4 Insights PE Firms want CFOs to Know

by Brian Cavataio 01/25/2023

Many chief financial officers (CFOs) are excited by the opportunity to lead a private equity portfolio company’s financials. The position looks good on a resume and often comes with a certain prestige and monetary bump; however, many CFOs do not realize what it takes to be successful at a private equity-backed company. According to a 2022 survey, the turnover rate for private equity (PE) CFOs is greater than 75 percent. Most of these exits occur within the first two years of a PE firm acquiring a company. CFOs are not meeting expectations or understanding their role in driving value. When this happens, PE firms don’t see the expected results and contact me, an executive recruiter, to find a new CFO candidate.

Private equity environments are very demanding, and it can be difficult for the CFO to know which skills need to be honed and which pitfalls to avoid. To make the transition to a PE-backed company easier, below are four pieces of advice private equity operating partners and executives want CFOs to know.

Communicate openly with your Operating Partner or PE Executives

The role of a private equity operating partner (OP) can vary significantly between PE firms and their portfolio companies. In many cases, CFOs don’t fully understand what the OP has to offer, and that is why the CFO needs to have open communications with their operating partner. Ask your OP what resources are available so that you can fully understand the tools at your disposal.

CFOs should also be fearless in occasionally pushing back when OPs or other PE executives make a request. For example, suppose a requested financial report takes an inordinate amount of time and resources to compile. In that case, it is OK to ask why the numbers are needed and determine what the PE firm is trying to accomplish. Explain to the executives what it will take to provide what they requested, so everyone is on the same page about the resources being dedicated to the task. Time and energy may be better spent completing other work, especially when a regular report can include what they want.

Keeping your Message Clear & Concise

As the CFO of a private equity-backed company, you should work closely with the company CEO to deliver consistent financial reporting and data analytics to the PE firm. It is surprisingly common for CFOs and CEOs to miscommunicate or to provide divergent information to their private equity investors carelessly. Conflicting information and communication do not inspire confidence. A successful CFO can work with the CEO to produce clear, consistent information that accurately reflects the state of the business, sometimes weekly.

Strategically Invest in Technology

Due to PE firms’ stringent financial reporting requirements, staying current on the latest technology trends is essential for increasing efficiency and staying relevant in a rapidly advancing industry. According to a 2022 survey by McKinsey & Company, 82 percent of PE investors believe automation and technology will significantly impact finance functions over the next ten years. A successful PE CFO will make strategic investments in technology to enhance processes. Ideally, these investments will eventually cut labor costs and create a more efficient workflow within the PE portfolio company.

As a private equity CFO, you must start embracing technology. Old-school financial reporting methods are being replaced by automation, and as the CFO, you must be the one leading those changes. If technological advancements are not part of your strategic plan for the portfolio company, you need to pivot to start including them.

Private Equity CFOs Wearing Multiple Hats

As a private equity CFO, you must be flexible and wear many hats. Before a PE firm acquires a business, a CFO might be excellent at filling the accountant role. After a company is acquired, however, this is no longer the case. A PE CFO has to know how to scale the business strategically. The CFO previously held duties are often increased exponentially to accommodate the rapid growth a PE firm demands.

Succeeding as a PE CFO

A typical PE-experienced CFO will naturally oversee finances but also may play a role in human resources, operations, supply chain management and negotiations, legal, information technology, and sometimes real estate. Many CFOs inherited through an acquisition need to learn how to adapt to these new duties required by the PE firm. That is part of the reason why CFO turnover is so high. You must realize that a PE CFO role has higher expectations, and you must quickly grow accordingly to match your new duties.

A strategic CFO is forward-thinking and has a personal and professional growth mindset. Your role as a PE-backed CFO might evolve into a more complex and challenging position, but it can also be your career’s most fulfilling job opportunity. If you remember the four messages above and work hard to bridge the skills gap, you will be more likely to succeed in your new role as a PE CFO.

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