The departure of a CFO can cause turbulence in a company, and until a new one is hired, it might make sense to bring in an interim CFO.
The departure of a CFO can cause turbulence in a company, and until a new one is hired, it might make sense to bring in an interim CFO.
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. What makes this remarkable is that the average tenure of CFOs has been going down over the years, and it wasn’t too long ago when a CFO would stick with a company for a decade or more.
That said, the impact of a CFO’s departure is usually the same: a leadership vacuum pops up, 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.
The problem is that finding a new CFO, particularly one with the prerequisite skills and a cultural fit, can take time.
As a result, hiring an interim CFO can be an excellent solution that fills the gap and ensures that the company doesn’t have to rush its search for its new executive. The company would benefit from the experiences of a seasoned professional who would support it for the few months it will take to find a new financial leader.
But before seeing how you could benefit from an interim executive on your team, let’s explore why CFOs leave and what impact that could have on your company.
According to Roger Morrison, a CFO with more than 4 decades of experience, CFOs resign for multiple reasons. Some simple examples include:
Occasionally, a CFO might quit if they feel that the company they are working for is underperforming or is headed towards stormy waters. And seeing as a CFO has complete visibility into a company’s finances, they can see the writing on the wall before anyone else in the company realizes that something is amiss.
In fact, CFOs rarely leave a company out of the blue. Instead, they usually provide telltale signs before deciding to abandon ship. For instance, they will get restless and highlight several issues they feel need addressing. Alternatively, they might go in the other direction and become extremely disengaged in the company’s day-to-day activities, becoming apathetic.
Regardless, when a CFO does leave, the impact can ripple across the company. For starters, CFOs are usually the second or third person in terms of hierarchy, so their leaving creates a leadership vacuum. Moreover, CFOs can be the face of their company in many circumstances, communicating with the board, the investors, and the public at large.
Roger Morrison puts it best when he says:
“When a CFO leaves, a CFO is a part of what they call the ELT, the executive leadership team. And the CFO is normally, again, the second or third person in the company, depending on the type of the company.
So when a CFO leaves, the ELT really is minus one of their big decision makers. So from banking issues, from audit issues, if there's not a CFO in there, the management or ownership of the company really has a problem.”
What’s more, when a CFO leaves voluntarily, this sends a negative signal to the rest of the world, a sort of canary in the coal mine. For instance, upon hearing of the CFO’s departure, credit rating companies, banks, and audit firms all take notice and start scrutinizing the company in question. Even the investors might get concerned. They start wondering why the CFO left and what they knew that the rest of the world has yet to find out.
Because of all of this, no company, especially no private equity-owned company, wants to spend too much time without a CFO on its staff."
There is no defined time for how long it will take you to find a new CFO. Sometimes, the search can last three to four months. In other cases, it can go up to 9 or 10 months, if not more.
Moreover, you never want to hurry the search for a new CFO because finding the right cultural fit is critical. After all, if you want to find someone who will help lead your finance team, then they need the right background, the prerequisite skills, and, most importantly, the values that will allow them to organically fit within your company.
And while there isn’t a single formula to calculate the length of time it takes to find a CFO, there are several factors that can impact the search process:
While a smaller company might use LinkedIn or Indeed to find its new CFO, larger companies tend to hire executive search firms to help. Moreover, larger companies tend to have a more formal search process as several stakeholders need to sign off on this hiring decision. For example, large companies will have a board that wants to meet the CFO first, an entire executive team that wants to make sure that there is a cultural fit, and an established finance team that wants to meet their potential new leader.
Speaking of a finance team, there are circumstances when it can make more sense for a company to promote someone internally into the role of CFO rather than look externally.
To make such a move, the company has to make sure that the individual they are promoting internally is qualified for their new leadership role. Finding such a candidate is much more likely with larger companies with bigger finance teams than for smaller companies with much fewer financial professionals on the payroll.
That being said, if your company has such a qualified caliber, such as a controller with leadership potential, it makes more sense to promote them rather than look externally for a new CFO. For one thing, promoting internally ensures cultural fit as this is someone who has been working with you for the past few years. Also, the internal candidate needs little to no onboarding as they already are familiar with the company and its offerings.
However, the internal hire might need help with training. They might struggle a bit with the leadership parts of the job and lack the experience that other seasoned CFOs have.
All that being said, most companies are not large enough to have someone ready to lead the office of the CFO, which is why they end up looking externally.
Consequently, as companies grow, they should have a succession plan in place, a road map for what to do should the CFO decide to leave tomorrow. This plan should include who will be promoted, what their onboarding will look like, and what training will be offered to them. This sort of plan reduces the time during which the company lacks a CFO and ensures that the finance team will return to normal in no time.
For many companies, the gap between when a CFO leaves and a new one takes the mantle can be difficult. As a result, it can occasionally make sense to bring in an interim CFO to fill the gap until a new one is hired.
A significant determinant of whether it makes sense to bring in an interim CFO is the amount of time the search process is expected to take.
For instance, if a company is hiring internally or already has a succession plan in place, then it might not be the best idea to bring in an interim CFO. Instead, it would be better to invest in training the new hire and providing them with all the necessary resources needed to succeed in their new role.
Nevertheless, in the event of the company hiring internally, there are still some cases where it makes sense to bring in an interim CFO, especially if the company is going through turbulent times and needs a seasoned leader to provide stability.
Alternatively, if the company plans to hire an external CFO, leaving the finance team without a clear leader for several months, the argument becomes much stronger to bring in an interim CFO.
If hiring an interim CFO makes sense for you, what will that look like exactly, and what can you expect during your engagement?
Before the interim CFO joins your company, they should strive to learn as much as possible about you and your business. During the interview process and the early meetings, they will ask you questions such as the following:
This is what Roger Morrison, our seasoned CFO from earlier, had to say:
“Every company I go into, the first thing I always ask them is, how's your cash? Do you do a 13 week cashflow? How's your relationship with your bank? How's your covenants?
And then, you know, then you get into things like right now, now is audit period.”
They will also try to meet with several executives from your company to get a 360-degree snapshot of your firm. For example, they might talk to your COO and try to discover the issues troubling them: What does the COO expect from the company’s finance team? In which areas has the finance team fallen short in the past, but the COO hopes will be improved moving forward?
Once the interim CFO is officially working with you, the first thing they will do is dive into your books themselves. They want to see if there are any hidden problems of which they are unaware. They will also double-check your covenants to make sure that they aren’t missing any red flags.
They will also do a cash forecast, which usually spans 13 weeks. After all, the worst thing any CFO can do, interim or otherwise, is to let their company run out of cash. This is also why your interim hire will ensure their forecast covers different scenarios and is stress-tested as much as possible.
Also, depending on the time they join, your interim CFO may have more work to do. For instance, if your company is going through its audit, they will ensure that it is completed by the date required by the bank. This means being well-prepared for the audit, knowing at all times where it stands, and realizing early whether there are any lurking issues.
Additionally, the interim CFO will tackle the unique pain points you, your management team, and your investors highlighted early on. For instance, if one of your company’s problems is that every department is siloed, insulated from its neighbors, then the interim CFO will have to work hard to provide you with comprehensive financial reporting and to ensure that every department is considered in the 13-week cash flow projection.
Earlier, we mentioned that finding a new CFO can take anywhere from 3 to 10 months. And during that period, you usually have an interim CFO filling the vacuum and providing leadership to the finance team.
However, how long your interim CFO expects their engagement to last can impact their role with your company.
For example, if you bring in an interim CFO while you are well into your search for a full-time hire, the interim CFO will expect their role to last around 3 to 5 months. Accordingly, they will avoid taking on long-term projects they know they won’t have time to finish. They might make suggestions and pass them on to the new CFO, but they won’t initiate anything themselves.
Instead, your interim hire will focus on the issues troubling the leadership team and private equity firm, particularly the ones highlighted in the interim CFO agreement they signed before engaging with you. They will make sure that all the cogs in your finance machine are turning smoothly, and they will handle any urgent matters that show up.
Alternatively, if the engagement is a bit longer, i.e. the company has yet to start looking for a new CFO, then the interim hire has more room to explore long-term projects. They might begin installing new systems or performing certain upgrades that could benefit the entire company.
Once the new CFO comes into the picture, the interim CFO will work with them on the transition.
For starters, your interim hire will point out any issues that have yet to be resolved along with suggested solutions. Remember, some problems might need long-term fixes, which is why the interim CFO might prefer not to get involved. An excellent case in point is the installation of a new ERP system, a project that can take a year or more.
On the other hand, the interim CFO might also point out issues that have been resolved but are worth knowing about. For example, if the company had a problem with excess inventory, and the interim hire managed to solve that problem during their tenure, they might still point it out in case it ever happens again.
A good handover process can help the new CFO get up and running in no time.
Even though every company wishes they had a succession plan in case one of its executives leaves out of the blue, that is not always the case. In many cases, the departure of a company leader, particularly the CFO, can cause internal and external disturbance. To compound matters, the search for a new financial executive can take time.
As a result, bringing in an interim CFO can be an excellent solution to help hold down the fort and deal with the urgent issues that require their expertise. And once a new CFO has been found, the interim hire can orchestrate a seamless transition, ensuring the new financial leader doesn’t miss a step.
That said, if you just lost your CFO or your company is going through a transition of sorts and you are unsure whether an interim CFO is the right choice for you, feel free to reach out to us. We would be happy to help you find the ideal solution for your company.
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