Small businesses and non-profits may benefit from interim CFO services in a variety of circumstances. Your current CFO may be absent for what is expected to be a few weeks to a few months due to illness or maternity leave. Or you may need someone to step in to help you through an adjustment period such as:
- A cash crunch
- A one-off project eg: pricing overhaul
- A one-off financial audit or due diligence exercise
- A relocation
- A merger or acquisition
- A bankruptcy
- A new bookkeeper/controller (the interim CFO could step in to help hire and train these roles)
A third possibility is that you need to take your time to find the right permanent CFO or virtual CFO service provider. An interim CFO can give you the temporary insights you need to cover the time it takes to go through the recruiting process. That process can take several months.
A 2015 survey by Jobvite indicates that while average jobs are filled in 43 days, it takes an average of 71 days to fill a c-level position and 76 days for a position with "director" or "vice president" in the title.
Do I Need Interim CFO Services or Should I Just Tough it Out?
If you find yourself in one of these positions, you may be contemplating an engagement with an interim CFO, but also trying to determine if you should just "tough it out" without CFO services through the next few weeks or months.
In this post, we'll cover some of the relevant considerations which may play into your decision.
How long would it take an interim CFO to get in, up-to-speed, and productive?
The ramp-up period depends on the CFO’s background relative to the type and size of your business, the nature of the need, and the current state of “the books." If the interim CFO is new to your industry, is more familiar with companies at different stages of growth, is inexperienced with the current need, isn’t familiar with your technology, or your books are a mess, this could take many months or longer. But a great interim CFO with relevant experience, who knows your technology stack, and who will find that your books are in reasonable shape should be able to add value in hours or days. Fit is everything.
What are some reasons a company might "tough it out" and do without a CFO for a limited time?
There are a few circumstances when you might be in a good position to save the work and expense of bringing in interim CFO services.
- You may have a strong "lieutenant"(controller) who can generate proper reporting and do the requisite interpretation and guidance necessary. This person can generally keep tabs on things and can handle the finance function for a short period provided no extreme situations arise.
- You may have a project which isn’t time sensitive. In this case, you and your current team can take the time to learn the ropes yourselves.
- You may have tight controls and systems in place to prevent errors along with a strong cash position to absorb a dip if you miss something because the typical oversight isn't in place.
What are some potential problems "toughing it out" could cause?
If you decide to "tough it out" without interim or CFO services, you need to be aware of some potential problems which could stem from a lack of c-level financial insight.
- You could be in for a cash crisis. There are some problems in business from which you can recover: negative brand impacts, employee issues, or insurable "acts of God." But even a temporary inability to pay your employees or suppliers can crush everything you've worked hard to build in no time.
- You could make some poor financial decisions. This period of running your business in the dark, with limited data for informing decisions, could set you back months or even years.
- You could deliver erroneous (and therefore, embarrassing) reports to stakeholders. If your financial reports are off or are not ready in time, you'll quickly lose credibility in their eyes.
- Your fundraising efforts could be denied, and your future options diminished. If you go through without CFO professional services and you can't raise the money you need, it may be difficult or even impossible to seek funds from these sources at a later date.
- You could be susceptible to fraud, errors, or security issues because there is no one at the wheel.
- You could price a new offering or large project at levels that are unprofitable or well below your target margin. If you anticipate major product changes or projects in the next few weeks or months, this could be an issue.
- As CEO, you could lose sales opportunities or experience fulfillment issues because you've taken your eye off the ball while you fill in the CFO role.
What are some of the benefits of hiring an interim CFO?
In addition to avoiding the problems we just mentioned, consider the following benefits you could gain by engaging interim CFO services.
- You can test the concept of having a higher level CFO-type resource. "Try before you buy."
- If you are selling the business, you can add back the cost of an interim CFO to the bottom line for valuation purposes.
- If you are buying a business, you can hit the ground running in that crucial period immediately after the acquisition.
- If you've been looking at the numbers for a while with no fresh insights, you can get a fresh perspective from someone with different experiences and industry knowledge.
What does an interim CFO need from me to succeed?
If you decide to bring an interim CFO on, you need to be prepared to provide them with everything they need to make the relationship a success. Here are some items to consider:
- Clearly articulate the responsibilities and expectations. Establish timelines and a way to monitor progress toward achieving specific milestones.
- Consider providing a variable compensation package tied to performance.
- Provide access to domain experts and the entire finance team. Make it clear to these team members that they need to provide timely support of the interim’s needs.
- Address issues early. Have your team on the lookout for issues and report back to you with any concerns. As appropriate, address with the interim to reset or refine expectations.
- Give access to historical reports and information as well as relevant systems. Be sure to document the onboarding process for future CFO hires.
- Train the interim in any areas where there are skill deficits or have your support staff take care of some tasks. For example, if the interim hasn’t used your accounting solution, have the support team run reports or train the interim on exactly what he or she needs to know.
Are there cases when a company might need a finance team and not just a CFO?
Some outsourced CFO providers offer a full range of finance team services. You may want to consider this solution in the following circumstances:
- During due diligence on a potential acquisition
- Relocation if the finance team doesn’t move
- CFO poaches the team and brings to another company
- Post-acquisition if team doesn’t go with new company
You may also want to consider a long-term relationship with an outsourced finance department provider (such as us), which provides CFO services.
We hope you're now in a better position to make the decision to hire an interim CFO service. If you're looking to gain more financial insights, a great place to start is with our executive growth reports.