What are the qualities of a successful interim CFO? Substantial change and transition implementation experience and the personal attributes to make it happen are essential. Without strong interpersonal and communication skills, gravitas and team leadership capabilities, interim CFO’s are unlikely to succeed, however strong their technical background might be. The demonstration of these qualities is paramount, especially when an interim is parachuted into a crisis situation requiring a fast turnaround.
In today’s economic cycle the interim CFO must immediately consider whether the investment has sufficient resources to withstand a downturn. Alternatively, can it withstand a serious competitive attack and respond by funding alternative investments to ensure survival and growth.
Key issues requiring immediate impact from an interim CFO in private equity investments include:
- de-risking and debt pay down;
- banking relationships and managing covenants;
- cash management;
- poor internal controls;
- build foundations for growth or market downturn;
- restructurings, downsizing and cost management;
- acquisition integration;
- Board conflict and acceptance;
- preparation for sale, liquidity event or transaction
Personal attributes for success of an interim CFO include:
- indications of a high achiever (someone who is proactive, results-orientated, positive, prefers a hands-on approach and makes things happen);
- politically sensitive without being drawn into the politics;
- understands the need to stay objective and will not go “native,” particularly on an extended assignment. A private-equity firm will require the interim CFO to remain a strong link between them and the investment;
- someone who can stick their neck out and say it how it is, using good judgment;
- not concerned with personal status and can take that necessary step down in responsibility level easily and willingly;
- ability to operate at different levels and to demonstrate flexibility is essential in a change situation, where the goal posts can move from the day one steps into the assignment. Equally important is the need to adapt quickly to different cultures, sectors and organizations;
- ability to establish immediate credibility – particularly important as the sponsoring client may have made a brave move in introducing the first interim executive into the organization at or near board level;
- the interim will take the team with them very quickly, establish themselves with their peer group and generally sell the concept of why they are there on arrival;
- exceptional interpersonal skills and positive attitude should be immediately apparent and their “over-qualification,” combined with a touch of humility, ensures quick integration.
- financial security and fulfilled permanent career ambitions are also key requirements. The new interim CFO is, in effect, undertaking a business start-up with all the associated risks. If financial security is lacking, the CFO will have his or her eye on the permanent job market and will be an unsuitable candidate for true interim CFO roles.
The use of interim CFOs in private-equity investments has become an increasingly common method for turning around enterprises or pushing through key changes in specific business areas. The interim CFO has the personal and professional impact and experience to enable the rapid results sought by private-equity firms.
De-Risking & Debt Pay Down
The interim CFO will focus on de-risking the business and pay down of debt where possible. Areas of action include working capital and how better to manage it, tightening receivables and lengthening payables. A pile of debt simply focuses the mind of an experienced interim CFO on cash. They will instinctively understand that the investment is on a three to five-year trail, and will have been proven in managing the seemingly opposing demands of defensively repaying debt, as well as a focus on value growth.
CFO’s in private-equity backed businesses will not be programmed to be emotionally attached to any aspect of the cost base. Each asset and each line in the P&L is reviewed against return and efficiency. Negotiation of supplier contracts is a key influence on cost base. The negotiation skills and commercial resilience of an experienced interim CFO will drive suppliers to a better financial deal – and feed directly to the bottom line.
Poor Internal Controls
A CFO should be able to produce a comprehensive list of internal control shortcomings and the risks to which they could expose the investment. It is important the interim CFO ensures the material weaknesses are actually highlighted and dealt with.
Cash can often provide one of the earliest indicators of when things are going wrong. Knowing what your daily cash resources are, and how they are forecast to change in the next eight to 12 weeks, is a core discipline. Unexpected cash outflows are regularly a warning that something is wrong. The interim CFO will offer experienced insight and natural instinct for cash management.
Board Conflict and Acceptance
Boards can be dominated by one individual, or several directors can be competing for the top job. The need for an open and honest culture around the board table, and for the appropriate degree of challenge to plans and performance, is important for boards to succeed.
Harvest CFO Consulting LLC provides highly skilled, experienced CFOs for interim and consulting roles with the experience and attributes to deliver success to CEOs, private equity firms, owners, investors and management teams.