The turnover rate of CFOs in private equity-owned organizations is high – more than 80%. Contributing to this high rate of turnover is the fact that CFOs who have been onboarded during private equity (PE) ownership are also frequently replaced.
It’s not easy for CFOs to adjust to new institutional ownership, mainly because being a CFO at a PE-owned firm is not the same as being a CFO at other enterprises. CFOs at PE-owned companies are faced with strategic changes and additional functional responsibilities, all of which are especially demanding and overwhelming.
For example, after their companies are acquired by private equity firms, CFOs are required to communicate more extensive financial results and reports more quickly than before. However, it’s difficult for CFOs to manage all these changes while continuing to be leaders in their firms, which is why many of them just can’t adapt.
How CFOs Can Fall Short in PE-Backed Companies
There are two main ways CFOs can fall short in the roles at PE-backed companies:
- Failing to get the numbers right
- Failing to act strategically as business partners
Failing To Get the Numbers Right
CFOs at private equity-owned firms must show they can do their jobs by immediately stepping up to meet the needs of their organizations. To do that they must demonstrate that they have a firm grasp of the numbers and are able to communicate those numbers quickly and efficiently to their companies.
The private equity CFO must be able to navigate through an even broader variety of financial and accounting challenges and disciplines. All CFOs are responsible for financial reporting; however, it’s the depth of reporting that separates CFOs at private equity-backed firms from their corporate counterparts. In addition, CFOs at newly acquired PE companies must create immediate improvements to processes and procedures that may be completely foreign to them.
Also under private equity ownership, reporting deadlines become considerably accelerated. Therefore finance and accounting teams have to identify ways to close the books faster as well as consistently meet the enhanced reporting needs of these firms.
One of the most critical responsibilities of the PE CFO role is to provide accurate and timely monthly management data. Investors typically lose confidence in CFOs who fail to meet this fundamental requirement. Consequently, a PE CFO’s number one priority is to close the books at the end of the month as quickly as possible, but with the required accuracy to give investors insight into the performance of the company.
But PE investors want more from their CFOs than just information illustrating how the business performs against its investment plan. They also want the numbers that will tell them how their businesses will perform against future plans so they can quickly take necessary corrective actions.
The ability to regularly forecast financial results with a high degree of certainty is critical to keeping stakeholders happy, and it also helps management and investors plan exit strategies.
CFOs in PE-owned firms that surprise their investors with unexpected monthly, quarterly, or full-year financial results will likely be looking for new jobs.
Failing To Act Strategically as Business Partners
Private equity firms look for CFOs who are more than financial gatekeepers and can help drive operating excellence and support strategic decisions as their organizations grow. The private equity CFO needs to be a thought leader across various functions of the business, as well as implement the systems and processes to help their organizations continue to grow.
Unlike a controller, whose job is merely to report financial results, strategic CFOs will be focused on the future and on scaling the business. Additionally, strategic CFOs will often oversee other functions in addition to finance, including human resources, information technology, supply chain, real estate, and legal. To succeed, PE CFOs must understand that their companies expect more from them, and they must adapt accordingly to match their new duties.
As strategists, PE CFOs must serve as business partners across the organization, focusing on initiatives that drive value, and they must also act as thought partners to their CEOs.
Technology Can Mitigate Both Failure Points
The right technology can help private equity-backed firms increase operational capacity without long, complex integrations or a large investment in IT architecture, according to Deloitte.
Intelligent automation and analytics enable PE CFOs and their financial planning and analysis (FP&A) teams to increase the value of their firms by modernizing, streamlining, and reducing costs in their finance operations.
And intelligent automation and analytics can also give PE CFOs visibility into their companies’ transactions and provide insights that can help them make the best business decisions.
Private equity firms are particularly interested in these technologies “because they can support targeted finance transformation initiatives that can produce results within a shorter time frame and lead to a potentially more profitable exit,” according to Deloitte.
Additionally, intelligent automation and analytics can help PE implement strategies that will enable them to operate more efficiently and remain competitive.
According to Deloitte, intelligent automation and analytics can help private equity-owned firms:
- Reduce how long it takes to process transactions.
- Reduce human errors and the issues they cause.
- Reduce the potential for external or internal fraud.
- Enhance executive decision-making.
- Deliver 24/7 performance, such as weekend and overnight processing.
- Improve employee productivity by moving them away from repetitive manual activities to more meaningful tasks, including analyzing the business and providing insights to the executives based on the results of those analyses.
Using digital technologies, such as FP&A software, PE firms can enhance their financial processes, improve operational efficiencies, and grow and thrive.
Cloud-based FP&A software brings together all data sources, simplifying financial reporting, forecasting, planning, and analysis, and giving PE CFOs and their teams valuable insight into the business.
An FP&A tool that’s scalable will grow with the needs of the business and enable PE CFOs to immediately get complete pictures of the business, detect anomalies, and draw insights from the data so they can make the best business decisions, increase the profitability of their companies, and keep their jobs.