Published on August 13th, 2014 | by Special Guest1
Interim Daily Rate: Taking A Positive Approach
At our most recent interim training event many of the delegates shared their experience of winning assignments and business. One of whom, Robin Bryson, spoke about how discussions around interim daily rates with prospective clients risk not giving either a true picture of the value an interim brings to a business, or their actual remuneration. We asked Robin to expand on this subject and how you can turn a negative discussion about interim daily rates to a positive one about a one-off investment.
What’s Your Interim Daily Rate?
My niche is Private Equity backed businesses going through some kind of change, usually stemming from under performance against investor expectations. I typically go in as CFO, but my brief is wide: figure out what’s happening, tell us what the options are, how we’re going to get there and how much it’s going to cost.
Accordingly I treat my initial meetings with PE Investors and the Chairman and/or CEO as discovery exercises since, in my experience, each of the stakeholders will have a (sometimes very) different view as to what condition the company is in. The investors will have their view, CEO and management will have theirs and the operational and finance teams may have yet others. The truth will be like a Venn diagram where none of them have quite got the whole truth.
My task - using the tools and techniques I’ve developed over many such assignments - is to flush out exactly where they are, work out how to permanently rectify anything that’s broken, then move things forward and determine what the future looks like with everyone fully aligned and with complete clarity.
Daily Rate Vs One Off Investment
Given these circumstances when I first meet the decision maker (who is usually the CEO, but occasionally the Chairman) both they - and perhaps all of their management team - are on the back foot with their investors. This means that, in my experience, there is an opportunity to tilt the fee discussion away from a day rate, which any switched on CEO will straightway add to his monthly running costs and view as a negative, towards a much more positive mind-set that this is a one-time cost to get the business running better and, almost as importantly, to repair investor confidence .
The way this works in practice is this:
Client (as nicely as they can manage to say it): “So, what’s your compensation?”
Me: “£X per day.”
Client: A furrowed brow, and a pause…
Me: “Stop doing what you’re doing.”
Client: “What am I doing?!”
Me: “You’re taking that rate, multiplying by 260, and rapidly forming the conclusion I’ll be the most expensive body in the C-suite.”
Client: Usually laughs at this point – caught red handed!
Me: “A few things to consider:
- I’m not going to be with you for 260 days.
- The rate doesn’t include any of your usual C-suite costs like holiday pay/ sick pay/ pension/ car allowance/ recruitment & severance costs/ LTIP etc. etc..
- Based on my experience, and what I know so far, my estimate is that this is going to take between X & Y days of my time for a cost of between £X and £Y.
- The scale of this business (using the valuation at the time of the deal, or the scale of the inward investment from the Investor, or a known refinancing quantum) is £X. Against that the cost to rectify is significantly less than x%.”
Client: Silence. More silence.
Me: With nothing to add, silence in response.
Client: (after a minute or two): “Good point – start tomorrow?”
What has been your experience of negotiating remuneration? How do you ensure that potential clients understand the value an interim will bring to their business, and long term benefits (including savings) such an appointment will bring? Please share your thoughts and experience using the comments box below.
About Robin Bryson
Robin is a CFO specialising in getting private equity backed businesses up and running and staying on track. With a relentless focus on cash and a rigorous approach to business planning, Robin has a notable track record of achieving successful outcomes with a number of re-financings and exits.