Why Private Equity-Backed Companies Turn to Fractional Finance: How a Fractional CFO Team Can Drive Post-Acquisition Value Creation

In the euphoria that often follows an acquisition, private equity partners and new leadership teams are eager to hit the ground running by setting ambitious goals for the future. Unfortunately, this forward-looking excitement can run headlong into nagging issues that due diligence may have missed. Leftover operational challenges, particularly in the finance department, can immediately sabotage growth plans and ruin any momentum built up by the new leadership.

Many promising companies acquired by private equity inherit messy books, underdeveloped financial reporting systems, and a lack of strategic direction, creating a drag on performance from day one. While the traditional solution is to hire a full-time CFO, this process can often take months to complete. During this time, a critical leadership position is left vacant, creating a vacuum in a phase where decisive financial direction is needed most. To solve this problem, PE firms are turning to a more flexible solution to bridge that leadership gap: fractional finance teams.

What is a Fractional Finance Team?

At its core, the fractional finance team model is a service where businesses partner with highly experienced finance and accounting professionals on a part-time or project basis. Instead of launching a lengthy and expensive search for a full-time executive, this approach allows businesses to gain immediate access to top-tier strategic expertise that fits their specific needs and budget.

A fractional team can help to solve common private equity finance challenges without the overhead of a permanent C-suite hire. Left unaddressed, these challenges can derail post-acquisition growth plans and leave the company unable to make the fast, data-driven decisions that PE ownership demands.

This team-based approach also allows the private equity firm to deploy the right expert for each specific problem. A one-size-fits-all approach to finance is ineffective, as the roles of controller, FP&A manager, and strategic CFO are distinct. With a fractional team, the strategic CFO isn’t bogged down building Excel models, and the FP&A manager isn’t checking journal entries. The ability to leverage targeted roles on a fractional basis ensures each function operates at a higher level of proficiency, progresses faster, and is more cost-effective.

Common Private Equity Finance Challenges

After an acquisition, private equity firms want their portfolio companies to move fast and start hitting targets. But what many discover is that the biggest obstacle to growth isn’t external headwinds, but the existing finance team. A few internal warning signs to watch out for include:

• • The Accidental Finance Lead: A frequent problem in newly acquired companies is that the company may have outgrown the person in charge of the company’s money. This often occurs in smaller businesses, where the finance lead is just a long-time employee,  friend of the founder, or family member, who may not have formal training in accounting or finance but learned the role on the job. When you start asking for operating budgets, cash flow forecasts, or key performance metrics they don’t have them, because they don’t understand how to build or manage them. They may be able to manage the books, but they lack the expertise and tools required to meet the rigorous expectations of a PE-backed environment. 

• • A Backward-Looking Mindset: Finance teams that lack experience often face a bigger issue: a purely backward-looking mindset. They see their role as simple bookkeeping, and are often too busy looking in the rearview mirror to pay attention to the road ahead. While using historical data is important, its purpose isn’t just to understand the past, but to inform the decisions that shape the future. This is one of the main differences that sets a bookkeeper and a fractional CFO apart. Bookkeepers simply report what has occurred; a fractional CFO uses that data to provide strategic financial solutions that facilitate more efficient operations and accelerated growth. 

Once these and other problems are identified, the need to install experienced financial leadership becomes urgent. But how can you do so without losing months to a search for the right executive? This is precisely the challenge the fractional finance model is designed to solve.

How Does a Fractional Finance Model Work?

A fractional finance model is designed to rapidly transform a chaotic or underdeveloped finance function into a strategic asset. While the specifics can vary between providers, the fractional finance model is typically implemented in three key steps. 

Step #1: Onboarding and Diagnosis 

Most fractional partnerships begin with a diagnostic phase. Instead of taking months to get up to speed, your new partner will immediately start analyzing key documents like:

• • Historical financial statements and chart of accounts

• • Accounts receivable (AR) and accounts payable (AP) reports & procedures

• • Cash flow

• • Customer history

The goal is to let the financials paint a complete picture of the company’s health and reveal hidden issues, such as problems with cash collections, late payments to vendors, or unseen debt. This initial analysis provides a clear baseline of the company’s health, allowing the fractional partner to build a strategy that directly addresses growth objectives. 

Step #2: Establish Control and Secure Quick Wins

Once diagnosis is complete, the next step is to establish control and deliver immediate value. One of the quickest wins many fractional CFOs secure involves building an operating budget based on your goals and the data yielded from the analysis, especially if a budget doesn’t currently exist. 

This budget is the first part of a complete control system that includes: 

• • Defining measurable goals by month, quarter, and year

• • Immediately starting to measure actual performance against those goals

• • Creating an accelerated timeline for closing the books, targeting a 5 to 10-day close

By building this system and accelerating the financial close, the company’s leadership can get critical data sooner. A faster close gives them up to 20 additional days to react to and fix problems within the month they are happening, rather than finding out about them a month later when it’s too late.

Step #3: Leverage Technology and Experience

Unlike a full-time employee who may only have experience with one program or accounting software, a professional fractional team typically brings broader technological expertise. A reputable provider will have experience with multiple types of accounting software and Enterprise Resource Planning (ERP) systems, including QuickBooks, Sage Intacct, NetSuite, and Oracle. These providers can also drive efficiency by implementing process automation and control tools like Ramp or Bill.com, eliminating outdated practices like paper checks. 

This versatility is a massive advantage, as it allows the fractional team to step into any environment, understand their systems, and immediately begin to extract and analyze data. By quickly pulling the necessary information and using analysis tools like Excel, Power BI, or Tableau, fractional teams can find viable solutions to satisfy any pressing business needs.

What Are the Advantages of Partnering With a Fractional CFO Team?

While a fractional CFO team can work to fix immediate problems like a messy close or lack of a budget, they also offer several distinct advantages over a traditional full-time hire. These include:

• • More Effective and Proactive Communication: Effective fractional firms often use a monthly retainer model, which eliminates the clock-watching that plagues hourly consulting. In this model, the portfolio company’s leadership team doesn’t have to hesitate and wonder whether a quick question will end up costing them hundreds of dollars. This encourages them to ask questions freely and be more proactive with concerns, allowing problems to be fixed as they arise rather than after they have snowballed into a major crisis. 

• • Broad-scale Business Alignment: Fractional CFOs do more than just report to the CEO, breaking down departmental silos. The goal is to act as a thought partner for the whole management team, including the Chief Operating Officer, Chief Revenue Officer, and Chief Marketing Officer. Each leader requires different financial insights, and the information is presented in a specific way that’s relevant to their role so they aren’t inundated with unnecessary data. This ensures everyone on the leadership team understands their piece of the financials and the whole company starts rowing in the same direction.

• • Valuable Operational Insight: Instead of just sending a spreadsheet, fractional CFOs provide direct and actionable strategic insight. For example, while a traditional finance manager may just send a report on a retail location’s performance, a solid fractional CFO will walk through and ask questions. After reviewing the report and touring the location, they may ask about the specific way merchandise is laid out in high-traffic areas, connecting the physical space with the underlying inventory and sales data. By digging deeper, a fractional CFO connects the dots for leadership, establishing a direct link between financial metrics and the efficiency of their real-world operations. 

• • Pinpointed Expertise: Finance and accounting are inherently multi-disciplinary, and it is rare for a single individual to adequately cover every need. Yet, most middle-market companies cannot justify or fully utilize multiple full-time hires across these functions. This is where the fractional model excels. A cohesive fractional team brings complementary expertise across controllership, FP&A, and strategic CFO leadership. By collaborating as an integrated unit while dividing responsibilities, they deliver the precise expertise required — in the right measure, at the right time — to accelerate performance and growth.

What Results Can a Company Expect from Fractional CFO Services?

Everyone wants to see huge results as fast as possible, but in the context of post-acquisition finance, a big win might not be what you think it is. The biggest immediate victory isn’t a large jump in profits, but the establishment of control over the company’s financials. 

A good fractional CFO team, particularly one from a reputable M&A advisory firm, can analyze the business and build reliable financial reporting systems. By scrutinizing the general ledger line by line and creating variance reports, these CFOs can pinpoint issues that were previously invisible, including:

• • Significant client revenue drops 

• • Unnoticed trends in operating expenses

• • Areas of excessive spending

Once identified, fractional CFOs can immediately start laying the groundwork for viable solutions. In this way, the most significant results are more of a slow burn. Any fractional services firm that promises to fix everything in 30 days should raise serious concerns, as real results are about making steady, consistent progress over time. 

Six months later, you’ll be able to look back and see a completely transformed financial operation: accurate reports are delivered on time, reliable financial forecasting is in place, and key performance indicators (KPIs) are tracked weekly. If the fractional CFO does their job right, the company’s leadership will be able to drive the business forward and execute even the most ambitious growth objectives.

Takeaway

Fractional finance provides PE-backed companies with access to CFO-level strategic expertise on a part-time basis. This model allows leadership to avoid the slow, costly process of hiring a full-time executive while solving common challenges portfolio companies face following an acquisition, such as unqualified finance leads or a lack of strategic direction. 

Fractional services are typically implemented using a three-step process:

1. 1. Diagnose the health of the business

1. 1. Establish control through budgeting and accelerated financial closes

1. 1. Leverage technology and experience to drive more profitable business decisions

Beyond fixing immediate issues like messy books and slow financial reporting, this model offers distinct advantages over a traditional C-suite hire, including stronger communication and strategic alignment of all departments. With the right partnership, a fractional finance team can transform a reactive, backward-looking financial department into a strategic asset for achieving a portfolio company’s full potential. 

Need more information about fractional finance? Contact Embarc Advisors today to find out whether a fractional CFO is the right fit for you. 

Fractional Finance Frequently Asked Questions (FAQs) 

• • Is a Fractional CFO Worth it?

In most cases, yes; particularly for PE-backed companies facing the challenges of rapid growth and high expectations following an acquisition. Fractional CFO teams provide immediate direction amidst post-close chaos while helping companies avoid the time and monetary cost involved with making a full-time hire. A fractional services firm can also accelerate the implementation of budgets, forecasts, and efficient financial processes, allowing you to achieve your growth targets faster and with significantly less risk. Because of the specialized expertise across accounting, finance, and strategic CFO leadership, a fractional team can deliver faster high-quality results for less than the cost of a single CFO-level FTE.

• • Are Fractional CFOs Paid Hourly or By Retainer?

Fractional CFOs or fractional finance teams can be paid on either an hourly or retainer basis, but each creates a very different kind of partnership. While hourly billing is an option, it can foster a transactional dynamic where the focus shifts to tracking hours rather than achieving the best possible outcomes. This structure can inadvertently discourage quick check-ins and strategic brainstorming, as every interaction has a direct cost attached. Hourly models often work better for larger companies that are less cost-sensitive.

Monthly retainers, on the other hand, encourage a true partnership with open and frequent communication. Retainer models offer predictable cost structures and more involvement from fractional CFOs, which allows them to make more valuable contributions to meetings, workflows, and the business at large. 

• • When is the Right Time to Hire a Fractional CFO?

While the right time to hire a fractional CFO or team can vary, many companies choose to do so after a private equity investment or when they need to upgrade the financial organization. Specific times to hire a fractional CFO include:

• • Transaction Preparation: If you plan to raise capital, sell the business, or make a major acquisition in the next 12-18 months, a fractional CFO can make sure your finances and reporting are in order and capable of withstanding scrutiny. 

• • You’ve Recently Lost Your CFO: An unexpected departure of a CFO is often stressful, but fractional CFOs can step in immediately to provide stability. This gives your company time to conduct a thorough search for a permanent replacement without sacrificing momentum. 

• • Investor Reporting Demands Have Increased: In some cases, your board of directors or PE owners may demand more sophisticated dashboards, KPIs, or analysis than your current team has the capacity or experience to produce. A fractional CFO can offer the expertise to deliver the results that investors expect.