What Does It Take to Be a Private Equity CFO?

Stanton Chase Consultants Identify Top Skills Needed

The CFO is a pivotal role in the modern business marketplace, which is ever changing and increasingly influenced by technological advancements. Today’s successful CFOs are dynamic leaders, earning a seat at the strategy table by championing value. Combining integrity with a bold sense for opportunity has never been more important – especially in the world of private equity.

Private equity investors think about value differently. Pure financials are not always the driving factor in PE investment decisions. Private equity investors are strategists at heart, focused on long-term value creation within established businesses, operating within a defined market with known competitors and offering viable exit strategies. Since they plan their exit strategies for the medium to long term, competitive differentiators on the strategic and operational level often mean as much to them as the immediate financial picture. They typically focus on two enduring concerns when determining where to invest: The ability to chart a path to future growth and the quality of a company’s people.

Four Areas Where CFOs Are Indispensable for PE-Backed Businesses

Acting as both a facilitator of growth and a bellwether of management ethics, private equity ownership is one situation in which it’s good for the CFO to have a little “gray hair.” Private equity investors are looking for leadership talent with proven expertise who can hit the ground running, as evidenced by the fact that following the deal-closing, the existing CFO will remain in place in only 25% of cases.

With that in mind, where can CFOs take the stage within PE-backed enterprises, and how can they seize opportunities to play a leadership role in aligning strategy to value creation? Let’s consider four critical areas where the CFO can maximize business impact:

Securing Investment

A skilled CFO is essential to a complete executive leadership team. It often falls to the CFO to showcase the fundamental health of the business, with much riding on the quality and completeness of data. The CFO is the face of the company in many aspects of the financial side of the business, including private equity investment and the continued dealings with both creditors and investors.

Making Strong Decisions

CEOs can only make truly robust decisions if others collaborate and support their vision. CFO insight into financial and capital market dynamics allows companies to adjust to the unexpected.

Management Bandwidth

A talented CFO at the helm clarifies priorities and accelerates decision-making. That increases the likelihood that a business will go from strength to strength in pursuit of its goals. Communication skills are especially important as they allow the CFO to explain the company’s goals no matter who the audience is.

Achieving Successful Exit

During a sale or management buyout, the CFO becomes the key player. The quality of data and financial forecasting is critical to a valuation that will deliver high multiples for investors and the leadership team. During the exit phase, the CFO maximizes value by communicating this information through presentations that are both credible and compelling.

How Do Today’s CFOs Show PE Investors They’re Up to the Challenge?

Today’s successful private equity CFO is a trustworthy and articulate strategic partner who is comfortable with both statistics and people. CFOs must adapt to business scenarios in which they are the person who often functions as the key point of contact with investors, so they must be fluent in the fine art of managing up, acting as the ambassador to the board and investors. These skills are not easily honed outside the world of private equity.

Here are just a few areas where the PE-backed CFO must excel:

Rigorous Forecasting and Analysis

Data underpins informed decision-making, but CFOs should go beyond raw data. A thorough analysis based on rigorous models is needed to make meaning from the numbers. When CFOs focus on the strategic implications of finance, they become trusted advisors to the C-suite and private equity investors. That also includes knowing when to caution against others’ proposals!

Far-Reaching Commercial Acumen

The best PE-backed CFOs have a nuanced understanding of underlying business drivers in their industry. A CFO may be able to save millions – or plant the seeds for millions in revenue – by using industry insight to highlight areas of untapped potential. Stronger vendor relationships, better payment terms, and higher collection rates can all fall within the CFO’s purview.

Clarity, Confidence, and Collaboration

The detail, credibility, and nuance of a financial strategy hinges upon the CFO’s ability to articulate it. The CFO must be relationship-focused, building bridges with both the CEO and investors. Being responsive, accurate, and transparent with these key players throughout the process puts the CFO in the strongest position to deliver excellent exit value.

Pace, Resilience, and Versatility

Private equity CFOs are faced with unprecedented time and performance pressures on delivering results in shortened time frames, which calls for high levels of resiliency to manage the accelerated pace of transformation post-investment.

Furthermore, successful private equity CFOs must operate strategically at 10,000 feet and also be able to roll up their sleeves and dive into the weeds. And these CFOs are increasingly being asked to “wear multiple hats,” with over 70% also responsible for functions beyond finance, such as operations, human resources, and IT.

The Watchword for PE-Backed CFOs: Proactive

Many enterprises take a defensive approach to value, struggling to prevent leakage throughout the business life cycle. This fundamentally reactive mindset means that opportunities are placed out of reach before they are even identified. It is the opposite of what modern private equity demands.

To unlock the full potential of a PE-backed company, the CFO must be a proactive force: That means the ability to help identify and leverage value creation engines. A CFO who has the financial acumen to spot opportunities and the credibility to make the business case for them is a valued ally to investors.

Private equity investors aren’t looking for capable controllers; they want strategic business partners who can do more than just keep the books. This means CFOs must have the bandwidth and operational insights to effectively manage lenders, create value, and ultimately facilitate a successful exit.

With private equity one of the fastest growing business segments in today’s economy, there is an ever-rising demand for PE-savvy CFOs, and with this, prior experience with PE is often becoming of greater importance in their selection for the role than prior industry expertise.

To learn more about how Stanton Chase can partner with you in your leadership needs, contact your nearest Stanton Chase consultant today.

About the Authors

Çağrı Alkaya is a Partner in the London office and former Stanton Chase board member.

Cathy Logue is the Global Leader of the Stanton Chase CFO Practice Group and Managing Director in the Toronto office.

This article has also been republished in PE Insights: https://pe-insights.org/what-does-it-take-to-be-a-private-equity-cfo/