Transforming Finance: Rise of Fractional Teams

Published : 4 days ago, on 31/10/2024

Remember the days when full-time corporate accountants and clerks occupied beige cubicle farms in businesses across the country? Those days are going the way of the fax machine. In C-suites across the country, CFOs are being asked a new question: “Your department has grown; but has it evolved?” It is not personal; it’s fractional—and it’s changing the face of corporate finance. But there’s a twist in this tale: it’s not just about individual fractional professionals anymore. The game-changer? Fractional accounting teams.

The numbers tell a compelling story. According to a Deloitte Global Outsourcing Survey, 57% of executives cited cost reduction as a primary driver for exploring outsourcing partnerships. This statistic alone doesn’t capture the full picture, but it sets the stage for a deeper examination of the forces at play.

Fractional accounting, the new entrant in this field, has seen a remarkable uptick. Data from the Fortune article shows a 20% increase in demand for fractional CFOs over the past year. This surge isn’t happening in a vacuum. It coincides with a broader shift towards gig economy models across various industries.

But what’s driving this shift isn’t just the appeal of individual fractional professionals. It’s the emergence of fractional accounting teams—a model exemplified by firms like kept.pro. This approach offers the best of both worlds: the flexibility and cost-effectiveness of fractional services, combined with the comprehensive expertise and team cohesion of a full-fledged accounting department.

The changing nature of work itself is a significant factor. The pandemic accelerated remote work trends, making it more feasible for high-level financial professionals to serve multiple clients simultaneously. Technology plays a crucial role here. Cloud-based accounting software and video conferencing tools have made it possible for fractional accounting teams to effectively integrate with client operations.

However, it’s not all smooth sailing. The traditional fractional model, relying on individual professionals, comes with its own set of challenges. Continuity can be an issue. When dealing with part-time individuals, there’s always a risk of knowledge gaps or communication breakdowns. This is where the fractional team approach shines. With a team, there’s always someone available to fill in the gaps, ensuring continuity and resilience—attractive features in an uncertain world and tight labor market.

On the other side of the coin, traditional outsourced accounting (such as Business Process Outsourcing that often offshores rote accounting) functions for large companies )continues to hold its ground. A report from Grand View Research projects the global finance and accounting outsourcing market to reach $53.4 billion by 2026, growing at a CAGR of 5.9% from 2019 to 2026. These numbers suggest that many companies still prefer a more comprehensive, ongoing approach to financial management.

But the fractional team model is disrupting this space too. It offers the stability and continuity of outsourced accounting, but with greater flexibility and often at a lower cost. It’s particularly attractive for businesses that need consistent support across various accounting functions, from day-to-day bookkeeping to complex financial reporting. This model offers a middle ground between maintaining a full in-house team and relying on individual fractional services or traditional outsourcing.

The choice of financial management model isn’t just about cost or convenience. It’s increasingly tied to strategic considerations. As companies grapple with complex regulatory environments, the expertise offered by fractional teams becomes crucial.

Take, for example, the implementation of ASC 606 for revenue recognition. This accounting standard, introduced in 2014 but only recently adopted by many private companies, has added layers of complexity to financial operations, even as it provides businesses with greater clarity around their performance.  Industry reports indicate a significant increase in clients specifically requesting help with ASC 606 compliance.

The regulatory and technology landscapes are constantly evolving. Many companies, especially smaller ones, simply don’t have the in-house expertise to keep up. That’s where a fractional accounting team can be a game-changer. These teams provide access to a diverse range of specialized knowledge without the need for multiple full-time hires.

But it’s not just about compliance and technology. Fractional accounting teams are increasingly focused on providing strategic value. The industry is moving beyond just balancing the books. These teams are now about providing insights that can drive business decisions.

This shift towards strategic advisory is reflected in the changing skill sets of financial professionals. A survey by Sage found that 51% shows that modern accountants require financial business advisory skills like cash flow and growth modeling. A fractional team brings together professionals with diverse skills, from technical accounting expertise to strategic business acumen.

The technological factor can’t be overstated. AI-driven analytics and machine learning algorithms are reshaping financial services. Another survey by Sage found that 90% of accountants believe there has been a cultural shift in accounting towards technological adoption. Fractional teams, with their diverse expertise, are often at the forefront of adopting and implementing these technologies.

This technological evolution is also addressing one of the key concerns with external financial management: security. With cybersecurity threats on the rise, companies are understandably cautious about sharing financial data with external parties. Advanced encryption methods and secure cloud storage are alleviating some of these concerns, but challenges remain.

The Association of Certified Fraud Examiners reports that more than 50% of occupational frauds occur due to a lack of internal controls or override of existing controls. This statistic underscores the importance of robust financial oversight. Fractional accounting teams can provide this oversight more comprehensively than individual fractional professionals or traditional outsourcing models.

Whether going with a fractional team or another model, companies need to have strong internal controls in place. External expertise can complement internal processes, but it can’t replace them entirely. This balance between external support and internal oversight is crucial for maintaining financial integrity.

For smaller companies and startups, the fractional team model offers flexibility and access to a range of high-level expertise without the commitment of multiple full-time hires. Larger organizations with more complex financial needs may find the comprehensive approach of a fractional team more suitable than traditional outsourcing or individual fractional professionals.

But it’s not always an either-or decision. Some companies are adopting hybrid models, combining elements of in-house, fractional, and outsourced accounting. For instance, a business might use a fractional CFO and accounting team for strategic planning and ongoing operations, while maintaining a small in-house team for day-to-day tasks unique to the business. This approach allows companies to tailor their financial management to their specific needs.

The only constant in this field is change. Companies that can leverage the right mix of internal resources, external expertise, and cutting-edge technology will be best positioned for success. This adaptability is becoming a key differentiator in the competitive business landscape.

In this shifting environment, having a diverse team of experts at your disposal may prove to be the most valuable asset of all. The fractional accounting team model, pioneered by firms like kept.pro, offers this diversity of expertise. It’s not just about having a part-time CFO or an outsourced bookkeeper. It’s about having access to a full spectrum of financial professionals who can adapt to your changing needs.

As regulations evolve, technologies advance, and business landscapes shift, a fractional team can pivot quickly. They can bring in specialists as needed, whether it’s for implementing new accounting standards, conducting accounting cleanup projects, or leveraging cutting-edge financial technologies. This agility is something that traditional outsourcing or individual fractional professionals often struggle to match.

Moreover, a fractional team provides a level of collective intelligence that’s hard to replicate with other models. When you have a team, you’re not just getting one person’s perspective. You’re benefiting from the combined knowledge and experience of multiple professionals. This can lead to more robust problem-solving, more innovative strategies, greater continuity and resilience, and ultimately, better financial outcomes for your business.

In the end, the choice of financial management model isn’t just a financial decision. It’s a strategic one that could shape a company’s future for years to come. As the business world continues to evolve at breakneck speed, the fractional accounting team model offers a compelling solution. It provides the expertise, flexibility, and comprehensive coverage that modern businesses need to navigate the complex financial landscape.

The future of corporate finance isn’t about choosing between in-house, outsourced, or fractional. It’s about finding the right mix of expertise, technology, and flexibility to drive financial strategy forward. And for many businesses, a fractional accounting team might just be the perfect slice of the financial pie.