Interim Management

What is interim management?

Interim management (leadership for a limited period) refers to the temporary assignment of an experienced external executive who takes on a leadership role with decision-making authority, responsibility for staff and responsibility for an agreed result. The assignment ends when its purpose has been achieved or the position has been filled permanently.

The client is the company, represented by its management or, where a managing director position is being filled, by the shareholders' meeting. A specialised provider often arranges the assignment. Interim management occurs in all phases of a company's life, but it is noticeably frequent around transactions: before a funding round, after an acquisition, when a business unit is carved out and in business succession.

Reasons for deployment

• Vacancy: A key position unexpectedly becomes free, and the search for a permanent appointment takes several months.
• Crisis and restructuring: Liquidity shortfalls or losses call for quick decisions by someone without long-standing ties within the company.
• Projects with an end date: The integration of an acquired company, a system implementation or the relocation of a site require leadership capacity for a limited time.
• Build-up: A function has to be built from scratch, for example finance or sales management, before it is filled permanently.

Interim leadership is not a solution for a permanent task. If a position is bridged for years by a succession of interim managers, neither knowledge within the company nor stable leadership develops, and the costs exceed those of a permanent employee.

Contract forms and legal status

Interim managers are generally self-employed, often through their own company. The basis is a service contract (Section 611 of the German Civil Code, BGB), which regulates the assignment, authority, day rate, number of days, term and termination. Where the assignment is made through a provider, the company concludes the contract with the provider, which in turn concludes a contract with the interim manager.

If the interim manager takes over the management of the company, he or she is appointed by the shareholders' meeting (Section 46 no. 5 of the German Limited Liability Companies Act, GmbHG) and registered with the commercial register (Handelsregister). The interim manager is then a corporate body, that is, a statutory representative of the company, and bears the full duties of a managing director, including liability under Section 43 GmbHG and the duty to file for insolvency under Section 15a of the German Insolvency Code (InsO). D&O insurance (liability insurance for managing directors and senior officers) and a clear allocation of responsibilities therefore belong in the contract negotiation. Where no corporate body status is required, a Prokura (a comprehensive power of attorney entered in the commercial register) or a Handlungsvollmacht (a general commercial power of attorney) with defined limits is often sufficient.

Social security status and temporary agency work

The social security status must also be examined. The longer the assignment lasts and the more closely the person is integrated into processes and subject to instructions, the more likely it is that dependent employment, rather than self-employed activity, exists. In everyday language this is called false self-employment (Scheinselbständigkeit); a possible consequence is back payments of social security contributions. For managing directors without their own shareholding, the social courts frequently assume dependent employment, even if the contract is structured as the service of a self-employed person. What matters is the overall picture of the individual case. It can be clarified in advance in a status determination procedure with the German Pension Insurance (Deutsche Rentenversicherung) (Section 7a of Book IV of the German Social Code, SGB IV).

Where the assignment is made through a provider, the boundary with temporary agency work (Arbeitnehmerüberlassung) comes into play, that is, the supply of workers who work under the client's instructions. If the interim manager is employed by the provider or is integrated into the client's organisation like an employee, the German Temporary Agency Work Act (Arbeitnehmerüberlassungsgesetz) with its licensing requirement may apply, depending on the structure. The contract and its actual performance should therefore be reviewed under employment law before the assignment begins.

Assignment, authority and handover

An assignment works when three conditions are met. First, a measurable assignment: not “stabilise finance”, but for example “monthly close by the tenth working day, without external support from the fourth month”. Second, real authority, that is, the right to hire, approve expenditure and stop projects. Third, a handover that is planned from the start, including the documentation of processes and the induction of the successor.

Internal communication is just as important. Employees need to know why an external person is making decisions, how long that person will stay and to whom he or she reports. Unclear roles delay the first weeks considerably.

Significance in a funding round and a company sale

Investors and buyers assess the completeness and stability of the management. A key position filled on an interim basis is not a reason for exclusion, but it must be disclosed and linked to a plan for permanent appointment. In due diligence, interim contracts are reviewed for term, notice periods and costs.

After an acquisition, buyers often deploy interim managers for the integration or to fill positions whose holders leave the company. In succession, interim leadership can reduce dependence on a sole shareholder and make the company ready for sale. For the finance function, the interim CFO has emerged as a term in its own right. To be distinguished from this is the fractional CFO, who looks after the finance function part time and for several companies in parallel.

Practical example

A software service provider with 90 employees is owned by its founder, who makes all significant decisions personally. He wants to begin a sale process in about a year. The shareholders' meeting appoints an interim manager for 12 months as second managing director. The interim manager is to build a second management level of three heads of division, spread the most important customer relationships across several people and introduce management reporting, a uniform monthly report with key figures, plan and actual.

At the start of the sale process, the company can present a management team, day-to-day business continues without the founder, and the key figures are available monthly. The buyers see a lower dependence on one person. This shows in the negotiation, for example in a smaller part of the purchase price being tied to the founder's continued involvement through an earn-out. After a permanently hired managing director has been inducted, the assignment ends as planned.

Distinction from related terms

• Management consulting: Consultants analyse and recommend, and implementation remains with the company. The interim manager leads in person and is responsible for the result.
• Interim CFO: the form of interim management specialised in the finance function, usually full time for a clearly defined purpose.
• Fractional CFO: takes on tasks of the finance function part time, on a few days per month and often over a longer period. Unlike interim management, the focus is not on filling a leadership position full time for a limited period.
• Fixed-term employment: an employment contract for a limited period with integration into the organisation and subject to the rules of fixed-term employment law. Interim managers, by contrast, generally work on a self-employed basis under a service contract.
• Temporary agency work: A lender supplies a company with employees who work under that company's instructions. Interim management is designed as a self-employed service; where the boundary lies in an individual case is decided by the actual performance.

Common mistakes

• No measurable assignment. Without a named result, interim leadership becomes an expensive stand-in.
• Missing authority. Anyone who may not hire, approve or stop can only recommend and falls short of the purpose of the assignment.
• Term too short. Assignments of under 3 months rarely get beyond a stocktake and first measures.
• No planned handover. If the knowledge leaves with the person, the problem is merely postponed.
• Status not reviewed. Long assignments with full integration and no clarification of the social security status lead to risks of back payments.

Frequently asked questions

What does interim management cost?

Billing is usually by day rates, which in practice are often between EUR 1,000 and EUR 2,000, depending on the function, the reason for the assignment and the level of responsibility. Where a provider arranges the assignment, it receives a margin for doing so. What is decisive for budgeting is the agreed number of days per month.

How quickly is an interim manager available?

Often within a few weeks. This is the main advantage over a permanent hire, where the search, including the candidates' notice periods, often takes several months.

Can an interim manager be appointed managing director?

Yes. The interim manager is then appointed like any managing director, entered in the commercial register and liable under the statutory rules. Insurance cover, the allocation of responsibilities and the social security status should therefore be clarified before the appointment.

Is an interim manager falsely self-employed?

Not automatically. If the person works with their own entrepreneurial risk, for several clients and without fixed integration, this points to self-employed activity. Long assignments with full integration and appointment as managing director without a shareholding of one's own point rather to dependent employment; certainty is provided by the status determination procedure.

How long does an assignment last?

Often 6 to 12 months. The duration depends on the reason: a bridging assignment ends when the post is filled again, a restructuring or integration when the agreed result is achieved.

The Roemer Capital view

When preparing funding rounds, we make sure that roles in the management team filled on an interim basis are presented openly. A position that appears permanent in the presentation and turns out to be temporary in due diligence harms trust more than the temporary nature itself. We recommend supplying the plan for the permanent appointment at the same time.

In company sales and succession, we build interim leadership into the timetable where dependence on the founder or owner is high. A sale process takes, in our experience, 6 to 12 months; a second management level must be in place at the start so that buyers can see it at work during their review.