They’re there. Want them to crunch numbers for your quarterly reports? No problem. It’s a predictable cost that can give you peace of mind knowing they’re always just a call away.
3. Project-Based Fees
If there is a specific project that your team is not equipped to handle, or requires professional guidance, this may be a perfect option. Maybe you’re gearing up for a fundraising round or need help restructuring your finances.
In this case, you agree on a flat fee for the entire project. It’s a clear-cut arrangement with no surprises, perfect for when you know exactly what you need from them.
4. Percentage of Profits
This arrangement is a bit less common, but can still work for some. Instead of paying the fractional CFO an agreed-upon amount, you offer them a percentage of the extra profit your company makes after hiring them. It’s a way to align their interests with yours, making them truly invested in your success.
The benefit for them is that they could make more money than they would with any other pay structure, but only if you make more money. This can be a good foot in the door if you are hesitant about the idea of spending money on a fractional CFO. This guarantees that they don’t make money until you do, which could be a great incentive for them and less of a risk for you.
5. Hybrid Models
Sometimes, you might find a mix of these structures works best for your situation. We have seen many project-based fees turn into a monthly retainer after a client realized the usefulness of a fractional CFO. It’s all about finding what works best for both you and the fractional CFO.
At the end of the day, the right pay structure depends on your needs, budget, complexity, and the level of involvement you want from your fractional CFO. So, take some time to weigh your options and find the arrangement that makes the most sense for your business.
If you want to discuss your situation and options with us, please set up an introductory call with us today.
