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What to Expect When You Hire an Interim CFO

Before your interim CFO begins work, it's important to understand what they will aim to accomplish in the first 90 days.

Before your interim CFO begins work, it's important to understand what they will aim to accomplish in the first 90 days.

Whether you have already hired an interim CFO or are considering doing so, you need to know what to expect beforehand. Not only will this better inform you of what you would be buying, but it also lets you know how to adjust your actions and get the most out of your temporary hire. 

But before talking about what you should expect, let's dive into the reason you would hire an interim CFO in the first place. 

Why do companies hire interim CFOs?

In most cases, companies hire interim CFOs when they are undergoing a transition of sorts. A transition can take a few forms:

  1. Maybe your current CFO left, or perhaps you let them go. 
  2. Alternatively, your company might be growing, and you need a strategic partner to help.
  3. Or your company might be experiencing a financial crisis, such as being unable to close an audit.
  4. You might have a special project with which you need seasoned, professional help. This applies if your company is going public or if you're right in the middle of an acquisition. Regardless, you need an interim CFO to consult you on said specific project.

Your expectations will change depending on the reason you brought the CFO in. However, in the first three cases, you need someone to come and fill the office of the CFO, i.e. to lead your finance team and take on all the responsibilities that a full-time CFO would shoulder. In the last case, with a special project, you need an interim CFO dedicated to a single focus. 

Now, a project CFO is more of a consultant who helps you with a specific task, and the first thing they need to do is map the project's needs. For example, if your company is working on a merger, your interim CFO needs to help you model it and plan for different scenarios. 

However, an interim CFO who is filling the office of the CFO has a lot on their plate. 

What to expect from an Interim CFO who is filling the office of the CFO and leading your finance team

An average interim CFO stays at a company anywhere from 2 to 6 months, with the rare exception lasting up to more than 3 years. So, interim CFOs must deliver value quickly; they don't have 90 days to figure things out and learn the ropes. Instead, they need to hit the ground running.  

Everything starts with the mission and vision

The best interim CFOs are both strategic and operational. 

That is why the first thing an interim CFO should start with is understanding the company's vision, mission, and values. They need to talk to the company's leadership, understand its current position, and gauge where it is heading over the next few years. And even though most interim CFOs won't be around to help the company achieve its 5-year plan, they can set it on a steady course toward its vision.

Ideally, an interim CFO will have this conversation before they sign an agreement and start working at your company. 

Conversely, you don't want the CFO to come into your company and start plowing through the work without knowing which direction the company wants to go. This turns them into a functional employee and deprives you of one of the most important assets any CFO brings to the table: their strategic mind. Additionally, if your CFO isn't clear on what your company is trying to achieve, then how will they be able to prioritize the tasks ahead of them? 

Gaining a better understanding of the company and its activities

Once your interim CFO has a strategic understanding of your company, their next job is to understand your company's operations. This means they need to do the following:

  • Meet your people, especially the members of the finance team. In the process, an interim CFO should understand the company's organizational chart and draw it out for themselves if your company hasn't already done so. They'll map out who reports to whom, their responsibilities, and what objectives the team members need to accomplish. 
  • Get a picture of your finances and where your company's resources are distributed.
  • Look at significant events, such as whether your company is getting audited.
  • Unearth any problems that also need to be addressed. For example, does your company have tax returns that must be filed? 
  • Understand your company's relationship with its financers. Are there reports, such as covenant reports, that must be delivered to financial institutions? They will review your SEC filings if your company is public. And, if it's private equity-backed, what type of reporting is done to the private equity group? 

Now, as your interim CFO does all of the above activities, they will not only get a much better sense of how they can help you achieve your objectives, but they will also discover holes and gaps in your company's operations and finances, ones that you might not have been aware were lurking underneath the surface.

Also, as you might have noticed, the first thing an interim CFO does is to gather all the information they can about your company, summarize it, and compile it all in digestible reports. And through these reports, a good interim CFO will answer questions the CEO doesn't know to ask.  

Let's take a closer look at just some of the aforementioned responsibilities.

The interim CFO needs to meet your people

Your CFO needs to build relationships within your organization. To that end, one of the first things they should do is schedule one-on-one meetings with different team members, starting with company leaders and finance team members. During these meetings, the interim CFO will ask questions to learn more about your company and uncover issues that might be invisible to you. 

There are other things that the CFO will be looking for as well:

  • The team dynamics at your company
  • The strengths and weaknesses of each team member
  • Understanding who works well with whom 
  • The relationship between the finance team and other departments
  • Areas where there is room for growth, better communication, or improved collaboration
  • Problems or initiatives that need to be prioritized 

The objective is that from those meetings, your CFO will be in a better place to set expectations regarding team performance. The interim CFO will also understand how the finance department integrates with the other departments: Is every department siloed, hindering communication? Are other department heads reluctant to cooperate with the finance team, making it hard to hold them accountable for financially imprudent decisions?   

The interim CFO needs to understand the relationship your company has with its financers

Unless your company is bootstrapped, it needs funding from somewhere: 

  • The company is private equity backed.
  • The company went public.
  • The company took out a loan.

Let's explore each of these cases individually.

Your company is private equity-backed

Every private equity-backed company will have a different relationship with its investors depending on various factors. Nevertheless, most private equity firms will be actively interested in their portfolio companies' performance, which is why they are notorious for rigorous standards around financial reporting. As such, company management is responsible for producing regular, timely, accurate reports. 

An interim CFO should quickly determine the nature of the company's relationship to its private capital and facilitate communication as needed.  They should also be familiar with working in a private equity-owned environment and understand how to satisfy the reporting requirements of these investors. Additionally, your interim CFO should be experienced in answering questions and clarifying reporting items to the private equity firm where needed.

Your company is public

If your company is public, then its duty is to the shareholders. Shareholders are happy so long as the company achieves acceptable returns, but they expect the CFO to communicate company performance clearly

You see, your shareholders get their information from shareholder meetings, SEC reports, and whatever is publicly published by your investor relations (IR) group. IR typically reports directly to the CEO, but the CFO is critical in supplying IR with financial reporting, information on investor meetings, projections, and more.

Your company has taken out a loan

When your company takes out a loan from a financial institution, it has to answer to said financial institution. Accordingly, your CFO needs to report to them about your covenants and your credit lines. It should be noted that this type of reporting is a legal requirement of the bank, and any mishandling could lead to issues with your lender that can damage your credit and create many problems for your company, including its ability to secure debt in the future.

Laying out everything for the CEO

Once the interim CFO clearly understands where the company wants to go and where it currently is, their job becomes all about laying everything out for the CEO, along with recommendations. The CFO needs to list all the problems they've spotted and their severity. They will offer possible remedies for each issue and the expected timeline during which said problem can be solved. 

With the problems listed, the interim CFO should also offer recommendations regarding prioritization. Some problems can be solved during their temporary stay, but other issues will have to be addressed by whoever ends up being the permanent CFO of the company. 

But, at the end of the day, the decision of which issues to solve will fall on the CEO. They have to give the final go or no-go call. 

After the CEO and the CFO sit down together, they should put together a plan of what needs to happen between the start date and the end date. They also need to answer some tough questions, such as whether they will start the search for a permanent CFO immediately or wait for a while first.

Why wait?

Occasionally, a CEO will prefer to have the interim CFO help them rein things in, and only once the dust settles can the search for a permanent CFO begin. The idea is that the company will be in a much better position to bring in a permanent CFO if they've cured many of their current issues. It is not uncommon for the interim CFO to be more experienced than the eventual permanent CFO and thus more capable of quickly handling challenges. 

Alternatively, the company hiring the interim CFO may be in the middle of an acquisition, and the CFO of the acquired company is targeted as the CFO of the combined company. Until then, someone has to serve as CFO in the interim.

Some of the biggest mistakes CEOs make when working with interim CFOs

Although interim CFOs fill a temporary role, they can still provide plenty of value during this short period. However, the value they bring to the table largely depends on how the CEO works with them. 

In other words, to truly unlock your interim CFO and to get the most ROI possible from them, there are a few mistakes you should avoid:

Waiting too long before hiring an interim CFO

One mistake we see time and again is that CEOs will 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 problem that arises from bringing in an interim CFO too late is that you deny them the opportunity of a handover from the previous CFO. Suppose you have the opportunity to facilitate a handoff. In that case, the outgoing CFO can provide the interim CFO with all the documents and information needed and make themselves available for questions. Otherwise, the interim CFO must do the legwork to gather information.

So, what information gets passed along during the handover process?

Ideally, the outgoing CFO should prepare a document listing the following:

  • Everything they were working on up to the point of their leaving, including a timeline of the work if possible
  • An organizational chart that covers things such as different entities, subsidiaries, and international operations. 
  • An internal organizational chart of all the staff, who reports to whom, how many employees are there, and what locations they're in.
  • A list of major projects and who is working on them.
  • A business plan
  • A map to better understand the culture of the company
  • The significant issues or problems from the outgoing CFO's perspective
  • All the major issues that are expected to be tackled during the interim CFO's time at the company, i.e. what major issues need to be resolved within the next 6 months. 
  • Any relevant notes that could help the interim CFO

Not preparing for crises

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 and your teams' attention on other value-driving activities.

Not assigning someone for the interim CFO to report to

You should not set your interim CFO loose for two or three weeks without any 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 may want to 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.

So, why don't all CEOs do this?

The simple answer is that they never had to when working with their permanent CFO. When a CFO has been at a company long enough and has worked with the CEO during that time, the two of them usually understand one another enough to complete each other's sentences. So, there was never a need for the CEO to enunciate what was going through their head. Moreover, there was a level of trust between the two executive leaders that each would handle their responsibilities and take initiative when needed. 

But, when you bring in an interim CFO, you don't know that person. So, you need to treat them accordingly.

Putting it all together…

When you bring in an interim CFO, you could either want them to fulfill your previous CFO's responsibilities or help with a specific project. In the former case, where you need them to fill the office of the CFO, three things should happen:

  1. Before the real work starts, the CFO should understand your goals, the company's vision and mission, and any other strategic input to help them prioritize their tasks better.
  2. Once inside the company, the interim CFO needs to better understand the company and its activities. This includes meeting with team members and understanding your company's relationship with its financers.
  3. With all of this information, your interim CFO can draw up a preliminary plan that you can review and modify as you see fit. 

Aside from that, you want to ensure that you avoid some of the most common mistakes we see CEOs make, including waiting too long to hire an interim CFO and not assigning someone to oversee the CFO's work.

That said, if you are considering hiring a new interim CFO or already have one lined up, we would love to help. Feel free to reach out, and we would be happy to go over the details and give you pointers based on our years of experience doing this and working with clients just like you.

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