Becoming an Interim Manager

Interim Management is a recognised full-time profession, not a ‘between jobs’ activity. So what are the key points to consider if you’re thinking of becoming an Interim Manager, and how do you get into it?

Take the decision

Becoming an Interim is a ‘lifestyle’ decision. Not everyone is happy operating outside the ‘comfort zone’ of a corporate environment, without the security of a steady source of income, and reliant on their own entrepreneurship and skills to win and successfully execute assignments. You therefore have to decide whether it ‘fits’ you or not. Do you have that independent streak that makes you want to own and run your own business? Do you have that personal credibility and self-confidence to tackle problems and quickly produce solutions, and the inter-personal skills and authority to implement those solutions, all in what will be, to you, a new operating environment?

Whilst at first sight this may seem somewhat daunting, most who achieve the transition and become career Interims find the lifestyle such that they would not willingly return to ‘permanent’ status.

As with most lifestyle decisions, there are potential advantages and drawbacks that need to be weighed up. The pros and cons below are not an exhaustive list, but will help you with the thought processes.

On the positive side:

• The flexibility of being your own boss;
• The stimulating challenge of constant exposure to new people, issues and solutions;
• Not ‘wearing someone else’s corporate identity’;
• Not being involved in the office politics – you have no personal vested interest to protect;
• Being able to concentrate on what you do best;
• The satisfaction of a job well done.

Set against these, you need to recognise:

• Family finances can be strained. A steady flow of assignments is not guaranteed, and gaps between assignments – ‘resting’ – when no income is coming in can be lengthy;
• As an Interim you get no paid benefits – you’re responsible for your own holiday pay, sick pay, pension, health insurance etc. Some of these can be a ‘double whammy’ – if you take a holiday, not only do you have to pay the cost of the holiday, but you also lose earnings whilst you are away;
• You may have periods living out of a suitcase – assignments may not be on your doorstep or easily commutable to each day;
• If you’re working away, you may be unable to give quality time to your home life; if you’re resting between assignments and therefore permanently at home for a period, you may prove an unwelcome disruption to the home routine;
• You may have personal financial liability if you get things wrong on an assignment and the client takes action to recover damages from you – but there are ways of mitigating this risk.

Find out what it’s like to be an Interim. Talk to practising Interims, your own personal network, companies you know which have used Interims, and bodies such as the Institute of Interim Management (IIM).

Set up your business

When you become a career Interim manger, you stop being an employee (except, perhaps, of your own company) and you become a business. You must therefore decide which business structure suits you best.

The main choices* are either to be self-employed or to set up your own limited company (a personal services company – “PSC”). In either case, you are an owner-manager, and you may want also to involve other family members. Different business/commercial, regulatory, and tax/National Insurance considerations attach to each, which need to be evaluated against your personal circumstances. Unless you are suitably qualified, professional advice on this is recommended. *(Other variants are unlimited and limited liability partnerships).

However, it is true that most, perhaps 90%, of Interims, opt for the PSC. There are three main drivers for this:

• The use of a PSC is usually the more tax efficient option – the tax incurred by paying yourself partly in salary and partly by a dividend from the PSC is normally lower than the tax paid on equivalent profits earned as a self-employed person;
• Protection of the client, and, if you source work through Interim “Providers”, the Provider, from unexpected PAYE and NI liabilities. (A Provider is an executive search and selection agency that specialises in placing Interims with clients).
• The opt-out available to incorporated work-seekers under The Conduct of Employment Agencies and Employment Business Regulations 2003. Whilst at first sight the protection offered to Interims under these regulations might be thought ‘a good thing’, the fact that you have the protection can weaken your argument if the Inland Revenue tries to apply the IR35 regulations to you. The opt-out therefore exists to allow Providers and Interims operating through PSCs to agree that the regulations should not apply to their relationship.

Setting up a company is an easy, fast and relatively inexpensive process. Your professional adviser will be able to help, although there may be fees involved; alternatively, there are a number of company formation agents that will provide you with what you want – a search on the internet using ‘company formation’ will yield a wide selection of them to contact.

Whether you choose to be self-employed or to set up your own PSC, you must understand and ensure that your business complies with the general reporting, regulatory and tax requirements applicable to it. Furthermore, if you choose to set up a PSC through which to carry on your Interim business, there are two pieces of legislation that you need to be aware of that may impact you over and above the normal rules and regulations attaching to companies. Both are tax related – section 660 and IR35 – and both need professional advice. More detailed information on these two issues is given in the Appendix.

Not only must you be aware of the legal environment attaching to your business set up, you must also make sure you understand the legal responsibilities that you may take on with any particular role that you undertake at a client – especially if that role involves becoming a director of the client, and particularly if the client is in financial difficulties. Remember too in this context that the Companies Act definition of ‘director’ includes both de facto and shadow directors – people who are not registered as directors, but who either behave in a way that leads third parties to think they are directors, or whose advice the company’s board habitually follows.

Consider protecting yourself against personal financial liability by obtaining professional indemnity insurance. Many clients and virtually all Providers make this is a mandatory condition.

Your contract for services (employees have a contract of service) is a vital document and requires careful drafting. It governs your relationship with your client and/or, if a Provider has been involved in your appointment, with the Provider. It is also your first line of defence if the Inland Revenue challenges your status either as self-employed or for the purposes of IR35.

Set out your stall

As an Interim, you are in business, and must apply to yourself the same business disciplines you would expect of any commercial enterprise. If you are not on assignment, it does not mean you have nothing to do. As a minimum, you should draw up a marketing plan setting out how you plan to market your services, identifying your target client base and the various different routes to market you plan to pursue.

Work out what expertise it is that you can offer. Remember to focus both on industry-based knowledge and on skills that will transfer to other industries and sectors. Your marketing must answer the client’s question: “what benefit will you bring to me if I use you?” A good CV is vital, but it is not likely to answer that question quickly and easily. You should therefore consider other marketing materials, such as a tri-fold brochure and a website explaining your services.

Contact the leading Provider agencies and, without overdoing it, follow them up on a regular basis to keep your name in front of them. When they receive an assignment from a client needing to be filled, the Provider must think of you, not of someone else on their database. Keep on their Radar.

Develop contacts with other intermediaries – law firms, professional services firms, venture capitalists etc. Consider joining organisations such as the IIM, so that you can gain credibility from ‘brand association’.

Above all, use your personal network, business links and commercial organisations. Even consider ‘cold-calling’ potential clients. Remember, between 60% and 75% of assignments are found directly by Interims themselves.

Establish what the marketplace will pay – your daily fee rate – for the services you offer, but accept that initially you may have to start at a lower level in terms of rate and job content in order to get on the ladder. The first assignment is always the hardest to win.

Don’t forget the ‘back office’

Interims have something of a split personality. Whilst on assignment, they are senior executives potentially responsible for multi-million pound companies involving thousands of employees. At the same time, they are small businessmen or businesswomen running their own business or PSC.

These small businesses must send out invoices, collect cash and pay bills, keep proper accounting records, comply with a plethora of regulations, and make statutory returns regularly and to deadline. Interims ignore these functions at their peril. If necessary, employ a competent administrator to do them for you.

Be professional

Undertake proper due diligence before you accept a client, as you put your reputation on the line by association with that client. It is all too easy to let your enthusiasm to win work, particularly if you have been off assignment for a while, cloud your normal rational thought processes.

At the worst end of the spectrum for example, the identity checks and transaction monitoring carried out by banks and other financial institutions mean that, these days, money launderers and other fraudsters need to find a ‘front man’ with no criminal associations – what better ‘patsy’ than an unquestioning Interim manager over-eager for work?

At the milder end, but no less problematical is the project which is recognised by client insiders as being undeliverable or the wrong solution to the problem. They know better than to accept the role of project manager, which is why the client is recruiting an Interim. Will that Interim be you?

Make sure you have achievable, defined terms of reference for your assignments, with identified milestones, deliverables, and defined measures of success. Carry out those assignments with absolute professionalism. Experience and reputation count for a lot in the Interim world, and “you are only as good as your last assignment”.

Keep your skills and knowledge up to date. This includes the technical aspects of your area of discipline, the regulatory frameworks within which you operate both at clients and as an Interim, and your management skills.

Other useful sources

• The government agency, Business Link, has a very helpful website, www.businesslink.gov.uk, which covers the general aspects of getting started in business. It also produces a very informative guide entitled “The No-Nonsense Guide to Government rules and regulations for setting up your business”. The 2005 edition of The No-Nonsense Guide can be downloaded in PDF format (1.3MB) or you can order a free copy to be delivered. It is available by going to:
  www.businesslink.gov.uk/bdotg/action/detail?type=INT_PUBLICATION&itemId=1073793551
• Most of the major and long established Providers are members of the Interim Management Association and this body, like the Institute of Interim Management, binds its (corporate) members to comply with a strict code of best practice. The IMA’s website (www.interimmanagement.uk.com/) includes a list of its members and a ‘click through’ to their individual websites.
• The IMA sponsors a half-day ‘induction’ workshop for those wanting to learn more about becoming an Interim manager. This workshop is run for the IMA by a commercial organisation, Results in Business, and further details can be found on its website:
  www.results-in-business.com
• A small number of Providers also run ‘induction’ seminars from time to time if they have a large number of applicants wishing to join their candidate databases. These seminars are usually free of charge, so, if you are making contact with a Provider for the first time and the opportunity presents itself, it could be worthwhile asking if they hold such courses and have one coming up.

Appendix

The information given in this appendix provides general background on the issues described, but is no substitute for obtaining professional advice.

Section 660

When setting up a PSC, it is quite common for Interims to want to involve their spouses (and other family members) as both shareholders and directors. Whilst the spouse will often contribute directly to the running of the business, for example, by doing the secretarial and administrative work, the Interim is usually the only one directly bringing in income.

When it comes to the personal tax position of the Interim and his/her spouse, the Interim is often a higher rate taxpayer, whilst the spouse only pays tax at the basic rate. In these circumstances, the Inland Revenue may invoke section 660 to say that any dividends received by the spouse from the PSC should be added to the Interim’s income and be taxable at the higher rate.

There is a test case (the Arctic Systems case) due to be heard in the House of Lords later in 2006 which should resolve whether the Inland Revenue can use section 660 in this way. Until this case is heard, Interims setting up PSCs jointly with their spouses and/or other family members should seek professional advice.

IR35

As an Interim operating through your own PSC, you could be forgiven for assuming that you are, in effect, treated for most practical purposes as if you are self-employed, but with the protection of incorporation surrounding you. However, because the use of a PSC allows the tax efficient option of paying income as dividend rather than as earnings subject to PAYE, the Inland Revenue uses the IR35 regulations to ensure that tax is not being avoided ‘unfairly’.

Under the regulations, the Inland Revenue looks at the relationship between client and Interim, on the basis of substance over legal form. If it considers that, despite having the legal structure of the PSC, the reality of the relationship is that of employer/employee, then it treats the earnings from that Interim contract as earned income subject to PAYE and NI. There are complex rules governing the calculation of the amount owed; however, unlike the position of the self-employed, the liability for the tax due falls on the PSC rather than the client.

There have been numerous instances where the Inland Revenue’s use of IR35 has been challenged successfully – the test of employment/self-employment status is not clear-cut. The courts will consider:

• Control – the duty to obey orders, discretion on working hours, supervision
• Integration – disciplinary/grievance procedure, inclusion in occupational benefit schemes
• Economic reality – method of payment, freedom to subcontract/substitute others, providing own equipment, investing in own business, bearing of business risk for eg errors and omissions, risk of non-payment, method of payment of tax/NI, coverage of sick/holiday pay
• Mutuality of obligation – duration and regularity of employment, right to refuse work, trade custom.

Not every test has to be satisfied – it is a question of which side the scales come down on when the various different factors are weighed.

Your contract with the client may cover some or all of the above issues in a way that reinforces the view that you are self-employed and therefore outside the scope of IR35. It is important to note however that the courts will look not only at the contract wording, but also at how the contract operates in practice.