Small Business Finance Blog

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When Are Fractional CFO Services Right for a SaaS Business?

Fractional CFO services for SaaS businesses

Your SaaS business is going from strength to strength. You’re bringing in more customers, building your ARR (annual recurring revenue), and positioning your firm to tackle the next stage of growth. 

Until now, you’ve been able to handle all of your accounting and finance needs—whether that’s through a small, internal finance team, an outside accountant, or a scrappy “let’s get the accounting done” attitude.

But things are changing.

As your SaaS business banks its successes, you’re looking beyond accounting and basic finance to the next stage. You need experienced finance leadership and a Finance and Accounting (F&A) team prepared for the unique challenges of SaaS growth. 

One option is to hire a full-time CFO—but an increasingly preferred option is to use a fractional SaaS CFO service

When is the right time to hire a CFO? How is a fractional CFO different from a full-time CFO? Which option is right for you, now and down the road?

In this article, we’ll answer these questions and more, so you can get the right-fit finance leadership your SaaS firm needs and tackle every growth stage with confidence.

 

Should SaaS companies hire a full-time CFO or a fractional CFO service?

 

Employing a full-time SaaS CFO

Hiring a full-time CFO has its advantages. If your team works out of the same office, a full-time CFO can be onsite. A full-time CFO can also travel with you to visit prospective targets—a plus for firms looking to grow through acquisition.

However, a full-time CFO also has its drawbacks. 

Hiring a CFO can be a long, involved, and costly process, with the risk of a mis-hire weighing on you at each stage. In a competitive market, you may not have a diverse range of talent to choose from. This can limit your options in filling a critical role and draw the process out even further. When you’re relying on the skills, experience, and approach of a single individual to lead your company through every stage of growth, it’s a decision you won’t want to rush.

If you’re closing in on $50M in annual recurring revenue (ARR), it may be time to consider a full-time CFO. However, a dedicated CFO doesn’t have to be in-house. As we’ll discuss next, the best option may be a financial leadership solution that scales with your business as it grows.

 

Hiring a fractional CFO service

Fractional CFO services are designed to meet the needs of your SaaS business today, and as it reaches each new stage of growth. Those with a fully-integrated, team-based approach will deliver instant continuity between your new CFO and all finance and accounting functions. As your needs expand, you’ll increase the level of engagement accordingly—all the way to full-time dedicated resources.

Other advantages of fractional CFO services include:

  • Less time getting new hires up to speed. A fully-integrated CFO service will bring end-to-end process to your entire F&A function—and a faster ramp to results.
  • Scales demand and services up and down to align with your business needs and budget.
  • A team-based approach to ensure you always have the appropriate level of expertise in every role.
  • Meeting expectations for third parties, with adherence to accounting fundamentals and preparation consistent with their expectations.  
  • Provides a seamless transition at exit with a flexible transfer to the buyer.

You’re likely to get the most value from a fractional CFO service before you hit $50M in recurring revenue. But keep in mind that a fractional CFO service can provide a dedicated, full-time CFO when the time comes. You get all of the advantages of a resource totally committed to your business, along with support staff, process, and more—without the overhead of hiring in-house.

 

When does my SaaS firm need a CFO?

Choosing when to hire a SaaS CFO—whether full-time or fractional—depends on the gap between your current in-house expertise and your future business needs. These vary at each stage of growth, so it’s always important to hire in preparation for the next stage.

SaaS firms should consider outsourced CFO services when they reach between $500K and $1M in annual recurring revenue (ARR). At the upper end, you might want to move to a full-time CFO when ARR exceeds $50M.

There are several other factors that can influence the best time to hire a fractional CFO service. We’ve covered these in our guide “How big does my company need to be to contract CFO services?

 

How do finance and accounting needs change in different stages of SaaS growth?

Your SaaS accounting and finance capabilities will need to adapt as your firm grows. An outsourced CFO service can add tremendous value in all three stages of SaaS growth, but key activities and markers will evolve.

 

Stage 1: Developing product / market fit

  • You will be monitoring new bookings and customer churn.
  • You should lay groundwork for measuring SaaS metrics with a subscription billing tool.
  • You may be starting to build a fundraising strategy and managing stakeholders.

 

Stage 2: Building a profitable, repeatable sales process

  • You’ll want to focus on unit economics and profitability.
  • KPIs like Customer Acquisition Cost (CAC), Lifetime Value (LTV), and CAC Payback Periods are central.
  • Monitoring cash runway is critical.

 

Stage 3: Scaling into the marketplace

  • You will be raising capital to scale quickly.
  • Your fundraising story will rely on net new ARR growth and potential.
  • You’ll need a compelling story for investors, built on financial modeling and projections.
  • Optimizing unit economics and sales efficiency metrics is a top priority.

Accelerating growth is always top of mind, but it’s essential to nail down each growth stage before moving on. Your CFO will act as a gatekeeper, ensuring all departments and resources are aligned on the right priorities at each stage.

 

Can a fractional CFO service increase SaaS enterprise value?

If your SaaS business is like most, your goal is to maximize valuation. A fractional CFO service that specializes in SaaS finance and accounting solutions can help in a number of ways.

A fractional CFO will be more cost-effective, freeing up funds to fuel growth in other parts of your business. Consider investing in a high-caliber head of sales or bringing in more sales reps to drive ARR.

You’ll also get more bang for your buck in terms of expertise. High-level financial leadership will bring a better understanding of your value drivers. A fractional CFO will use their experience to help you manage and optimize that value even further.

And, with a fractional CFO team you’ll always have the right resources at hand. A fully-integrated, outsourced solution will fill in every gap, bringing a new level of depth to your F&A function.

 

Will SaaS investors prefer a full-time CFO over outsourced CFO services?

Investor attitudes to fractional CFO services have come a long way. Five to ten years ago, outsourced accounting was synonymous with low-end bookkeeping. While that may still be the case for some, SaaS CFO services have matured in response to the demand for an efficient, specialized, and more sophisticated approach.

Whether your SaaS firm hires a full-time CFO or a fractional CFO, your financials will need to hold up to the same level of investor scrutiny. The key to making the right choice for financial leadership is to understand what investors are looking for, and to put the most capable team in place. 

 

Finding the best fractional CFO service

SaaS CFO duties are wide ranging. Assessing the fit of a full-time candidate or CFO service is a daunting—but critical—task. For help prioritizing your needs and weighing your options, schedule an introduction to Driven Insights today. Get all of your questions answered and receive a free, custom proposal.

 

 

Get a free custom proposal for your SaaS business.

 


Dave Robinson

Written by Dave Robinson

Driven Insights founder, writes about informing business decisions and gaining and competitive advantage through financial management.

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