5 things a private equity investor wants out of the CFO



The CFO (Chief Financial Officer) is a financial expert responsible for managing the money dealings of a company. For a private equity investor, a CFO is someone with the right capabilities to support strategic decisions and help drive operating excellence as the company grows.

The private equity investor needs a CFO that will be a thought partner over different aspects of the business, to be strategic and operational, and to help the company scale up while implementing the necessary processes and systems. The operational CFO oversees finance, but also human resources, supply chain, real estate, legal, and information technology. The strategic CFO looks forward and is growth-oriented.

The CFO communicates financial results, builds financial infrastructures that can support scalability, works on M&A opportunities, and speaks the dialect of finance. When selecting their CFO, the trade-offs can be quite complex even if the underlying reasons are straightforward.

1. CFO is the CEO’s right hand

Strategic plans of midsize companies are developed according to market risks and opportunities in different product segments. These companies are in a state of perpetual growth with their CFOs looking forward through the windshield. What obstacles lie ahead? What could be their potential impact? CFO leverages predictive analytics to find that out, and advise the CEO about the ways to manage through the “bumps” or suggest alternative routes to avoid them.

As assertive and self-assured people (some might say overconfident,) CEOs may often think they have everything covered. But, a CFO is there to be the CEO's “right hand,” bringing different observations out in the open. Trained in the social science of finance, CFO brings forwards those issues that might not otherwise be considered relevant. It, of course, requires a constant and open dialogue between the CEO and the CFO.

A private equity investor wants a CFO whom they will be comfortable sharing everything (from personal-professional struggles to strategic ideas.) CFOs are their enthusiastic champions and confidants, people who share certain ideals and values but think differently to provide an alternative perspective.

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2. CFO can build a scalable department

Businesses change fast due to the unpredictable and disruptive global business environment. Is the company going towards a pitfall? A CEO must know when to move the capital closer to promising opportunities and away from failing businesses. Is there a need for new technology or equipment? What about making significant allocations of capital to open a new factory? CEOs need their CFOs to identify cost-reduction opportunities and revenue drivers, do cost and benefit analyses, and project the expected ROI.

First, a strategic CFO analyzes business data to apprise the CEO on where the capital will have the best ROI. It gives the CEO enhanced agility on where to allocate company resources. Thanks to finance and accounting applications and cloud-based predictive analytic tools, CFOs have greater options these days when it comes to determining when to pull back resources and from which areas. The new technology provides visibility into real-time data across the entire organization, which provides detailed views of business and reduces operating costs.

CFOs can work to improve resource allocation in specific departments, help marketing executives in evaluating ROI on various campaigns, and help the operations team analyze whether they should insource or outsource finance services. They work to build a scalable infrastructure.

3. Be an M&A strategist

If a company wants to reduce expenses and gain scale, acquire key capabilities, or enter a promising marketing opportunity, one way to do it is through M&A – merger, and acquisition. Having a strategic CFO by their side, private equity investors can manage to see their M&A transactions live up to their expectations. A CFO’s job is to find and evaluate opportunities to make sure that the company they wish to merge or acquire is aligned with the company’s strategy and is “healthy” regarding performance.

A CFO’s responsibility is to grow the revenue both organically (through product development) and inorganically (through M&A.) However, CFOs must pay attention to the value of acquisition – it should be about reduced expenses as much as it is about strategic growth. The CEO wants to know whether the acquired company will become part of the brand to influence talent recruitment and sales positively.

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4. Stay on top of the newest technology

A strategic CFO is responsible for investments in new technology (hardware and software) to enhance process efficiency or worker productivity and reduce labor costs. They can invest in cloud-based software for streamlining accounting processes, such as new RPA solutions. RPA (Robotic Process Automation) can be used for the manual and repetitive work handled by the accountants. Next, predictive data analytics is also widely used in growth companies because it provides CFOs with transparency into the business. It helps them advise their CEOs on how to adjust the company tactics and strategy. The technologies are categorized by maturity:

  • Bleeding edge
  • Coming of age
  • Mixed results
  • Proven winner

5. Be rigorous

Experienced private equity CFOs have developed a very analytical and highly detailed approach to finance because working in a PE environment includes working with an increased level of diligence and rigor. That rigor reflects the path of a PE investor as well as what they’ll expect from a CFO. The precision is one of the principal values of accomplished CFOs from the private equity sector.

Private equity CFOs are focused on both daily and incremental business and long-term goals. They are not just able to crunch and monitor the numbers but to create the most innovative and productive outcomes. They will know when to do things in-house and when to outsource. They will be both strategic and operational, often wearing multiple hats and taking care of other functions beyond finance and accounting. They will be their CEOs’ right hands and thought partners. They are not owners but will need to think like them, because they know what the company’s objectives are and how to deliver value to reach them.