Interim or Part-Time CFO Hiring
For many companies, there comes a time when in-house talent is no longer experienced enough to successfully handle the financial challenge at hand. However, this does not mean it is the right time, or it is not cost-effective, to hire a full-time, permanent CFO. In these cases, interim CFOs provide been-there-done-that experience in doses that your burn rate can handle.
As with any senior-level hire, finding the right person is critical. The interim CFO must be eager and capable of fulfilling the vision of the CEO and the company’s investors. What makes hiring an interim CFO particularly challenging though, is that the circumstances creating the need for the hire often imply that time is of the essence. Therefore, it is even more important than usual to hire someone who is capable of quickly accessing the company’s situation, building key relationships, and effecting change.
Why Hire an Interim CFO?
Interim CFOs are often brought in to handle corporate transitions such as a change in ownership of the company, which sometimes prompts a change in senior management, or an acquisition of another company, which requires additional resources to ensure a smooth integration. Sometimes the transition at hand may be caused by the sudden departure of the current CFO, creating an immediate staffing need.
Situation: Acquisition of a company
- A strong technical accounting background with prior experience integrating small acquisitions into larger organizations.
- Familiarity with both accounting software systems.
- Understanding of the tax and accounting implications of the transaction to form their own opinion as well as effectively leverage outside accounting advisors.
- Ability to clearly communicate with the new team to incorporate policies and procedures to effectively work together going forward.
Preparing for Strategic Events
Interim CFOs are also often brought in to help companies prepare for strategic events such as a fundraising round or an exit. This type of event creates a need for a senior-level financial person to help navigate the process as well as make sure that the company’s financials and business operations are at high-enough standard to meet the due diligence and compliance requirements of the investor or acquirer.
Situation: Co-founders would like toexplore strategic alternatives such as a sale to a strategic buyer or an investment.
In this situation, an interim CFO should be helping to prepare the company for the event as well as help them pitch to investors and strategic acquirers. The interim CFO will need to:
- Understand diligence requirements of all parties involved.
- Ensure that all documentation is in good shape (corporate documents, historical financials, etc.) well before they are presented to outside parties.
- Build a financial model and support valuation discussions.
The above requires familiarity with this industry’s particular competitive landscape and dynamics.
Interim CFOs are also beneficial to startups or established companies experiencing high-growth phases that need senior-level financial advice but may not be able to afford a senior-level hire. In these cases, the finance person may be referred to as a part-time CFO or a fractional CFO since the company is receiving senior-level experience at a fraction of the price of a full-time CFO.
Situation: Considering expanding a product line but unsure of how much to invest in manufacturing. Lenders are willing to provide a line of credit against the inventory, but the rates seem exorbitant. Looking to explore and compare different options.
An interim or part-time CFO can help improve its cash flow cycle and ascertain the potential risks and rewards of different levels of investment in inventory production. The CFO should also be able to:
- Recommend trusted banks and lenders.
- Evaluate the cost of financing the inventory versus using cash on hand.
- Implement new systems and appropriate levels of process to ensure the founder has access to up-to-date and accurate financial information.
- Train existing staff or recruit mid-level financial talent to ensure these implementations are carried forward.
Interim CFOs are often brought in when companies simply need more firepower to provide business analysis and improve core operations. Interim CFOs can provide fresh perspectives as well as the expertise to upgrade systems and accounting and reporting processes.
Situation: A loss of the CFO and extended vacancy, company’s operating profits have significantly declined. It has also breached a covenant on its critical bank facility, and its auditors have voiced concerns over internal controls. Too many employees are empowered to engage outside vendors and spending has grown out of control.
The interim CFO needs to take several swift, decisive actions despite the temporary capacity:
- Implement controls to limit purchasing approval to department heads.
- Implement a new vendor approval process.
- Develop comprehensive reporting and budgeting tools to improve management reporting.
- Improve integrated closing process to provide timely results.
- Negotiate with lenders to ensure that its line of credit can remain in place.
- Use the knowledge of the company’s needs to find and ensure a smooth transition to the new CFO.
Step back and ask yourself about the most important thing an interim CFO needs to address at your company. Look for someone that has handled that type of situation in the past. Then dig deeper and ask yourself if their experience is applicable to the industry you are operating in, or to your company’s lifecycle stage.
- Technical accounting/tax expertise: Ask the candidate to speak to your tax or audit firm.
- Strategic finance expertise: Ask about their past deals in raising capital or negotiating successful exits. Dig deep into the process they would propose implementing at your company.
- Operational expertise: Ask about the examples of key process improvements.
While hard skillsets may vary widely, the professional and leadership skills required to be a successful interim CFO are much more consistent from role to role.
Tackle all aspects simultaneously
Top-class interim CFOs are not just pro-active in assessing a company’s situation and zeroing in on the right plan but also able to clearly explain their rationale for the prioritization. For example, when time is critical, or there are not enough resources to tackle every issue, the interim CFO should focus on those aspects that are immediately pertinent to the company, while highlighting outstanding areas that need to be addressed by the permanent CFO in the future.
They are capable and willing to roll-up their sleeves to get the job done. But at the same time, they must be able to guide and mentor both senior and junior-level employees in your organization so that their work will add value beyond their tenure.
Furthermore, top-class interim CFOs can add value across all operational aspects of your company. Beyond their initial scope of operation, they can often provide valuable opinions on topics such as marketing budgets, logistic operations, supplier contracts and staffing plans.
Interim CFOs should be able to offer recommendations and introductions to legal firms, audit firms, banker, lenders, insurance brokers, ERP firms and IT service providers. Any strong candidate is likely to be familiar with many different types of software and can provide opinions not only on accounting systems, but also business intelligence tools and team communication apps. Naturally, this also serves them well when coming into a new organization, where quickly building up good working relationships with key stakeholders is a must.
- First and foremost, does the candidate have prior experience in interim or consulting roles? Were those roles with a company at the same stage and structure as yours (e.g. a startup or a PE-backed company)? Interim assignments are not the time to train employees. If the candidate cannot check all the boxes, that does not necessarily mean they cannot handle the role but ask them why they believe their prior experience will allow them to quickly be successful in this role.
- Ask the interim CFO how they prioritize responsibilities when there is not enough time in the day. Are they able to convince you that they not only get the important task done and stay calm in a stressful situation, but they can keep their teams calm as well?
- Quiz them on who their favorite people are to work with, especially in the area you are looking to help. A strong interim CFO will be able to offer up several professional recommendations for external service providers your company can bring in, or even full-time hires. The failure to do so may be a red flag that they have been nurturing these types of relationships in the past.
Ensuring a successful engagement
Once you have found the ideal candidate, spending the time to adequately on-board them greatly enhances the chances of a positive experience and a successful engagement. An interim CFO is a particular position as they must be given the room to make decisions while also preparing the role for a permanent part-time or full-time hire in the future.
A few suggestions
Make scope of engagement clear to everyone
New people in an organization, especially finance people, can be unsettling. Nervous employees may start wondering if a round of cost-cutting is nigh or if their jobs are at risk in a company sale. To whatever degree you can provide transparency, let your broader team know why the interim CFO is getting involved in the company. This not only creates a better environment for the CFO, it helps limit distractions.
Ensure the interim CFO has adequate resources
As with any new senior-level hire, the on-boarding process should involve meetings with key employees to gain a broader overview of the company and become familiar with decision-makers. In addition, the interim CFO will need access to financial systems and corporate documentation and potentially introductions and meetings with key advisors such as your investors, bankers, and audit firm.
Jointly determine milestones
Many experienced interim CFOs will provide you a roadmap for the first few weeks of the assignment. If not, do not be afraid to ask for one. While time and circumstances may veer you and the interim CFO from the original path, a good game plan will ensure that you start off with similar expectations about deliverables, expected results, and timing.
The importance and impact of interim positions may be looked over due to the limited time with your organization. That would be a critical position. Finding the right interim CFO may increase your runway, get you closer to an exit and lay the groundwork for the right full-time CFO to come. Trust us, the best ones will leave a positive impact long after they have moved on.