Interim CFO

What is an interim CFO?

Interim CFO (finance leadership on a temporary basis; CFO stands for Chief Financial Officer) describes an external finance executive who takes over the leadership of a company's finance function full time for a limited period. The person holds decision-making authority and responsibility for accounting, planning, liquidity and financing. Often the person is appointed managing director or receives Prokura (a commercial power of attorney) for this. The assignment is tied to an occasion and ends when it has been dealt with or when the position is permanently filled.

The interim CFO is a special form of interim management, that is, leadership on a temporary basis by a person from outside the company. Which tasks finance leadership generally covers and what legal position it holds in the GmbH (German limited liability company) is described in the entry CFO (Chief Financial Officer). The fractional CFO is to be clearly distinguished: this person works part time on a few days a month, supports several companies in parallel and often accompanies them over a longer period. The interim CFO, by contrast, works full time for a single company. The role is used above all for vacancies, in funding rounds and sale processes, in crises and after takeovers.

Occasions for temporary finance leadership

• Vacancy: The previous CFO leaves, and the successor has not yet been found. Without a bridge, gaps arise in financial statements, in management reporting and in bank communication.
• Transaction: A funding round, a sale or an acquisition creates, for some months, a workload that the existing team cannot carry alongside day-to-day business.
• Crisis: Liquidity bottlenecks require short-term liquidity management, talks with banks and shareholders and preparation of restructuring measures.
• Reorganisation: After an acquisition or a carve-out from a group, an independent finance function must be created, for example because services under a transition services agreement are ending.

Position in the company and powers

An interim CFO is often appointed managing director and thereby takes on a corporate-body function, that is, the position of statutory representative of the GmbH. Equally common is Prokura, a power of attorney entered in the commercial register that under Section 49 of the German Commercial Code (Handelsgesetzbuch, HGB) covers almost all transactions and legal acts that the operation of a commercial business entails. Less often, an interim CFO works as head of department without special power of attorney.

Appointment as managing director gives the greatest capacity to act. It brings, however, the duties of a managing director, including liability under Section 43 of the German Limited Liability Companies Act (GmbHG) and, in a crisis, the duty to file for insolvency under Section 15a of the German Insolvency Code (Insolvenzordnung, InsO). Social security status must then also be reviewed separately. Irrespective of the form, the role needs access to all accounts, approval rights for payments and a direct line to tax advisers and auditors. Bank powers follow the four-eyes principle: larger payments are approved by two people.

The interim CFO reports to the management and, where appointed to a corporate body, also to the shareholders' meeting and any existing advisory board. In a crisis it must be clarified early who approves which payments and who speaks to banks and creditors.

The first weeks and the handover

The start is a stocktake: current liquidity status and outlook from liquidity planning, quality and duration of the monthly closing, existing financing agreements with their conditions and the state of planning. Conditions (covenants) are, for example, minimum values for equity or liquidity. This is followed by the occasion-related work, in a transaction for example the revision of the financial model and the build-up of the financial part of the data room, the orderly collection of documents for the review. Added is the answering of questions from due diligence, the review by investors or buyers.

The handover is part of the assignment from the start. An interim CFO documents processes, hands over tools that the team can operate itself, and often helps select the permanent successor.

Interim CFO and fractional CFO

Both models fill the finance leadership with an external person but solve different problems. The interim CFO covers a full, time-limited need: an open position or a phase in which the finance function is demanded daily. The fractional CFO supports companies whose finance function needs regular leadership but does not yet support a full-time position. The differences in detail:

• Time commitment: The interim CFO works full time, the fractional CFO part time on a few days a month.
• Mandates: The interim CFO works for a single company, the fractional CFO supports several companies in parallel.
• Duration: The interim CFO stays until the occasion has been dealt with, usually 6 to 12 months. The fractional CFO often accompanies over a longer period, until a full-time position is worthwhile.
• Position: The interim CFO is often appointed managing director or receives Prokura. The fractional CFO is as a rule not appointed and acts only with narrowly defined powers; responsibility for bookkeeping and liquidity remains with the management.

Both models can be combined, for example when a fractional CFO takes over ongoing steering after a transaction.

The view of investors and buyers

Investors and buyers accept temporary finance leadership if it is disclosed and the figures are reliable. In due diligence, however, they ask who leads the finance function after the end of the assignment and whether planning and reporting continue without the person. If the contract ends before closing, that is, before the company passes to the buyer, this endangers the timetable. Tasks also arise afterwards, for example the purchase price adjustment through effective-date accounts (completion accounts). Term and notice periods should therefore cover the entire process.

Worked example

A company is preparing a sale process; the CFO has resigned. Finance leadership is needed for the next eight months. For both external models a day rate of EUR 1,400 is assumed, and for a permanent hire total costs of EUR 180,000 per year.

• Interim CFO full time: 18 working days × EUR 1,400 = EUR 25,200 per month, for eight months 8 × 25,200 = EUR 201,600
• Permanent hire: EUR 180,000 ÷ 12 = EUR 15,000 per month, for eight months EUR 120,000, plus an assumed search fee of EUR 45,000, together EUR 165,000
• Fractional CFO on six working days a month: 6 × EUR 1,400 = EUR 8,400 per month, for eight months EUR 67,200

On paper the permanent hire is cheaper but is available only after the search, which with the candidates' notice periods often takes several months. The fractional CFO costs least but, at six days a month, does not cover the needs of an ongoing due diligence. In the example, much therefore speaks for the interim CFO, while the search for the permanent appointment starts in parallel.

Distinction from related terms

• CFO: the permanent finance leadership, employed or appointed as managing director. The interim CFO takes on the same role for a limited time and without permanent integration.
• Fractional CFO: finance leadership part time on a few days a month, for several companies in parallel and as a rule without a corporate-body position. The interim CFO works full time for one company.
• Interim management: the umbrella term for temporary leadership in any functions. The interim CFO is its form for finance leadership.
• Transaction advisory: advisers on a funding round or sale structure and steer the process but take on no line responsibility in the company. The interim CFO leads the finance function itself.

Common mistakes

• Brought in too late. A few weeks before the start of a transaction, financial model and data room can no longer be built to the necessary quality.
• Unclear assignment. A mandate to “look at” the finances produces a report but no change.
• Missing powers. Without bank authority and approval rights, finance leadership remains limited to recommendations.
• Wrong model chosen. If a full-time need is covered with a few days a month, bottlenecks arise precisely in the phase in which investors or buyers expect answers.
• Successor not sought in parallel. If the search begins only towards the end of the assignment, the bridging period lengthens unplanned.

Frequently asked questions

How long does an interim CFO mandate last?

In practice usually 6 to 12 months. A bridge ends when the successor starts. A transaction-related mandate sensibly extends beyond closing until tasks such as the purchase price adjustment are completed.

Must an interim CFO become managing director?

No. Prokura or a clearly regulated department head role is often enough. Appointment as managing director makes sense when the role must appear externally with full power of representation, for example towards banks in a crisis.

What does an interim CFO cost?

Billing is usually by day rates, which depend on experience, occasion and responsibility. With a full-time assignment, monthly costs are therefore as a rule well above the monthly salary of an employed CFO. In return, search costs, long notice periods and equity participation promises do not arise.

Does an interim CFO do the bookkeeping itself?

As a rule no. The interim CFO steers bookkeeping and closing; ongoing recording remains with the team or the tax adviser.

When is a permanent hire the better choice?

When financial decisions are on the agenda daily on a lasting basis after the occasion. The interim CFO then bridges the search but does not replace the permanent hire.

The Roemer Capital view

We ourselves offer fractional CFO services, that is, the finance function on a temporary basis part time: financial model, planning, reporting and investor communication for companies whose finance function needs regular leadership but no full-time position. A temporary full-time filling of the finance leadership, often with a corporate-body function or Prokura, is something different. For a vacancy, in a crisis or with a comprehensive reorganisation of the finance function, we recommend an interim CFO.

If an interim CFO joins in a funding round or sale process, we separate the tasks clearly. The interim CFO leads the finance function and answers the questions from the review. We prepare the transaction economically and coordinate the process with investors or buyers.