Software as a service (SaaS) companies face unique financial challenges, from managing subscription-based revenue to navigating evolving regulations. A CFO’s expertise is invaluable, but hiring one full-time can be costly and time-consuming. A SaaS fractional CFO offers a strategic, cost-effective alternative, providing expert financial guidance without the full-time price tag.
What Is a SaaS Fractional CFO?
A SaaS fractional CFO is an experienced finance leader who provides your SaaS company with the full suite of CFO services on a part-time or project basis.
A fractional CFO optimizes your SaaS growth strategy by overseeing key finance responsibilities, including:
- Cash flow and cash burn management
- Establishing financial procedures and processes
- Financial reporting and forecasting
- Investor and stakeholder relations
- Strategic business planning
- Subscription revenue modeling
When Does Your SaaS Business Need a Fractional CFO?
If your SaaS company demonstrates any of the following signs, it would benefit from the services of an experienced fractional CFO:
- Rapid business growth without an accompanying financial strategy to steer your trajectory
- Difficulty managing your cash flow or cash burn rate
- Minimal or suboptimal data collection for financial reporting, leading to missing or inaccurate financial forecasts
- Consistent fundraising challenges or an inability to meet investor expectations
Working with a SaaS fractional CFO could help your company increase working capital, negotiate better terms on existing loans or secure the additional financing needed for growth.
And because fractional CFOs have experience working with different types of companies, they can offer out-of-the-box solutions while still being versed in industry best practices.
How a Fractional CFO Helps SaaS Companies
A SaaS fractional CFO delivers the expertise and strategic guidance of a full-time CFO—without the cost or long-term commitment. They provide a financial roadmap, oversee your finance team, and offer additional benefits, like the following.
Expert Finance Advice
A fractional CFO will provide your SaaS company with high-level, strategic advice. Along with short- and long-term SaaS growth strategies, fractional CFOs implement the processes that allow for proper cash flow management and budget creation. They also forecast revenue and put in place the financial models best suited to growing SaaS companies.
Regulatory and Audit Compliance
A fractional CFO can implement processes and controls to minimize fraud risks and ensure financial reporting is accurate and regulatory filings are submitted correctly. They also prepare for audits by managing due diligence processes, maintaining documentation and performing regular reviews.
Investor Relations
A SaaS fractional CFO can guide your firm through funding rounds. In the early stages of investor readiness, a part-time CFO organizes and improves your financial reporting structure to produce the financial data and forecasts your investors want. They can establish a forward-thinking business plan and tailor your pitch deck and presentation for maximum impact.
As your SaaS company matures, a fractional CFO can provide M&A support and advice for managing stakeholder relationships.
And their expertise isn’t limited to equity financing: fractional CFOs also advise SaaS companies on debt financing and produce the income statements that both financial institutions and non-traditional lenders require.
Flexibility and Scalability
A fractional CFO offers flexible support that adapts as your SaaS company grows. No matter the size or complexity of your financial requirements, as your business needs change, so do their services.
Fractional CFOs can help with your exit strategy, whether that’s preparing for an IPO, merging with another organization, or selling your company.
If your SaaS company reaches the point of requiring a full-time, in-house CFO, a fractional CFO can provide leadership and guidance during the transition.
Cost Savings
A SaaS fractional CFO gives you access to top-tier finance expertise without the cost or commitment of a full-time hire. Their role involves tracking expenses and spending patterns, allowing them to identify efficiencies and reduce overall costs. Those savings can then be directed to growth opportunities.
A part-time CFO also liaises with your tax accountant to identify and claim any relevant deductions, so your company becomes both tax-compliant and tax-efficient.
SaaS-Specific Finance Expertise
An experienced fractional CFO helps you define and adjust your SaaS revenue models and pricing strategies. They also select and track the most critical KPIs for your business so you can evaluate your subscription models and track and forecast your growth, including:
- Annual recurring revenue (ARR): Your company’s total revenue predicted yearly. ARR is a good indicator of profit, growth and decline over time.
- Monthly recurring revenue (MRR): Your consistent monthly revenue from active subscriptions.
- Lead velocity rate (LVR): The rate at which potential customers convert to actual customers. To calculate LVR, first subtract the prior period’s number of qualified leads from the current period’s number of qualified leads, then divide the result by the prior period’s number of qualified leads. For example, if you have 80 qualified leads this month and had 60 last month, your LVR is 33%.
- Customer acquisition cost (CAC): A value derived by dividing your sales and marketing costs by the total number of your new customers. For example, if you spend $20K on sales and marketing and acquire 50 new customers during a set period, your CAC is $400 per customer.
- Customer churn rate (CCR): The number of customers who left in a given period divided by the number of customers at the start of that period. For example, if you start the month with 100 customers but lose 5 of them by the end of the month, your churn rate is 5%. Evaluating CCR is a critical step in ensuring that the income each customer generates exceeds the amount you spend acquiring them.
- Revenue churn rate (RCR): The percentage of revenue lost due to customer departures in a given period. Tracking RCR can also help evaluate the impact specific customers can have on revenue. For example, if your company has MRR of $50K and loses $5k due to churn, the monthly RCR is 10%.
- Customer lifetime value (CLV): The total value you anticipate earning per customer over the course of the entire relationship. At a minimum, the CLV for your SaaS company should exceed its CAC; aim for a CLV 2-3x larger than the CAC.
- Remaining contracted cash value (RCCV): The value of a customer’s remaining contract. For example, if a customer signs a 5-year contract with an annual value of $100K, the RCCV after the first year is $400K. Because RCCV gives you insight into each contract’s guaranteed outstanding revenue, it plays a critical role in making accurate predictions about future revenue. It can also help attract attention from investors.
How To Choose the Best Fractional CFO for Your SaaS Company
Here are some best practices for choosing a SaaS fractional CFO.
Define Your Company’s Specific Needs
Determine the depth and breadth of your needs so you can concentrate on candidates with appropriate service offerings. Do you need to implement financial controls for reporting? Is your company in need of financial forecasting? Do you want fundraising support as you approach investors?
Decide on Your Service Model
Fractional CFOs have diverse business models, some of which will meet your needs better than others. You could engage a fractional CFO for a specific project or period, such as an upcoming merger or acquisition. Or you might prefer ongoing CFO advisory services on a regular part-time basis.
Evaluate the Candidate’s Experience
To best support your SaaS growth strategy, your CFO candidate must have exceptional qualifications, accreditations and SaaS-specific experience and expertise. Evaluate each candidate’s credentials thoroughly.
Ask These Questions
During the interview process, ask your preferred candidates these questions, at minimum:
- What financial processes have you implemented for previous clients? How did you measure their success?
- Which KPIs would you classify as being most important? How would you establish them?
- What steps would you take to lead our company through a compliance audit?
- Describe a previous successful fundraising effort. What was your process? What do you see as your contribution to investor relations?
- Have you overseen or supervised a merger? What were your primary responsibilities throughout?
Find Your Fractional CFO With Paro
Choosing a SaaS fractional CFO is more than a cost-saving measure: it is a strategic investment in your company’s financial success.
If you’re looking for outsourced CFO advisory services, Paro can help. Our network of vetted, experienced fractional CFOs can help you:
- Boost your financial reporting and forecasting capabilities
- Ensure ongoing compliance
- Establish a high-level financial strategy
- Facilitate your investor relations
- Direct your fundraising efforts
- Improve your cash management
Using our proprietary AI technology, we match companies like yours with the most appropriate candidates for your needs and budget 20x faster than traditional recruiting.
Optimize your financial processes, refine your strategic roadmap and achieve your growth goals with the help of a SaaS fractional CFO.
