FP&A: Why More PE Firms Are Adding This Data-Driven Leadership Role

Welcome to FP&A Insights, Focus Search Partners’ two-part series on the latest talent acquisition trend in finance—the FP&A role. The series starts by helping private equity firms understand the data-driven leadership role their peers are installing in portfolio companies, and why.

In the last 18 to 24 months, we’ve seen a substantial uptick in demand for financial planning and analysis (FP&A) talent at the senior director and VP level. Historically, this role was found primarily in public companies and the largest private ones, but that is no longer the case. A significant number of private equity (PE) firms are now installing an FP&A function into some or all of their portfolio companies, regardless of size.

This is a distinct change from the past when most PE clients relied on an interim executive engagement with a consultant-based CFO or VP of Finance to build a financial model and create cash flow forecasts. This typically occurred in the immediate post-acquisition phase to give PE firms initial visibility into their investments. Today, many are trading in or expanding on that project-based FP&A role with a permanent position to gain continuous visibility into their portfolio companies.

The Factors Making FP&A the Hottest Role in Finance

As CFO Dive suggests, technology advancements partly explain the recent demand for FP&A talent across the public-to-private divide. Digital technology makes it possible to collect and store vast quantities of company data. At the same time, the SaaS subscription model makes it much easier and cheaper to access, manipulate, and analyze that revelatory information using a vast array of readily-available cloud-based tools.

COVID-19 explains the rest. In the early days of the pandemic, McKinsey noted that CFOs had to accelerate their pace of annual scenario-based planning. It predicted that ongoing success would require the continuation of more frequent planning and modeling with FP&A playing a critical role.

That is exactly what happened in large public companies whose CFOs already had established FP&A functions. Nike, for example, supplemented its core FP&A talent so it could “use new forecasting methodologies and understand new ways to analyze data and insights” for planning purposes.

For private companies, COVID quickly exposed the weakness of having little to no FP&A-specific talent on board. Many PE investors are now rectifying this, especially during the acquisition phase of their investments. For example, a PE firm that invests in market leading companies has come to us repeatedly to source FP&A leaders ready to jump in as soon as their deals close.

“Quickly placing FP&A talent at an acquired business is a key driver for us being able to accurately measure financial and operational performance post-closing,” says the PE firm’s VP of Finance. “Partnering with Focus Search to identify candidates as early as pre-closing has enabled us to quickly execute on our post-merger integration plan.”

That PE firm is not alone. We’re routinely fielding calls from clients looking for CFOs with strong FP&A skills as well as inquiring about FP&A talent to support them. Some have even expressed the possibility of installing a permanent FP&A role in every one of their portfolio companies. This includes acquisitions well below $100 million, something largely unheard of before 2020.

The Advantages of Creating FP&A Functions in PE Portfolio Companies

Any hiring decision, especially when it comes to establishing new organizational roles, calls for a cost-benefit analysis. To calculate the benefit of the FP&A role, it helps to understand how its responsibilities differ from that of accounting staff. As Corporate Finance Institute explains, accountants handle financial recordkeeping, whereas FP&A talent examines, analyzes, and evaluates the entirety of an organization’s financial activities to map out its future.

A newly established FP&A function begins by designing and implementing an integrated business planning process. From there, the CFO, others in the C-suite, the board of directors, and investors can expect FP&A staff to create, update, and maintain tools and insights that facilitate smart decision-making. The most important of these include:

  • Detailed forecasts and financial models mapping the company’s future operations
  • Coordinated annual budgets at the departmental and organizational level
  • Periodic financial reporting that identifies variances to forecast, budget, and historical expenses
  • Comprehensive analysis that identifies key drivers, interprets trends, and reveals root causes
  • Dashboards to provide insights that align departmental needs to financial outcomes

“For any finance team, the Forecasting Planning and Analysis (FP&A) function is the most critical one as it allows the CFO and leaders of the business to look at where the company is heading, not just where it has been,” explains a CFO that we placed into a PE-backed provider of healthcare IT and management solutions. “A strong FP&A function allows leadership to make decisions and changes to a business in a timely manner to ensure they are able to meet desired profitability goals. This is of particular importance to midmarket companies that are often lean on resources.”

All It Takes Is a Sole FP&A Contributor to Get Started

Unlike large companies like Nike, a founder-led business or a company carve-out now owned by a PE firm doesn’t need an entire FP&A team to start reaping the benefits of this increasingly important finance function. Many of Focus Search Partners’ PE clients have realized that just one full-time employee can establish an FP&A function. In fact, in the hands of the right data-driven leadership, a newly established FP&A function can be robust enough to meet today’s demands and be scalable enough to accommodate the future growth outlined in a PE investment strategy.

Our clients rely on us to find these FP&A contributors. “As a CFO, I’ve always stayed close to strong recruiters of FP&A talent given the function’s importance,” indicates the healthcare IT firm’s CFO. “In doing so, I found Focus Search Partners to be a great resource and business partner when I recently built out the FP&A function at my current company.”

By Lynn Durant, Managing Director at Focus Search Partners

Want to find out more about how to attract and hire your next FP&A leader. Contact Focus Search Partners today and stay tuned for part-two of this FP&A Insights series.