Why Every Entrepreneur Needs a Part-Time CFO

Megan - 00:00:25: Today, my guest is Sara Daw. Sara is listed in the 2024 E2E Female 100. Sara is passionate about designing the future of work for C-level talent and organizations. She has helped thousands worldwide build successful team-based portfolio careers in the disruptive access economy for fractional C-suite professionals. Sara is co-founder and group CEO of the CFO Center and the Liberti Group. Operating in 17 countries, it is the global number one provider of part-time and fractional C-suite professionals to entrepreneurial, owner-managed, mid-tier businesses and larger organizations. As well as publishing the first research on the access economy for C-suite talent, Sara's latest book, published by Routledge, made the Amazon Kindle bestsellers list in HR and personnel management. Strategy and leadership as service isn't just a nice idea. It is a practical alternative vision of the future of work for senior executives that is gaining significant interest and is being adopted by businesses globally. Sara research focuses on what holds relationships together in the C-suite access economy for the long term in the absence of traditional employment contracts. Sara is a graduate in chemistry from Oxford University, a chartered accountant, holds an MBA from the London Business School, and a master's specialization in consulting and coaching for change. Run jointly by Oxford University Saïd Business School and HEC Paris School of Management. Sara, thank you very much for being my guest on today's episode of CFO Weekly.

Sara - 00:02:33: Thanks very much for having me. It's great to be here.

Megan - 00:02:35: Yeah, today we're going to be talking about the fractional CFO and their key role in the growth of modern entrepreneurial businesses. And Sara, as I mentioned, I'm really looking forward to learning about you and your experiences and more on this topic, which seems to be very hot as of these days. So let's jump right in.

Sara - 00:02:53: Okay, let's get started.

Megan - 00:02:55: First, and just that we have some idea about who you are, can you just give us a little bit about your background and your career to date?

Sara - 00:03:03: Yes, absolutely. So I am a chartered accountant qualified quite a long time ago now with Deloitte and I'm an MBA as well. And how I got into fractional CFO work was I was coming out of my MBA. And interestingly, the people that wanted to take me on at that point and hire me with the investment banks. I'm a CA with an MBA. Perfect. Yet I didn't want to go back into corporate work. And I was married at that point. I had designs on building and growing a family. And I just couldn't work out how I was going to have a fulfilling corporate role and career and be mum. Bearing in mind, this is a long time ago. This is early 2000s. And interestingly, I bumped into someone when I was traveling with my daughter, my youngest daughter at the time. And we were on a flight and I was the mum with a screaming baby. And this lady kindly got up and asked me to sit next to her and help me with my daughter. But she was a portfolio non-exec and that opened my eyes to portfolio. And so I thought I could be a portfolio CFO. So that's how I came through necessity, really, to find a career that could work for me and be flexible. And I set myself up as, in those days, in the UK, it was called a part-time FD. It's now more commonly called a fractional CFO, but it's the same thing. And I thought I could work with SMEs who didn't need a full-time, didn't need, didn't want, couldn't afford a full-time CFO, but needed the skills to scale. So that's what I thought I could do. And I could work locally and be mum some of the week and be a fractional CFO some of the week. So that's how I got into it. And I teamed up with Colin Mills, who had started the FD Centre many, a few years earlier to me, same reason, seeking freedom from corporate life. And I joined up with him and off we went.

Megan - 00:04:59: And today you've co-founded and you lead the CFO Center and the Liberti Group. Can you talk to us a little bit about what these do?

Sara - 00:05:08: Yeah. So the CFO Center is a fractional CFO business. It's global. It operates now across 17 countries. So I went all the way from starting out as a fractional CFO all those years ago and working with Colin and other CFOs that gravitated towards us at that stage into building that global business. We have 800 CFOs globally in our team and we work with entrepreneurial growing businesses across all those countries that are looking for the skills to scale in the CFO space but don't want, don't need it and can't afford it full time. And actually larger organizations as well who recognize that they need to bring in fractional skill sets in specialist areas to help fill the bandwidth of group CFOs who have got an overflowing to-do list. And then the Liberti Group is something that developed a little bit later in about 2011 onwards was that we then realized that the fractional C-suite role could work in other disciplines. So we created the Liberti Group, Liberti Standing for Freedom, and we created that so that we have part-time professionals, fractional professionals in sales and marketing and people as well as finance.

Megan - 00:06:31: Really brilliant. And how have you seen the role of the CFO, maybe specifically the fractional CFO, evolve over the last 20 years or so?

Sara - 00:06:42: Yes, it's really interesting because when we first started, no one really knew what we were talking about, to be honest. Entrepreneurs really loved the concept when they understood it. I can remember one of my first businesses that I worked with saying to me, gosh, this sounds like such an exciting opportunity for our business and just what we need. What's the catch? And quite frankly, I said to him, I don't think there is a catch. You can work with me. I can deliver the skills that you need. If I don't deliver them, we can part company. And interesting enough, we still work with that business today, not me, but others in the business. And it's expanded to many countries. So I think what's happened is entrepreneurs really liked it when they saw it and they still do. And there are entrepreneurs globally, as I mean, they underpin the global economy. So we absolutely need to get those businesses into scaling mode. Yet, I think what's happened more recently, particularly when we've gone through COVID, is that... Individuals, so C-suite professionals and others, by the way, in the workforce are realizing that perhaps there are different ways that they want to live their life. And perhaps there are ways that don't involve being in traditional full-time employment. And the fractional model is an opening for them. I mean, it's an opportunity and it's an alternative. And more individuals are deciding to go self-employed, I think, and offer their services back to the business world and yet more on their terms with more agency, flexibility, variety, and control in their lives.

Megan - 00:08:30: And I'm just curious, do each of you specialize in a certain industry or how easy is it to jump from business to business and industry to industry? Knowing the business is not easy these days.

Sara - 00:08:45: No, you're absolutely right. So interestingly, finance is actually one of those skill sets that does transfer across industry quite well in general. There will always be very, there will be some industries that are just so specialist that you really do need a complete specialist in that area, like financial services, say, for an example. But there are lots of businesses, trading businesses, that can work with a finance professional. And my view on the fractional world and the way that fractional C-suite professionals can work with different industries is there's a couple of ways to do it that work really well. One is, I think, for the business owner, firstly, to make sure that they they do get someone who's got good competency in the CFO world. Yet, I think it's more important to have a culture fit because there are always going to be lots of people out there with a technical fit, I think. But the culture fit is the one that is really important because the entrepreneur or the business owner, business leader, and the fractional CFO need to be partners. And we need to believe in each other. We need to be truly aligned. We need to be able to obviously sometimes have challenging conversations between us. But I think it's really important that we get on really well. And that culture fit with the business owner, the senior team, and the organization, I think, is vitally important. And anyone taking on a fractional CFO should make sure that fit is there. Because then you can work through any difficulties or anything that's rather testing between perhaps a difference of opinion or how to build the best strategy. In terms of the technical side of it, I think the other way for individuals to fill skill gaps is perhaps to be part of a CFO organization or firm or have a more of an informal community that you've built up as an independent fractional CFO. Because no one CFO will know the answer to everything. It's just impossible. So it's always good to have backup and support. And so organizations that are firms of C-suite professionals will have an expert in a lot of other areas than what you've got as an individual. And you can easily tap into that and get up to speed or even bring in a second skill set to cover off something that's particularly deep in a client. So I think those are a couple of ways to deal with getting around over and across all the issues. I also think you need to be good at context shifting if you are a fractional professional in any way. Because the reality is that we will be operating across multiple businesses, often or sometimes remotely with different relationships, different cultures, different life cycle stages, different sectors and different problems. So we do need to be people that can compartmentalize with that and listen hard for the important point, deal with that, see the pattern, move on. I think that's really important as an individual skill set.

Megan - 00:12:03: And for entrepreneurs who are listening or small business owners, when is the right time to bring on a fractional CFO? When do you need more than just a bookkeeper?

Sara - 00:12:14: I think this is interesting because entrepreneurs are remarkable individuals, in my opinion. They really do go a long way often without too much guidance from the C-suite because until this model came along, quite frankly, they just couldn't access it. It wasn't available to them. They couldn't afford the full-time model. And somehow they managed to get by, probably not optimally. And I think what often happens is that the entrepreneur ends up doing so much in the organization and all roads lead to the entrepreneur. And sometimes they get to the point where they are just drowning a little bit because they end up doing things that just aren't their skill set. They may be able to get across it in some way, shape or form. But quite frankly, their skills will be better used in the areas that they are really good at in their organization and probably why they got there, why they started the business in the first place. So I believe that it gets to a point when you've got a business model and it's up and running. It may not be working optimally. But it's probably not going to fall over if there's a little bit of a shock. So I would say $2 million, $3 million revenues upwards is when you need to generally start thinking about bringing in a fractional CFO or C-suite, someone more than the bookkeeper. And they can actually do quite a light touch. For the smaller organizations. They can help design out what your finance function should be. And maybe you need a part-time controller as well at some point. They can help find those people, train them up, mentor them, skill them up. And they can fill in any sort of bigger gaps around strategy and risk and planning. But it could even be quite light touch at that stage. And then as the business grows, they can grow with the organization and do more time.

Megan - 00:14:04: And what are some of the biggest advantages that fractional CFOs bring to an entrepreneurial business?

Sara - 00:14:11: I think the biggest set of advantages are that these organizations need to get to, they want to get to big. They want to be able to reach their goals that the entrepreneur got into business for in the first place. And by bringing in fractional CFOs, they will be engaging with experience and knowledge that has already sat in that position in other organizations. They know what it's like to feel big. They know how to get there and they can bring more certainty to decision making. They can bring more perspective and other considerations to the organization. And they can probably bring the fastest route for an organization to get scale inside. And they can streamline processes. They can also bring in their networks to make sure that they've got other providers in the organization that that business might need that perhaps the business owner doesn't have access to. So I really think they're going to bring more certainty, more skills, more network and more sophistication to an organization. And that is really what the entrepreneurs need. They also need someone, I think, because it can be a bit lonely being an entrepreneur. And sometimes I see business leaders, particularly in the early stages where they're at the top and the next level down of their employees are not necessarily the types of people that they would work on their strategy with. So there's a bit of a gap between the levels. And I think fractional CFOs can come in and really help fill that gap and be a bridge to some of the other people in the organization and really support and believe in the entrepreneur and what they're doing. And when they suffer setbacks, I think they can help pick them up and help them believe in themselves again and move forward.

Megan - 00:16:16: And you've mentioned the idea of work-life stage integration as a key benefit of the fractional CFO model. Can you elaborate on how this model helps CFOs achieve personal fulfillment and why it's so attractive to today's executives seeking balance? Yes. So there's

Sara - 00:16:33: an element, what I see in the marketplace are CFOs, C-suite individuals who've been working perhaps in corporate for a long time. And there's a disillusionment with that world, perhaps to a degree, around overwork, around lack of family time, sacrifices that have been made for their career, a lot of travel. You know, they also, I think sometimes as organizations grow, end up sort of accumulating roles in the organization which are quite far away from their real passion and their swim lane. There's politics that play a part. And I think some individuals just get to a point where they think, am I missing something in my life? And is there a better way for me to build out what's left of my career and my future career with my family, with my other interests? And they're just looking to balance up their lives a bit. And I think COVID, to a degree, gave us a bit of a wake-up call there. And if you look at the Gallup polls every year, the number of engaged people in workforces is in their low 20s in terms of percentages. It's low. And the C-suite are part of that as well. So I think there's a move to have more meaning and purpose in our lives. And this fractional route for CFOs is a viable alternative. So we would be moving from something called job security to income security. And I think COVID also taught us that perhaps the concept of job security is a bit elusive anyway. Because some sectors or companies can be damaged in one fell swoop if certain things happen. Whereas if we build up a portfolio of businesses to work with, we can actually de-risk our income streams because we've got more of them. And it's very unlikely that a whole portfolio would change or diminish very quickly or overnight. So I think the move to becoming self-employed and building a portfolio gives individuals more agency over their lives. They're in the driving seat, not the corporate. They're also in a position where they can control their schedules and build flexibility into their schedules. Now, this might not mean that they work less time. It might just mean that they've got more flexibility over how and when they work. And if they need to be somewhere on a Wednesday afternoon, they can be because it's their decision. Yet they might make that time up of an evening or a weekend. Or you might have some people who decide deliberately to perhaps work three days a week, not five or four days a week. And I think both are totally possible. It's the flexibility that really, that's what I see that workers want. They absolutely want that. And then there's the variety piece. It means that fractional CFOs will be working with, as I said before, a variety of relationships, cultures, people, life cycle stages of businesses, sectors, and it keeps people fresh. I mean, some people really like that, others don't. But if you're in the fractional world, I think the variety, you've got to like that. It's something that comes with the territory. There's lots of variety. But interestingly, it means that the fractional CFO can also stay on top of their game and in their swim lane and doing the things that they should be doing as a strategic CFO the whole time. Because I think what happens sometimes in corporates is we get dragged into doing things because no one else can do it. And as I say, it gets far away from our true skill set. So I think being fractional also helps us stay in our swim lane and true to our real skills. So that crafting of jobs, being able to choose your clients actively. So be someone who chooses positively to work with certain individuals. So it's a positive step towards who you work with rather than being forced into teams just because, you know, that's what needs to be done. Again, I think that brings a highly committed individual. So those are the sorts of things that I think help us have this work-life stage integration, which gives us, I think, a refreshing and invigorating career move.

Megan - 00:21:07: And how is it that you personally prioritize multiple clients and their fire drills? I mean, I would think it's hard enough to manage one company's fire drills, let alone working with a portfolio of companies.

Sara - 00:21:20: Yes. So I think the key thing here is to remember that I think fractional CFO work can be long term. And a fractional CFO could work with, say, four or five clients for the long term and be on the journey with each of those. And therefore, it's worth setting up the engagement and the partnership really well at the start and investing time to really onboard each business that the fractional CFO is going to work with and be face to face with them if you possibly can as much as you can. Listen, learn, ask questions, do their induction, be just like an insider in that organization and adapt to their culture. And I think if individuals can get good at context shifting, as I spoke about earlier, I think then they will be able to manage the different priorities and work schedules of each of the businesses. I think if you're doing it face to face, certain individuals will then work with their portfolio a day a week with one, two days a month with another, etc. So they will be on site, they will be integrated in the team and they will be delivering at each business in those portions of time. I think in COVID, because we went totally online, it was actually quite fluid across the day because I think people will be flitting between different Zoom rooms, even within the hour sometimes. So I think that probably was context shifting on steroids. But I think doing it in larger portions of time, half days, I do think it is more manageable. But it is certainly a skill that you have to adopt and relish as a fractional CFO. I think that the key thing for fractional CFOs is the softer skills. And I guess we all know that the softer skills are actually the harder skills. I think there's a lot of people with the technical skills to offer good CFO work to businesses, but it's the soft skills, being able to adapt your environment, being able to listen, ask questions, create intimacy, communicate your schedule well, develop environments where the business leader is willing to share with you. Feel safe sharing with you and wants to work with you. I think these are the key things that help a CFO build deep relationships with each firm. And then they're able to fully give value to each of the businesses.

Megan - 00:23:58: And in your experience, what does it take for an experienced executive to transition from a traditional full-time role into the fractional CFO space?

Sara - 00:24:08: I think that's a really good question because I think the whole getting started piece, if you like, is what individuals are faced with when they first think, well, how on earth am I going to build my portfolio from the get go? And I think. There's some key things that you can do as an individual. I think the first thing to think of is that this is a career change. What I sometimes see is CFOs coming in and think it's exactly the same. I'm a good CFO. I will be able to do this. It's exactly the same as corporate. And I think, you know, through this discussion, we've realized that it isn't holding multiple relationships, sometimes remotely, all the differences. It's quite different. So it is a career change. I think individuals need to adopt an investment mindset around investing in themselves to make this career change. I think that's the first thing. What I would suggest is before you make the change, I do your research. And you could even dip your toe in alongside a corporate role. Take on perhaps advising a startup in your spare time, perhaps at the end of a day or perhaps on a weekend or something like that. Dip your toe in to see whether you like working with smaller organizations, perhaps entrepreneurial organizations, and get a bit of exposure to the issues that they face. I would also encourage you to talk to as many people as possible that are in the fractional space. And get some good data under your belt of what it's like on a day-to-day basis. I would ask your network what they think of a move into the fractional space. And I think that will do two things. I think it will give you feedback, which will help guide your decision, but it will also potentially tee up some work for you. You might get some very positive feedback, and those might start to be your first ports of call of business if you make the move. I would get my nearest and dearest on board. I think this is crucial. You definitely want supporters, people who are behind you on the decision and aren't going to be asking you three months in when you're going to get a proper job, because this is the real deal. This is a proper job. I would turn off the job ads. I think this is something that I see people not doing, which tells me they're not really committed. I've still got the job ads on, but I'm trying to do fractional. For me, that doesn't work. If you do your research and you want to give it a go, you've got to go all in for about a year, I think, and turn off the job ads because you just don't want to be tempted back into the employment world without giving the fractional world a really good go. Potentially join a firm of fractional providers, of fractional CFOs, because that will give you a soft landing, give you structure. It will help you understand what you need to do to find, win and keep work. I give it at least a year because it is a change of career, as I said. And I would also invest in myself, in my skills, my self-awareness, my ability to build deep relationships and ask good questions, build empathy. I think those are all the skills that individuals need.

Megan - 00:27:29: And like how many years do most fractional CFOs spend as a traditional CFO before making the transition?

Sara - 00:27:39: Yes. So it's so interesting. When we first started 25 years ago, It was mainly CFOs who were, you know, retirement was on the horizon. It wasn't there yet for them. It was on the horizon. And they were thinking that they didn't want another big job, but they weren't ready to retire. And so they were the types of people that were joining us way back then. I was obviously an anomaly to all of that. I was only 35. So for me, it was much earlier. And Colin, he was in his 40s. So we were both earlier than that. However, what I found so much more recently is that... Individuals are joining us much sooner than the retirement stage and still in the retirement stage, you know, onto the retirement stage, but sooner as well and in their 40s. And this is normally around them because then they have had a good career of being a CFO. So you really do need to have been there, seen it and done it in the CFO space to then be in a position to have the technical skills and enough experience of seeing a few things under your belt to then be able to add value back. So I'd say a good five to seven years minimum of being a CFO would be the right place to be where you've had that training, that rigor of being in a large corporate, being well trained. You've seen a lot of things. Perhaps you've also held a non-finance board position. I think that's also a good place to be because then you've got a wider skill set than just CFO and you can bring business skills to an entrepreneur. And if you've had the opportunity to work with entrepreneurs and test that out, I also think that's a good piece of experience because entrepreneurs are a very different ballgame to corporates and not everyone can get on the same page as an entrepreneur. Because you've got to be quick. You've got to be commercially savvy. You've got to be able to inspire them to make good choices and not be too much of a sort of naysayer to their ideas. It's more around, yes, let's see how we can do that rather than no. I mean, entrepreneurs don't often like to be, you know, have cold water poured over their ideas. So it's about how do you get on their page and work in alignment with them. So those are the things I would say around having the experience to do the job.

Megan - 00:30:08: And how do you see fractional C-suite professionals helping businesses stay agile in an increasingly competitive and fast-paced global market?

Sara - 00:30:18: Yes. So I think the very model in itself leads to agility because the model is around accessing services rather than full-time traditional employment. So by accessing services, it is a flexible model. And I think organizations therefore have the ability to dial the time up and down that they need and also access different skill sets, even within the same function, say of finance, there are many different specialisms in finance. And if you need an expert in M&A or systems implementation or fundraise or venture capital investment, then I think you can also access different specialists through this access economy model and through the fractional model. So I think it's set up to be agile, which therefore gives the organization, whether it's an entrepreneur or a larger organization, immediately an agile talent strategy and enables them to bring in the right skills at the right time for the right piece of work, which then obviously keeps them relevant for the challenges that they're facing. I also think, though, that these larger organizations, I think also are really wanting to tap into the skill set because of the fact that they can have on tap highly committed people in the specialisms to then help them deal with the turbulence in the world that they're facing today. And I think the last point is to remember that these fractional individuals are working with a lot of businesses. And by the very nature of being fractional means that they are probably a source of innovation for organizations because they will be, unlike their employees, they will be seeing more scenarios and be exposed to more of the latest thinking, tools, tech, trends than if you're in-house in one role. So therefore, I think the fractional market, the fractional CFOs and C-suite professionals can bring in the cutting edge skills that organizations need to be able to help them keep at the forefront of competitive edge.

Megan - 00:32:38: And as your clients reach to the point of maybe needing a full-time CFO, do you stay on with them or how does the handoff work once clients reach that point?

Sara - 00:32:49: So my belief is that you can actually go quite a long way on the fractional model because if you design the finance function correctly, I think having a fractional model with a well-designed finance function with a really good controller and the appropriate teams or individuals at the levels below that, plus the opportunity to have a lead fractional person who perhaps holds the main relationship with the entrepreneurial organization, but then brings in the specialist skills, as I spoke about earlier, for either extra capacity or extra skill gaps or even geography gaps as an organization expands internationally. I mean, you could engage with a fractional CFO firm and be able to soft land with a fractional CFO in other countries as organizations expand globally. So I think you can go an awful long way on the fractional model. And actually, it is a fairly good way of going forward instead of putting all your eggs in one basket with one full-time person with one set of skills, one set of time, one set of network, one set of geography. So I think organizations go further on the fractional model than perhaps they might think they can if we can open their eyes to that. I also think that when you do get to the point where you want an organization wants a full-time individual in that group role or in that sort of head of CFO role, I think they can still then tap into the fractional model for all the things that they're not specialist in or don't have the time to do. So I think you can actually continue with the model into mid-corporate, large corporate space in a flexible way. So sometimes it will be using the more, sometimes less. So I think it's one of those things that can actually partner with organizations for a long time. And the other thing I've seen happen is the fractional CFO move into more of an advisor capacity with an entrepreneurial organization. Because if you've built a really strong relationship with an entrepreneur, perhaps they sell out to a venture capitalist or another organization buys them. Perhaps they're on an earn out. What I've also seen is that the entrepreneur doesn't want their fractional CFO to leave them until they're fully, they've fully transitioned out of the organization as well. So you can stay on through those transition integration periods as well.

Megan - 00:35:24: So last question, but looking ahead, how do you envision the role of fractional CFO evolving over the next three to five years?

Sara - 00:35:32: Yes. So I think that the trend is only going to continue. So I would say there are still lots of SMEs not using the fractional model. And I think that will change. I really hope it will, because I just think this is the way to get skills into SMEs to help them grow. And my advice to entrepreneurs is if you don't get it right with a fractional person straight away, don't give up. Find the next fractional person that does work for you. It is easy to do that. It is easy to make sure that you try someone out. If it doesn't quite work, go again, because you will find the right person or the right team of people that can help you. And I think the benefits they can bring are immense, really. So that'd be the first thing. I then believe that roles are unbundling in the future into work and activities, and some will be done by individuals and some will be done by automation. So I think that trend feeds very well, meets head on the fractional trend. I think that's why it's going to continue is the way that roles are going to unbundle going forwards. And I also think that Gen Z, who are in the workforce now, are already going fractional. They are already taking on side hustles, having multiple income streams, because they're in a place where they want to have a portfolio. They don't want to be tied down to one thing, or they want to exercise some entrepreneurial wishes that they might have. So I think that the fractional route will be increased by the Gen Z coming through the workforce as well, because that's the way they've sort of been brought up in a way into the workforce. And I actually think the fractional, the Gen Zers see fractional as, or employment, shall I say, as a stepping stone to fractional work. Whereas I think sometimes the entrepreneurs or the employers see fractional as a stepping stone to employment. And I think we're going, we're at cross purposes there. So I actually think that will mix things up somewhat. And as the new generation come through, we will start to see fractional taking on even more of a hold in the marketplace.

Megan - 00:37:50: Sara thank you so much for being my guest today.

Sara - 00:37:52: Thank you very much for having me. It's been great.

Megan - 00:37:54: Yeah, I really enjoyed speaking with you. And thanks for finding the time to be here with us today to share your experience and knowledge. And I wish you all the best. And to our listeners, please tune in next week. And until then, take care.