Private Equity Chief Financial Officer — Cowen Partners

A Private Equity CFO Wears a Lot of Hats

As a private equity Chief Financial Officer, you must be flexible and wear many different hats. Before a business is acquired by a private equity (PE) firm, a Chief Financial Officer might be perfectly fine filling the role of the accountant. After a business is acquired, however, this is no longer the case. A private equity Chief Financial Officer has to know how to strategically scale the business. Oftentimes, the duties the CFO previously held are increased exponentially to accommodate the rapid growth a PE firm demands.

Many chief financial officers (CFOs) are excited by the opportunity to lead a private equity portfolio company’s financials. Being a private equity CFO looks good on a resume, often comes with a certain prestige and monetary bump; however, many CFOs do not realize what it takes to be successful at a private equity-backed company. According to a 2019 survey, the turnover rate for private equity CFO’s is greater than 80 percent. A majority of these exits take place within the first two years of a private equity (PE) firm acquiring a company. CFOs are not meeting expectations or understanding their role in driving value. When this happens, PE firms don’t see the results they expected and contact me, an executive recruiter, to find a new CFO candidate.

Private equity environments are very demanding, and it can be difficult for the CFO to know which skills need to be honed and which pitfalls to avoid. To make the transition to a PE backed company a little easier, below are four pieces of advice private equity operating partners and executives want CFOs to know.

4 Types of Private Equity Chief Financial Officer Profiles

Below are four types of CFO profiles, each with different competencies and areas of expertise. Understanding how each of these roles works within a company can help you determine which CFO profile is best for your business.

1. CFO as the Financial Guru

The financial guru CFO has years of experience with different roles related to financial functions within a company. This typically includes duties such as financial planning and analysis, auditing and compliance, treasury, financial reporting, and controlling. The financial guru is often an internal hire, frequently a Controller or Chief Accounting Officer prior, and comes with a comprehensive understanding of the company as a whole. You can expect the financial guru to have an advanced accounting degree, CPA, and to excel at standardizing procedures.

This particular profile is generally suited for businesses with inefficient financial departments or early-stage businesses that are scaling up and need to strengthen their financial functions.

2. The CFO Who Is a Jack-of-All-Trades

The jack-of-all-trades CFO typically has a broad range of experience and has often worked outside the company with exposure to multiple businesses. Other areas where these CFOs have worked include marketing, general management, and operations. Management and communication skills are often prioritized in this profile over more technical skills.

The jack-of-all-trades CFO can be found both internally and externally and is hired at a company where personal influence is highly valued and required for results.

3. The CFO Who Is the Achievement Leader

Achievement leader CFOs are known for transforming businesses to create results. They modify financial functions and other processes within an organization to promote cost management and the use of metrics. Achievement leaders also focus on standardizing data and systems to enhance efficiency and performance within an organization.

The CFO with this profile is generally an outside hire with previous CFO or accounting experience. This type of CFO is beneficial for companies looking for exacting analytics and striving for aggressive growth.

4. The CFO as the Change Agent

The change agent CFO is best suited for industries that experience a lot of disruptions. This type of CFO is an outside hire and has a background working in mergers and acquisitions (M&A) and has an extensive external network of resources as well as exceptional strategic insight. Businesses undergoing mergers and acquisitions as well as PE companies looking to revamp portfolio businesses are a good fit for this CFO profile.

In many of these cases, the companies experience a considerable reshaping of the business as well as adjustments in resource allocation so a CFO who has experience with this type of disturbance can make the transition run more smoothly.

Succeeding as a Private Equity CFO

A typical private equity experienced CFO will naturally oversee finances, but also may play a role in human resources, operations, supply chain management and negotiations, legal, information technology, and in some cases, real estate. A lot of CFOs inherited through an acquisition do not know how to adapt to these new duties required by the private equity firm. That is part of the reason why CFO turnover is so high. You must realize a private equity CFO role has higher expectations and you must quickly grow accordingly to match your new duties.

Ultimately, a strategic CFO is forward-thinking and has a personal and professional growth mindset. Your role as a PE-backed CFO might be evolving into a more complex and challenging position, but it can also be the most fulfilling job opportunity of your career. If you remember the four messages above and work hard to bridge the skills gap, you are more likely to be a successful PE CFO.

Private Equity Chief Financial Officers Invest in Technology

Due to the stringent financial reporting requirements of PE firms, staying up to date on the latest technology trends is important for increasing efficiency and staying relevant in a rapidly advancing industry. According to a 2019 survey by Deloitte, 82 percent of PE investors believe automation and technology are going to have a major impact on finance functions over the next 10 years. A private equity chief financial officer will make strategic investments in technology to enhance processes. Ideally, these investments will eventually cut labor costs and create a more efficient workflow within the PE portfolio company.

As a private equity CFO, you must start embracing technology. Old school financial reporting methods are being replaced by automation and as the CFO, you must be the one leading those changes. If technological advancements are not part of your strategic plan for the portfolio company, you need to pivot to start including them.

Private Equity Demands Data

CEOs need timely data that is accurate, viable, and trustworthy at all times. This gives them the ability to make the correct choices that will better the company overall and help it thrive. When the data they are working from is outdated and inaccurate due to lack of automation, everyone associated with the business suffers. The critical areas which are the leading cause of concern include:

• Forecasting frequency and accuracy
• Using data to drive decisions internally
• Cash flow reporting and insight
• An efficient budgeting and planning process

A recent Bain & Co. survey of nearly 800 executives worldwide found the share of companies scaling up automation technologies will at least double in 2020, and the fallout from the coronavirus will likely accelerate this adoption. These technologies include low code automation, optical character recognition (OCR), robotic process automation (RPA), and conversational artificial intelligence (AI). If CFOs are able to implement these financial planning and analysis software systems for their companies, CEOs will be able to run their companies more optimally.

Enterprise Resource Planning

Enterprise resource planning (ERP) is the integrated management of primary business processes, using real-time data that is mediated by software and technology. CFOs’ understanding of enterprise resource planning is now a necessity, not something that is a bonus anymore. CEOs require CFOs to have expertise in this area of business, and that need will only continue to grow, especially post-pandemic.

President and CFO Search Practice Managing Partner of Cowen Partners Executive Search, Shawn Cole, stated, “While CFOs with ERP experience have been in demand for a long time, ERP experience is now a prerequisite, not unlike an accounting or finance degree. Many of the CFOs we place are inheriting ERP selection and implementation initiatives at their new companies.”

Mr. Cole says the days of using excel as an ERP solution are over, due to advancements in automation, data analytics, and forecasting. With this new technology, many of the ERP solutions implemented five years ago are already dated, meaning the gap between CFOs with and without ERP experience is widening.

Enterprise Resource Planning Solutions

Though these alterations from original operations to utilizing new software can sound daunting, it does not have to be that way. There are already many financial resources and software platforms that can help CFOs integrate ERP solutions for CEOs to feel comfortable relying on. For example, performance management and business analytics consulting firms help companies make better decisions by modernizing their financial planning and analysis. In today’s environment, using data will be critical to future success.

Another route that CFOs can look into are software solutions such as OneStream. Their software simplifies the complex factors, ensuring a user-friendly unified financial experience, all while CEOs obtain the diverse range of vital financial information they need to run their business. Going this route will allow global organizations to migrate away from Excel spreadsheets and legacy CPM platforms for improved process management, planning, and reconciliations.

How to Make the CFO Role Fit Your Company: 3 Questions to Ask

These questions are not perfect. One may not cover exactly what you need in a CFO, but it is a place to start when shaping the role for your company. Use these profiles to determine the characteristics and general skill set of a CFO that will help your company the most. When searching for a new CFO, it is also a good idea to evaluate your current corporate strategy.

Below are a few questions you should ask yourself as you start looking for for a CFO.

1. What Is Your Corporate Strategy & Goals?

Your CFO profile should reflect the structure and performance of your company. Knowledge of the industry is highly valuable when selecting your CFO, as is choosing someone whose characteristics fit the company’s strategic plan. CFO candidates will have financial expertise and management skills, but you need to determine where else your company’s CFO can be useful. For instance, if your company is pursuing an M&A strategy, then a CFO candidate experienced with mergers and acquisitions as well as proven strategic insight would be the best fit.

2. What Are the Strengths & Weaknesses of Your Management Team?

Hiring a new CFO is an opportunity to fill some of the skill gaps on your management team. Assess the strengths and weaknesses of the CEO and other leading board members to determine what expertise would benefit the team. A leadership team with a diverse skillset allows team members to lean on each other and build on one another’s strengths. Select a CFO who will shore up any weaknesses in your team.

3. How Capable Is Your Finance Group?

It is important to determine how capable your financial functions currently are. If your company is currently struggling to efficiently manage basic financial functions such as accurate data and systems compliance, then you need to focus on a CFO with a financial guru-type profile. If your basic financial processes are not going well, then your first order of business needs to be strengthening this area above all else.

It is a good idea to look at potential internal candidates to promote to CFO who have significant financial experience as well as a proven record of results. Of course, if your financial functions are running smoothly, then you can consider candidates with other qualifications such as more management experience and strategic insight.

Finding the right CFO for your company requires a lot of consideration concerning the right characteristics as well as the needs of the business. As you determine the right CFO profile for your company, remember how the CFO position has evolved over the years and adapt your profile to best fit your needs.

Cowen Partners Executive Search

Cowen Partners is the nation’s leading CFO search firm, driven to create value for our clients, featured in Forbes, IPOHub, MarketWatch, CFO Dive, and SHRM’s HR Today, we have a long-standing record of placing exceptionally qualified Chief Financial Officers across all industries.

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Originally published at https://cowenpartners.com on March 3, 2021.