You might think: 'The contracts and costs are what differentiate an Interim CFO from an employed CFO.' This simple distinction identifies two essential differences - but a precise differentiation makes sense when it comes to specific needs and capabilities.
In the company life cycle, different skills are required when it comes to the financial management of a company.
In start-up companies, it is often an unpopular additional task for the founders to take care of financial topics. This enables a cost-effective start and, above all, the focus is on the product. Ultimately, product market readiness is more important than long-term planning. In addition, the necessary financial resources are often manageable and early stage investors are more likely to be convinced by the product and the team than by a good business organization. In addition, external start-up CFOs, business and tax consultants offer their services in this phase.
When the start-up turns into a scale-up company, the first deficits in the commercial organization often become apparent. The necessary financing requirements are increasing and so are the requirements of investors. The finance processes should now ensure 100% compliance. Business plans should be available on a rolling basis and in scenarios that are self-explaning and up-to-date. An integrated planning that transparently presents the company's development in real time with the relevant KPIs is also needed, as well as the appropriate corporate law structures, precise liquidity planning and efficient team interaction. The Managers being resposible for finance are often no longer fit for the enough for the enhanced requirements and critical areas cannot be processed. The reasons for this are, on the one hand, the necessary professional experience but also often the massive workload. Interim CFOs are often assigned at this stage of the company. They bring the necessary experience, act professionally with the relevant stakeholders and are experienced in implementing the appropriate tools and developing the team.
During the next phase of solid company growth, a permanent CFO can demonstrate his/her advantages. During the search, which is often supported by an Interim CFO who may have acted before, candidates can be found who are experienced in the industry and financial organizational requirements and can control the further development of the company with professional business expertise. Over time, they become much more familiar with the individual special topics and can build up a good internal network.
In the event of a separation between the CFO and the company (whether temporarily - for example due to illness - or permanently due to contract termination), a gap arises in which a new interim manager can easily bridge the vacancy.
During the company's life cycle, the requirements for a CFO often change. For example, in phases of a planned IPO or in phases of a crisis, special skills are required. Acting Finance Managers of growth company might reach their limits. Even then, the use of an Interim CFO is again an option that provides the necessary skills.
Another differentiator between employed and Interim CFOs is project experience. Typically, an employed CFO's resume contains a single-digit number of previous employers. That shows perseverance. The risk that a job hopper will move on to the next company at the next opportunity hoping for better conditions seems low if the duration of the individual positions is long. Experienced Interim CFOs, on the other hand, often have a long list of projects. You know what it means to quickly familiarize yourself with the necessary tasks. The clear focus is on the task. There is no 100 day grace period. Important decisions are usually required after the first two weeks.
An unhealthy corporate culture in the departments slows down the company's success. Often internal power struggles, vanity, rivalries or career aspirations is the reason. When acting professionally, an employee will always take into account the extent to which decisions affects their own job, their own development opportunities and, last but not least, their own remuneration (including bonus). The actions of interim managers are usually unaffected by this. They neither have to worry about their status in the company nor about the contract conditions. These terms are usually fixed unchanged from the beginning of the contract until the end. What is more crucial for the interim manager, however, is the results orientation, as it is standard practice to obtain references before appointing an interim manager.
For an employed CFO, a corporate crisis is the exception. It is often difficult to keep an overview, to set the focus correctly and to separate the essential from the non-essential. On the other hand, the appointment of an Interim Manager is often accompanied by a crisis. These can be disruptions in the finance department or external reasons for crisis - but in any case, an experienced Interim CFO knows how to deal with it. A quick understanding of the situation and a suitable toolset for stabilization form the basis of successful action.
The costs of Interim CFOs are higher than those of employed CFOs - mainly due to the way the employment contracts are designed. While employees enjoy social security payments and continued payment of wages in the event of illness, vacation and protection against dismissal, Interim Managers are independent entrepreneurs. Their salary mainly depends on chargeable days. They will only be paid for days on which a service is provided. In addition, there are approaches to measuring the return on investment in interim managers with the so-called ROIM (Return on Interim Management). According to a study by Ludwig Heuse GmbH from 2021, ROIM states that interim managers generate a value of almost six times their costs for the company.
The options for structuring fixed-term contracts and notice periods are significantly less flexible for employees compared to Interim Managers.
If you as an entrepreneur are faced with the question of whether a permanent CFO or an Interim CFO is the solution to your challenge, it is advisable to take all points into account in order to be commercially successful for the future.
