How Fractional Management Can Help Small Businesses Save Money And Become More Efficient
Updated: May 22, 2024
Written by: Tiffany Ann Bottcher, MBA, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Historically, fractional management referred to the management of assets shared by more than one party. Asset managers would allocate an asset to different investors based on how much each had invested, and the managers charged a fee for managing the asset. If you have ever shared an asset with someone; maybe a boat, vacation spot, or even a car, chances are you had some kind of fractional arrangement. You own half the car, you get to use the car half the time. Now, using the same method for executive management, small businesses have better access to resources that would otherwise be out of reach.
It's no secret that small businesses are the backbone of the American economy. In fact, according to recent studies, small businesses account for almost two-thirds of all new jobs created in the United States each year. So it's more important than ever for small business owners to find ways to become more efficient and save money.
One way to do this is by using fractional management. In a fractional management arrangement, businesses share the cost of an executive manager, such as a CEO, CFO, CMO, or COO. An extremely beneficial arrangement for small businesses because it allows them to access the expertise and experience of a top-level executive without having to pay the entire full-time cost of that executive.
What is fractional management and how does it work?
According to Salary.com the median 2022 salary for a CEO in the United States is $796,134. This salary is completely out of reach for many small businesses. However, by only covering a portion of the CEO expense, the cost becomes much more manageable.
Through a fractional arrangement, a small business can have access to executive-level managers for a set number of hours per week or month. The business only pays for a part-time service which can result in huge savings. Since the manager is brought in on a contract basis, it also means a business can bring fractional managers on through specific projects or challenges.
What are the first steps to seeking a fractional manager?
Setting up a fractional management arrangement can seem daunting, but with a little planning, it can be a relatively straightforward process. The key steps to success when seeking a fractional manager are:
Review your current challenges and objectives. Make note of your passions and skill sets.
Determine the potential ROI of having these challenges solved. Being very clear on the objective can aid in this analysis.
Be open-minded and check your ego. Your business and future success require you to come at this with an analytical mindset, not an emotional one.
Connect with potential candidates, LinkedIn is an excellent source using Fractional [Title].
Ask for recommendations from other small business owners or entrepreneurs who have used fractional management successfully.
Analyze potential costs and projected ROI of filling the role full-time and as a fractional position. Decide which would be a better fit and confirm the timing is in alignment with your strategic goals.
Be very clear on the objectives of the role when connecting with potential candidates.
When should a business hire a fractional manager?
A fractional hire can help a small business become more efficient by providing interim leadership, advice, and support. This can save the business time and money in recruitment costs and provide relief to stressed business owners. It can also help businesses manage through difficult transitions or periods of growth.
A fractional manager can be an excellent addition to a small business at any time, but there are certain times when a fractional hire can be especially beneficial.
When the business is facing a specific challenge or objective and needs expert-level support.
When the business is going through a period of change or transition.
When the business is experiencing high growth and needs additional support to manage that growth.
When the business owner wants to take a step back from day-to-day operations but still be involved in strategic decision-making.
During times of unplanned absences of key roles, such as an illness or medical concern.
During an unexpected departure of personnel in key management positions.
A well-managed business has the potential to grow in leaps and bounds. However, this is only possible when the right systems are put into place and the team is working cohesively towards a well-communicated objective. When businesses don’t have the correct management structure or their employees are not adequately trained, growth will be stunted. Small businesses can save money and become more efficient by using fractional management. A fractional management arrangement allows them to access the expertise and experience of a top-level executive without having to pay the full-time salary.
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Tiffany Ann Bottcher, MBA, Executive Contributor Brainz Magazine
Tiffany-Ann Bottcher, MBA is the CEO of Bottcher Business Management Agency. She helps service-based business owners to scale their businesses without losing sleep. Tiffany-Ann is a best-selling author, speaker, and host of the "Service-Based Business Society Podcast". As an operation and automation expert, she has helped businesses from all over the world streamline their processes and increase efficiency. Tiffany-Ann combines her education in accounting, corporate finance, and communications with over a decade scaling service-based businesses to eight figures and beyond.
