When your company faces complex financial challenges, bringing in an interim CFO can be the strategic move that drives transformative results. The journey to a successful consulting engagement begins with two crucial principles: fostering strong relationships within the team and maintaining a long-term vision, even if the interim CFO’s tenure is temporary. These principles lay the foundation for impactful collaboration and enduring success.
With these principles in mind, the interim CFO will focus on specific areas critical to your business, which I call the strategic pillars of the engagement. In my recent project with a consumer products company, these pillars were:
- Cash
- Inventory
- Budget
- Reporting
- Expense/EBITDA Management
Let’s delve into each of these pillars to illustrate how an interim CFO can address your company’s unique challenges and drive success.
Pillar 1: Cash
Cash management is paramount. If your company has issues like excessive inventory affecting cash reserves, an interim CFO can streamline your cash flow processes. By treating cash management like a simplified checkbook, the focus will be on understanding and optimizing cash inflows and outflows.
Key actions include:
- Forecasting cash flow to predict timing and amounts of cash movements.
- Managing accounts receivable to improve collections.
- Negotiating with suppliers to extend payment terms and reduce outflows.
For instance, in my recent project, improving cash management led to a 400% increase in the cash balance. This was achieved by optimizing the cash flow forecast and negotiating better terms with suppliers.
Pillar 2: Inventory
Effective inventory management is crucial, especially if your company faces overstock issues due to high growth forecasts and blanket purchase orders. An interim CFO can help by tightening control over inventory purchases and improving monthly reporting accuracy.
Steps to address inventory issues include:
- Halting new purchase orders temporarily to assess needs.
- Reviewing existing orders based on demand, minimum order quantity, and lead times.
- Implementing an automated solution for ongoing inventory management.
In the example project, these measures decreased inventory by about 20%, positively impacting the cash balance and setting the stage for better long-term inventory control.
Pillar 3: Budget
A robust budgeting process is vital for aligning your team’s efforts with your financial goals. An interim CFO can help develop a bottom-up budget owned by the leadership team, ensuring everyone is invested in the financial outcomes.
Two key goals for budgeting:
- Involving the leadership team in budget creation for better ownership and understanding.
- Aligning sales and profit growth expectations to ensure sustainable EBITDA growth.
This collaborative approach led to an anticipated 100% growth in adjusted EBITDA year over year in my recent engagement.
Pillar 4: Reporting
Efficient and accurate reporting is necessary for timely decision-making. An interim CFO can streamline your reporting processes, reducing the time required for monthly closes and improving the accuracy of reports.
Key improvements include:
- Reviewing and optimizing the close calendar.
- Creating detailed process documentation for easy transition.
- Adding checks and balances for report accuracy.
In the example project, the reporting time was cut by 50%, making the process more manageable and reliable for the accounting team.
Pillar 5: Expense & EBITDA Management
Controlling expenses and managing EBITDA are critical for financial health. An interim CFO can implement tight controls over spending and instill a cost-conscious mindset across the organization.
Key strategies include:
- Setting up business cases and approval structures for expenses.
- Encouraging a frugal mentality, asking, “Would you spend this if it were your own money?”
- Ensuring proper reporting for departmental budget management.
These measures help the company achieve EBITDA targets and maintain financial discipline.
Transitioning
The final step in any interim CFO engagement is transitioning to a permanent CFO. This process involves detailed handovers to ensure the new leader is well-prepared to continue driving the strategic pillars forward.
An effective transition includes:
- Providing comprehensive knowledge transfer.
- Ensuring continuity of processes and strategies.
- Supporting the new CFO in adding their expertise to the existing framework.
While the departure of an interim CFO may be bittersweet, it marks the return to a stable, well-managed financial state with a capable permanent team in place. As you consider hiring an interim CFO, these pillars can guide you in evaluating how they can contribute to your company’s success and ensure a smooth transition to lasting financial health.
