Managed Accounting vs Fractional CFO: Which Do You Need?

While both outsourced accountants and fractional CFOs can be essential for business success, you might not need to add both professionals right away. Understanding the main differences between managed accountants and fractional CFOs can help you determine the type of support your business needs, which is exactly what we’ll cover in this article.

What is Managed Accounting?

Managed accounting involves outsourcing your accounting function to a qualified accountant or accounting firm. These professionals can handle every aspect of your accounting function, from general bookkeeping and internal report generation to tax return filings and payroll processing.

What is a Fractional CFO?

A fractional CFO (Chief Financial Officer) is a finance executive who provides strategic oversight, planning, and forecasting on a part-time or as-needed basis. They take your financial data and turn it into digestible pieces of information to guide your decision-making, unlock new opportunities, and reach growth goals.

While the roles of outsourced accountants and fractional CFOs can overlap, there are some key differences that can make one professional more attractive to your business. Let’s cover the key similarities and differences to help you understand which you might need.

Focus

Managed accounting focuses on transaction management and tax compliance, while fractional CFO services are geared toward strategic financial leadership and high-level insights. For example, an outsourced accountant might close out your books for the month and generate internal financial statements, like the balance sheet and income statement. A fractional CFO will then take these reports and create forecasts, projections, and additional analysis to help management and owners make informed decisions.

Core Responsibilities

Since managed accountants and fractional CFOs have different focuses, the core responsibilities they take on will also differ. Below is a breakdown of key tasks that each professional offers.

Education and Experience

Both outsourced accountants and fractional CFOs will have an educational background and experience working in their respective industries. For example, a degree in finance or accounting is common for both accountants and fractional CFOs. Credentials, like a Certified Public Accountant (CPA) or Chartered Financial Analyst (CFA), are also common.

However, the experience of your outsourced accountant and CFO can differ. Accountants don’t generally need years of experience to provide managed accounting services. For example, an accounting firm might assign an entry-level accountant to handle your general bookkeeping. This can save you money while still providing you with the services you need. On the contrary, CFOs will have at least ten years of experience working as a finance executive.

Frequency

Outsourced accountants usually work on an ongoing basis, while a fractional CFO might be contracted for a specific project or part-time. For example, when you have an outsourced accountant close out your month-end, they will be working with your company each month. When it comes to a fractional CFO’s schedule, they might only work when you have an upcoming fundraising round, twice a year to update projections, or as-needed, answering executive-level questions.

Cost

Both outsourced accountants and fractional CFOs are professionals. Their years of education, experience, and credentialing will warrant a high rate. Managed accountants will charge different rates based on the services they provide. For example, general bookkeeping services might only cost you $30 to $50 per hour, while tax planning and filing services can warrant a price upwards of $250 per hour. Some outsourced accountants will also charge a flat fee based on the project. For example, $2,000 for the filing of a tax return.

A fractional CFO can also charge hourly, by project, or a flat fee. Hourly rates can range from $200 to $500 per hour. Let’s say that your company needs basic help each month in interpreting the financial statements and making informed decisions. A fractional CFO might impose a flat fee of $2,500 per month or charge hourly. For more information on the cost of managed accounting and fractional CFO services, check out our other posts.

Both fractional CFOs and outsourced accountants can be valuable professionals to add to your team. However, if you have budget constraints or only need certain services, one professional might be more appealing.

When to Leverage Managed Accounting

If your goal is to have accurate financial records, improve compliance with the IRS and state agencies, lower your tax liability, or issue GAAP financial statements, it's time to use managed accounting services. Businesses that need a reliable financial foundation without assistance in interpreting and applying the information in the decision-making process can also benefit from managed accounting services.

When to Hire a Fractional CFO

If your goal is to improve financial insights to reach strategic financial and operational goals, raise capital, improve investor relationships, or identify applicable risks, a fractional CFO is the professional for you. These services are generally applicable to growing businesses that need executive guidance without the need for a full-time in-house employee. Remember, an accountant usually sets the foundation for a fractional CFO. If your accounting is consistently behind, you should consider pursuing managed accounting services first. For a more in-depth analysis, read the 5 Signs It's Time for a Fractional CFO.

When You Need Both

It's not uncommon for growing businesses to need both a fractional CFO and managed accounting services. Here are some signs that your business can benefit from both professionals:

• You are experiencing rapid, uncontrolled growth.
• Your financial reports are often delayed, providing minimal visibility and insights.
• You have poor cash flow management, creating liquidity issues.
• You are preparing to raise capital, secure funding, or sell.
• You have strategic, operational, and financial goals that you need assistance reaching.
• You are lacking financial direction.
• You don't want the administrative burden or cost of hiring an in-house accountant or CFO.
• You need help on an as-needed basis.  

If you are experiencing any or all of the above, your company can benefit from both managed accounting services and a fractional CFO.

Choosing between managed accounting services and a fractional CFO can feel overwhelming. Both professionals add value to your organization in different ways. Outsourced accountants can handle the day-to-day transaction management, provide assurance services, and help with tax items, while fractional CFOs are a key component of high-level decisions. If you are still struggling to determine which professional your company needs, contact one of our team members today.

Can a fractional CFO replace an accountant?

While a fractional CFO can provide strategic financial guidance and support, they cannot replace the duties of an accountant. Accountants focus on daily transaction management and have special experience and credentials used for tax compliance.

Does a CFO need to be an accountant?

Many CFOs will have some background in accounting, but they specialize in the finance side of running a business. This includes raising capital, managing investor relationships, and preparing financial forecasts and budgets.

Can a fractional CFO and managed accounting services be hired together?

Yes, some accounting firms will also provide fractional CFO services.