Interim CFO for a Financial Crisis
January 13, 2023
By: Brad Gerick
When a company faces a financial crisis, an interim chief financial officer can make all the difference in a successful turnaround.
Whether going through a restructuring, facing bankruptcy or other challenging financial situations, an experienced financial leader is essential.
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A financial crisis can be due to something within a company, external economic forces, or both.
Poorly responding to a distressing financial situation can destroy a business. A capable interim CFO, however, will know how to navigate the following scenarios.
The two most common bankruptcies a company will file for are chapter 7 and chapter 11.
When a company files for chapter 7 bankruptcy, it plans to shut down.
Chapter 11 bankruptcy, though, means a company is still viable but needs help relieving some of its debt.
While an interim CFO would seldom take on a chapter 7 bankruptcy, it’s common for them to step in and help a company try to avoid chapter 11 bankruptcy. If it’s not avoidable, a temporary chief financial officer can also help navigate the situation.
“A very good interim CFO can be a lot of help because they come in and they look at, ‘What are the things between gross profit and net earnings that are negatively impacting the business?’” BluWave controller Justin Scott says.
Cost-saving measures could include lowering headcount, cutting advertising costs or negotiating with creditors, which we’ll discuss more below.
While most restructuring situations are tied to bankruptcies, there are exceptions. Here are some of the more common ones.
An interim CFO who can adeptly perform carve-out tasks is key for organizations looking to sell off part of their company. That can mean getting their hands dirty setting up general ledger architecture or determining which employees to include in the sale.
“Let’s say 25 percent of the existing team is going with the carve-out, then I’ve got to decide ‘What’s the 25%? How are those processes going to work?’” Scott says. “Where you typically see the carve-out CFO come in is because they don’t want all of those activities to take away from the core business that the existing CFO is already managing.”
Case Study: Interim CFO Crucially Needed for Portco Carveout
An acquisition, of course, is the opposite situation. The finance executive must determine how to integrate multiple teams in the same company.
“You likely have multiple sets of books. You have multiple systems. None of them talk to each other,” Scott says. “Essentially, you’re running parallel systems or parallel processes for everything. And then you have to manually consolidate everything and that’s just no fun.”
“All sides of it, whether it be due diligence, post-merger integration or prep for sale – having M&A experience, especially in private equity, is key,” she says.
A turnaround CFO may be sought when accounts payable get out of control.
If the internal team has become bloated, they’re likely to partner with someone in human resources to reorganize the company more efficiently.
“It’s not typically just finance here. It’s typically that a new technology has been implemented that’s changed the field and headcount needs to be reduced,” Scott says. “How do we eliminate or mitigate the overhead expense of the SG&A of what’s happening today?”
They may also cut marketing costs or improve operations to find savings. This can be done by spending less on advertising, implementing automation tools or canceling automated subscriptions, for example.
Although unusual, there are times when a temporary finance executive is brought in for a hostile takeover.
“It is possible to go to an interim CFO as a stopgap,” Scott says. “But it’s not a likely scenario.”
More often, the company executing the takeover will already have a CFO in place.
Contact Us: Find Your Company’s Interim CFO Today
II. Skills Needed
What skills does an interim CFO need in a time of crisis? Accounting and finance, of course, are fundamental.
“You have to know the full revenue cycle cradle to grave,” Scott says, adding that strong management is also a key trait.
There are other things, though, that are particularly important for a chief financial officer in financially distressed situations.
When managing a company’s finance team, the interim CFO must be able to communicate their plan of action. Since they’re typically in the role for around six months, they don’t have as much time to win trust and build unity.
Focusing the early days on getting to know the team helps with buy-in for the duration of the project. One component of this is alleviating fears of the unknown.
“The first day, I think, is talking to as many people as possible in the company, on the finance team, and reassuring them that things are going to get better,” says one long-time interim CFO from our network of experts.
A temporary finance executive must also be able to communicate with his or her peers and superiors. Not only do they sit in the C-suite, but they may be a direct line to a private equity firm that has a lot at stake.
“They have to be able to build credibility going both directions quickly if they’re going to get anything done,” Scott says.
Beyond providing clarity for coworkers, a chief financial officer must also be skilled at working with clients, creditors, vendors and other outside entities.
If a company is in danger of filing for bankruptcy, the interim CFO will likely negotiate with creditors to lower their debts.
They may also ask clients to move up their timeline for accounts receivable so the organization can have more cash sooner.
In either case, being able to work well with others is paramount.
“The situations where financial executives most often fail to reach an agreement are when they don’t have any people skills, or they don’t truly want a result,” Scott says. “You have to be able to bend and give a little bit on some of these things just like in any negotiation.”
III. Exit Strategy – Prep for Sale
Before taking a company’s financial reins in the midst of a crisis, an interim CFO should understand if the firm is planning an exit, and if so, what the strategy is. That allows the company to get the maximum benefit out of its new executive resource.
“Bringing in somebody from the outside allows you to access a broader set of skills and brings a fresh perspective,” BluWave managing director Houston Slatton says.
Here are some differences between prepping to sell the entire company vs. just a few assets.
Sell the Entity
If someone is brought on to prep for the sale of an entire company, their job is to get it in the best shape possible for the buyer.
Not only will this make it a more attractive purchase, but the seller will extract more value, too. This process should be planned for months, if not years in advance, when possible.
The interim chief finance officer brought on in this situation should have experience improving operations, cutting costs, increasing accountability and more. They should also be well-versed in evaluating and working with potential buyers and closing the transaction.
Sell the Assets
Even when parts of a company are being sold, as opposed to the entire organization, many of the same skills apply.
In this scenario, though, the company remains intact, and employees are not typically part of the package.
The right executive will help an organization receive a large return for those assets, boosting cash flow.
Each interim CFO in the BluWave network has been vetted and reference-checked before we ever put them on our roster.
That way, when companies in financial distress reach out, we can provide two or three exact-fit solutions in less than one business day.
This attention to detail and our private-equity speed turnaround give organizations a greater chance of getting back on track financially.
Learn more about the select group of private equity grade interim CFOs we work with daily.
Contact Us to Meet an Interim CFO from our Exclusive Network
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