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The role of a CFO in a business backed by private equity (PE) is uniquely challenging and rewarding. They have become pivotal in steering a private equity company toward successful outcomes. Unlike a traditional CFO position, private equity is fast-paced and dynamic and it requires a growth mindset as well as a specific blend of skills, experience and adaptability to lead a company through various growth stages, funding rounds, and, ultimately a successful exit.
PE-backed businesses, regardless of their sector, operate in a high-stakes environment where rapid growth, innovation, and competition are normal. The CFO is not only responsible for managing the financial operations but they also play a crucial role in setting the strategy that will drive the company towards its long-term objectives.
John Marx, Director of Halliday Marx, says, “Post-acquisition, the focus of the CFO goes beyond just being technically good with finances. They also make sure that the people, financial systems, and processes that are in place can support these growth expectations. All while hitting forecasts and maintaining strong control over finances by having the flexibility to quickly take remedial actions if required.”
Private equity investors demand high returns and expect timely and accurate financial reporting. Meeting these expectations is crucial for maintaining investor confidence and securing future funding to maintain the direction and speed of growth.
Successful PE-backed CFOs have cash flow and cash flow reporting at the heart of their approach. Cash is king, and PE companies want to be continuously kept up to date with the cash flow status of their portfolio. Cash flow underpins the relentless focus on enhancing the performance basics that PE businesses excel at alongside enhancing revenue and operating margins.
The market is constantly evolving, and the CFO must stay abreast of industry trends, competitive threats, and opportunities for innovation and monitor new technology that becomes available. This is an increasing focus for CFOs as automation not only helps them keep pace but also supports growth and improves control. For this reason, CFOs are increasingly taking the lead in the selection and implementation of new technology.
CFOs have become pivotal in steering a PE-backed business towards a successful outcome, whether through an IPO, merger, or acquisition.
A crucial process for any PE-backed business is preparing for due diligence by ensuring that all financial records, legal documents, and operational metrics are in order, can withstand rigorous scrutiny, and are relevant to the exit scenario. A public offering, for instance, requires the buildup of processes and procedures, including investor relations and external reporting.
While the initial investment may have been made with a certain holding period and exit strategy in mind, the CFO must be constantly attuned to changing economic conditions and opportunities to secure a successful exit and maximise ROI.
Often PE-backed businesses will go through fundraising to secure capital to fund their growth aims. Securing funding is not just a one-time event, as a high-growth business, there are likely to be several stages of fundraising.
The CFO will be at the forefront of these efforts by crafting a compelling narrative with supporting data, including preparation for diligence that highlights the company’s strengths, growth potential, and market opportunity. Most importantly the CFO will be responsible for developing robust financial models that project future performance and demonstrate the return on investment.
The bare minimum for any CFO is that they have the technical skills and experience that the role demands but what sets the best CFOs apart is their soft skills.
“Whilst the role of the PE-backed CFO has changed dramatically in the past decade and is constantly evolving, they must inspire and lead the finance team while being comfortable in managing upwards and downwards to foster a culture of excellence and accountability. Whether collaborating with other executives to drive the company’s strategic vision or clearly and concisely communicating with investors, board members, and employees. The CFO must be seen as the go-to hub for complex financial information.” says John Marx, Director of Halliday Marx.
Becoming a CFO in a private equity-backed business is not for the faint-hearted. It demands a unique blend of exit experience, fundraising expertise, and M&A acumen, coupled with strong leadership and communication skills. For finance professionals aspiring to this role, continuous learning and development are essential. At Halliday Marx, we know how crucial a successful CFO is for a PE-backed business. If you would like any more advice on this topic, please contact us on 020 7096 8200 or email us at [email protected]
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