Report by Altus Partners
What does it take to be a CFO of a Private Equitybacked business?
INTRODUCTION
WHAT DOES IT TAKE TO BE A CFO IN A PRIVATE EQUITY BACKED BUSINESS? tatistics show that businesses with PE investment outperform those without it, so a CFO that can help S lead their company's growth strategy is critical to success. As the most senior finance professional in a private equity-backed business, the Chief Financial Officer (CFO) plays a crucial role in evaluating and guiding investment decisions. To succeed, CFOs need to deeply understand the business's financial and operational aspects. They must also communicate effectively with the PE investors and the management team. rivate equity firms typically invest for a five- to seven-year time horizon, during which they seek to grow P the value of their portfolio companies. This means that CFOs must be able to provide short-term financial guidance and long-term strategic planning. In addition, CFOs must be adept at managing risk and navigating through periods of economic turbulence. cKinsey notes, "The most successful CFOs in private equity are those who act as true business partners M to the CEO, providing insights and recommendations on a wide range of issues beyond finance." To be an effective partner to the CEO, CFOs need to have strong analytical and problem-solving skills. They must also be able to think creatively about ways to grow the business. And according to EY, "CFOs need to have a good understanding of the PE firm's investment thesis and be able to align the company's strategy with that of the PE firm." In addition, CFOs must be able to build relationships with the PE firm's other portfolio companies. This is important because "these companies can be a source of best practices and benchmarking data." So what are the core elements of a successful CFO, broken down?
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CAN YOU HELP LEAD STRATEGY? A key responsibility of the CFO is to develop and execute the business's growth strategy. This involves working closely with the CEO and other members of the management team to identify expansion opportunities. The CFO must then develop financial models to assess the feasibility of these opportunities and present them to the investors. nce a growth strategy has been approved, the CFO will be responsible for overseeing its implementation. This includes ensuring that adequate O resources are available and that all financial risks are properly managed.
CAN YOU MANAGE RISK APPROPRIATELY? Private equity firms expect their portfolio companies to generate strong returns. To achieve this, businesses must carefully manage their financial risk. The CFO is responsible for identifying and mitigating risks that could adversely impact the business's performance. his includes financial risks such as interest rate fluctuations and exchange rate movements. But it also extends to operational risks, T such as changes in customer demand or supply chain disruptions. CFOs must have a deep understanding of the business's risk profile and be able to develop contingency plans to protect the company from potential shocks.
HOW DO YOU APPROACH ECONOMIC TURBULENCE? The CFO role also manages the business through periods of economic uncertainty. This involves working closely with the CEO to develop a crisis management plan. The plan should identify key risks and set out how they will be managed. I n addition, the CFO must monitor economic indicators and provide early warning signs of potential problems. They then need to work with the management team to develop contingency plans to protect the business from these risks. 01
CAN YOU IMPROVE PLANNING AND STRATEGY? As the CFO role evolves, there is an increasing focus on strategic planning. This means that CFOs must be able to understand and influence the business's overall direction. To do this, they need to deeply understand the company's financial performance and position in the market. hey also need to develop strong relationships with the CEO and other members of the management team. Only by doing this can they T provide the necessary insights and guidance to help shape the company's strategy.
WHAT DOES IT TAKE TO BE A CFO OF A PRIVATE EQUITY BACKED W H A T D O E S I T T A K E T O B E A C F O O F A PB RU I VSA T E SESQ TL Y TB BE URSSI N E S S ? | A L T U S P A R T N E R S IN ? U| IA UA S CPKAERDT N
WHAT TECHNOLOGY IS RIGHT? To be effective, CFOs must deeply understand the latest financial technologies. This includes enterprise resource planning (ERP) systems, data analytics tools and cloud-based applications. FOs need to evaluate the potential benefits of these technologies and make recommendations on C which ones to invest in. They also need to work with the CIO to ensure that the technology infrastructure can support the business's growth plans. he types of technology a CFO may implement include: T - Cloud-based accounting and financial reporting tools - Data analytics platforms - Enterprise resource planning (ERP) systems
DEVELOPING PEOPLE SKILLS s the role of the CFO evolves, so does the skill set required. In addition to technical expertise, CFOs A need to develop strong people skills. This includes the ability to communicate effectively with nonfinancial managers and investors. CFOs also need to manage and motivate finance professionals' teams. They must create an environment that encourages creativity and innovation. And they need to be able to build relationships of trust with the board of directors, audit committee and other key stakeholders. Y comments that "the successful CFO of the future will be a true business partner, with the ability to E provide insights that help drive growth. They will also be a trusted advisor who can guide the best way to navigate through periods of uncertainty.
DELEGATE AND FOCUS ON YOUR STRENGTHS CFOs must also continue to develop their skills. They must identify their weaknesses and build a strong team to compensate for them. And they should delegate tasks that others can do so that they can focus on their strengths. his includes recognising when it is time to bring in outside expertise. For example, a CFO may need to T hire a specialist if the business considers a complex financial transaction.
BUILD A HIGH-PERFORMING FINANCE FUNCTION o be successful, CFOs need to build a high-performing finance function. This means attracting and T retaining the best talent. o do this, they need to diagnose the "talent health" of their organisation. This includes understanding T the skills and experience of the finance team. It also means assessing the team's morale and motivation levels. I t also means creating an environment that encourages creativity and innovation. To do this, they need to invest in developing their team. This includes providing training and mentorship programmes. It also means offering opportunities for career progression. inally, CFOs need to create a culture of transparency and trust. This means open communication F and regular feedback. CFOs also need to ensure that the finance function has the right mix of technical expertise and soft skills.
DIGITALISATION VERSUS AUTOMATION, WHAT IS THE RIGHT MIX? There is a big debate on whether finance functions should focus on digitalisation or automation. CFOs need to understand the pros and cons of both approaches and make the right decision for their business. igitalisation is using technology to create new or improved finance processes. It can help finance D functions to be more efficient and effective automation is the use of technology to automate financial processes. This can free up time for finance professionals to focus on value-added activities. he right mix of digitalisation and automation will depend on the business's specific needs. CFOs must T work with the management team to understand these needs and make the right decisions.
THE FUTURE ROLE OF A CFO As the role of the Chief Financial Officer continues to evolve, there is an increasing focus on strategic planning and people skills. CFOs must be able to understand and influence the business's overall direction. They also need to develop strong relationships with the CEO and other members of the management team. Only by doing this can they provide the necessary insights and guidance to help shape the company's strategy.