An interim CFO is a highly experienced financial executive a company brings on temporarily, one who can shepherd them during difficult times
An interim CFO is a highly experienced financial executive a company brings on temporarily, one who can shepherd them during difficult times
According to a report by the Business Talent Group, the demand for interim leaders has gone up over the past year by 23% and by more than 170% since 2022. Of those interim leaders, the highest demand is for interim CFOs, making up around 54% of all required interim executives and showing more than a 46% year-over-year increase.
So, let’s look at what exactly is an interim CFO, when can one benefit your company, and how do you best choose one?
An interim CFO is a highly experienced financial executive that a company brings on temporarily, the period usually ranging from 3 to 9 months. However, unlike a fractional CFO who works part-time, an interim CFO works full-time for the duration of their engagement.
Companies hire interim CFOs during periods of transition, such as:
As you may have guessed from the definition of interim CFO, the length of time the CFO works for you depends on the transition you are going through. For instance, if you hire an interim CFO because your previous CFO left, then your interim hire will only be there till you find your new CFO.
That said, interim CFOs hit the ground running to stabilize financial operations while working closely with the company's executive team to develop longer-term strategies.
A key advantage of hiring an interim CFO is their fresh perspective and unbiased view of the company's financial operations. They are not tied to any stakeholder group and can provide objective guidance based on their extensive experience in the field.
Seeing as interim CFOs fill the role of the company’s CFO on a full-time basis, they are responsible for the operations of the finance function and are expected to contribute to strategic discussions with the company's leadership team.
So, the question of when one can be beneficial is a question of when you need someone to temporarily lead your finance team.
Here are a few sample cases:
Let’s explore each of these cases individually.
According to a report by IMD, 2022 saw several companies go into distress:
As a result, many companies decide to invest in a company turnaround, and, in some cases, they may go for a complete restructuring.
Now, part of what makes a company turnaround difficult is the need to dig into the financials and weed out the problem. It takes a level of expertise that comes from years of experience.
And this is what an interim CFO can bring to the table. Having engaged with numerous companies going through different types of transitions, they have seen and solved common and uncommon challenges many times before.
Moreover, whether it is a turnaround or restructuring exercise, the interim CFO will put together forecasts to show what the company’s future will look like after the entire exercise is done.
CFOs leave their companies for a multitude of reasons, and the rate of their departure over the past decade has been increasing. Almost 59% of financial executives in North America agree that CFOs stay, on average, for 5 years or less with a company.
Regardless of why they left, the impact of a CFO’s departure is usually the same: the C-suite is missing a critical leader, and the outside world starts asking questions. Consequently, no company, especially one backed by outside investors, wants to stay too long without a strong leader at the helm of the office of the CFO.
So, in the event of an unexpected departure of your current CFO, an interim CFO can manage the responsibilities of the chief financial officer. They are ready to take over immediately, providing companies with the option of little to no downtime in the role.
An interim CFO provides a comfortable transition while the company identifies the next permanent CFO. Moreover, since there is no defined time for how long it will take to find a new CFO, with the search occasionally taking up to 9 or 10 months, hiring an interim CFO saves the company from the need to rush its search.
The interim CFO can also help onboard the next CFO, smoothly transferring the duties of the role.
A major system transition, such as an ERP implementation, is a challenging and resource-intensive undertaking many companies find difficult to prepare for.
An interim CFO can assist in enhancing your organization's change management abilities by offering guidance on resource allocation, training, communication, and other aspects. Since a major systems project requires both financial and personnel resources, your interim hire can assist you in adequately planning and coordinating the effort to ensure that your business operations remain healthy even as the organization undergoes significant change.
Now that you better understand what an interim CFO does and how they can add value to a company, let’s go over some of the most common questions we get time and again regarding these temporary executives:
Let’s answer each of the above questions.
It is common for an interim CFO to receive a commitment from the company on the minimum amount of time they will be engaged. An interim CFO may want to know they have two to three months of full-time work guaranteed before moving to a month-to-month arrangement.
When a company hires an interim CFO, a set end date is typically in mind. The engagement may last a few months or more than a year but will vary based on circumstances. Interim CFOs are expected to be flexible in their availability, as predicting a specific engagement end date is often difficult.
This is why companies need to be flexible when detailing the period of the engagement. When predicting the length of the engagement, preliminary estimates are rarely correct, and in most cases, the engagement takes longer than initially anticipated.
The reason that most estimates are too short is that CEOs and company owners are rarely aware of all of the financial problems plaguing their company. And since they don’t know what they don’t know, it is not until an interim CFO is actually in the company and working for a while that these problems are fleshed out.
Interim CFOs are typically paid a monthly rate for their services. This rate is almost the same that you would pay a full-time CFO in their stead.
However, for larger companies, a full-time CFO may cost more than an interim CFO because the compensation structure for a full-time CFO includes large bonuses and incentives that aren’t necessary with an interim option.
Aside from the retainer, you might pay your interim CFO a bonus, especially if you bring them on for a special project such as an M&A deal. Simply, you would want to incentivize the CFO to bring you the best deal. The incentive doesn’t need to be too large, but something that keeps the CFO best-aligned with your success is always a good idea in these circumstances.
Also, if other costs are involved, such as travel or accommodation, the company will have to reimburse the interim CFO.
Hiring an interim CFO early on might not make sense for a startup. Instead, when the startup has the money, it should bring on a fractional CFO to help organize its finances and offer a strategic lens.
The logic here is that fractional CFOs are a more cost-effective solution. If you need a CFO to help you one day a week, then you will only have to pay for those 8 hours. And as your company matures and its needs evolve, you can increase the CFO’s responsibilities commensurately.
Finding the right interim CFO starts with being clear on what your company needs.
Not all CFOs come from accounting backgrounds, and knowing how your company's needs align with a CFO's experience is essential. The true qualifiers are more company-specific as they relate to the CFO's background. E.g., whether or not the CFO has experience with public companies, working with private equity, or leading M&A efforts.
As you have already seen, there are different types of interim CFOs:
Once you know what you are looking for, that can help narrow your search.
That said, you also want to gauge two different things:
Now, when looking at their functional fit, you want to go over the following:
Alternatively, when looking at their behavioral fit, here are the main criteria to focus on while interviewing your interim CFO:
All that being said, you don’t want to overemphasize cultural fit. Remember, an interim CFO will work with your company for a few months before moving on. It is more important to find someone who can steady the ship during turbulent times rather than someone who perfectly fits with your company.
All this being said, there are a few mistakes we see time and again when it comes to working with interim CFOs. Here are the main ones:
Let’s go over each one individually.
Often, a CEO might wait too long before bringing in an interim CFO. The reason is that when the CEO learns that their current CFO is leaving, they think they still have time to find a permanent replacement.
But what most CEOs don't account for is that finding a permanent replacement is easier said than done. They don't realize how fast time flies, and when CEOs get sucked in by their daily priorities, identifying a suitable replacement becomes an increasingly painful burden.
Consequently, when the CEO finally decides to bring in an interim solution, the interim executive ends up having a bumpy introduction to the company rather than a smooth ride because of the delay.
Another common mistake we see all too often happens when HR departments take on the responsibility of hiring an interim CFO. The problem is that HR usually makes permanent hires and isn’t used to making temporary ones. So, what ends up happening is that the HR team will apply the lens used to judge a permanent applicant and use it to scrutinize an interim role candidate.
The perfect example of this is the overemphasis on cultural fit.
At the end of the day, an interim CFO is only there for two to six months, which is the average duration of such an engagement. Does it make sense to focus on cultural fit when the interim hire will leave shortly?
Instead, a larger emphasis should be placed on the required skill set as well as the other necessary behavioral traits. Now, if you can find someone who checks these boxes and is also a cultural fit, then hire away.
Some companies don't prepare for crises. Or worse, they may not know they are in the middle of one. A company full of current and impending crises means that the interim CFO will spend more time putting out fires and trying to keep the doors open rather than building and adding value.
An interim CFO will often walk into a company with cash or working capital problems. In this case, the interim CFO's only responsibility will be to help the company secure the required financing to keep the lights on, which may be what they were brought in for in the first place.
Aside from keeping the interim hire busy putting out fires, poor crisis planning and management means that your temporary CFO has to keep their focus narrow and isn't able to be the strategic partner to the degree that you would like. Once fires are put out, the interim CFO can focus their attention on other value-driving activities.
You should not set your interim CFO loose for two or three weeks with little help and supervision and hope to get results. After all, your interim CFO is still new to your company, and despite their best efforts, they need responsive guidance to deliver quick results.
Instead, you should overmanage them a bit. Ask them to come up with a clear plan. As CEO, you should give them all the inputs they need, including what you are trying to accomplish and your vision for the future. Then, you want to measure the success of your interim CFO against those things that the two of you talked about.
In fact, when signing an agreement with an interim CFO, many of them will insist that you assign a point of contact for them to interact with. After all, they want to ensure that the engagement is a success, and they will highlight the necessary requirements for that to be the case.
When working with an interim CFO, there are two handovers to consider:
During a handover process, there are a few things you want one CFO to pass on to the succeeding one:
These elements ensure that the transition is as seamless as possible. With them, you can avoid plenty of rework and unnecessary waste of time.
An interim CFO can be a great resource that shepherds your company during difficult times or times of transition.
However, if you want to bring one on, you need to start by being clear on the purpose of the engagement and knowing what you are looking for ahead of time. Do you want a CFO because your company is going through a special project, or is there a financial crisis that needs to be mitigated by an experienced hand?
Once you are clear on your needs, there are a few mistakes you want to generally avoid, such as overemphasizing cultural fit during the selection process or failing to have someone manage the interim CFO’s work.
All that being said, if you need help finding an interim CFO for your company or are trying to find out if an interim CFO is the right choice in the first place, then do not hesitate to reach out for a free consultation. We would love to help you find the best solution for you and your company.
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