In private equity, the portfolio company CFO plays one of the most critical roles—if not the most critical—in determining the pace and scope of an investment’s success. Investors rely on this key executive to be the company’s financial compass, strategic conscience, and change agent, seamlessly wearing these various hats.
So, how does one CFO athlete stand out among other candidates? They’ve built a diversified skillset, an extensive resource network, and exceptional strategic insight throughout their career. More specifically, candidates in the CFO search process who possess the following skills are ideally positioned for the most attractive PE-backed opportunities.
1. Growth Building
The CFO must be able to run the PE firm’s specific playbook. How can the board know if a CFO candidate can not only nail the first 100 days in a PE-backed environment but drive their playbook in the long term? They look for prior success with their playbook’s growth and exit strategy, depending on which of these it involves: mergers and acquisitions, new service line introductions, geographic expansions, organic gains, de novo builds, and/or IPOs.
Candidates should be prepared to answer the following questions about growth building:
- What strategies have you used to grow similar businesses?
- What particular role did you play in contributing to growth?
- Was the outcome successful, e.g., a tripling of EBITDA, a sale at a 10x multiple, or a highly valued IPO?
2. Thought Partnership
With founder-led businesses, the CFO often plays referee between the original owners and the PE firm. It takes emotional intelligence to be a thought partner who can diplomatically set and manage the PE firm’s expectations with the CEO and other founders.
Candidates should explain how they typically determine, communicate, and implement the investors’ desired level and frequency of interaction with portfolio company management. Likewise, it helps to share examples of thought partnerships across various functional and divisional aspects of a business, especially during system implementations and process improvements that allowed a company to reach its next stage.
3. Strategic Focus
A PE-backed CFO is responsible for developing a well-defined value creation plan based on the investor thesis. Moreover, they must identify and advance specific strategic and operational initiatives supporting that plan. This often must be born out of a less sophisticated business with messy or non-existent infrastructure. Candidates with the pure grit to turn highly imperfect situations into growth machines quickly differentiate themselves from other potential CFOs.
4. External Brand Representation
As the face of the company to capital markets, high-value customers, and outside service providers, the CFO needs to present a polished appearance and an air of gravitas. This is tested during formal and informal interviews, such as lunches or dinners with hiring committee members. Ultimately, candidates must convince the PE firm that they will make an excellent translator for the board and be a convincing company ambassador on road shows, analyst calls, and meetings with critical customers.
5. Internal Influencer
Likewise, CFO candidates must have a track record of building internal relationships up, down, and across the organization that supports critical business objectives.
Does the CFO possess these skills/expertise?
- Likeable bridge builder
- Motivator who scales with teams, processes, data, and systems
- Provider of reporting outside of traditional finance in support of value-creation programs
- Team builder and mentor
Beyond that history, CFOs must fit in with the company culture and the rest of the executive team. Otherwise, they will need help as an influencer within the business.
6. Money Management
Regardless of the CFO profile being sought or important strategic initiatives planned, PE-backed CFOs can’t lose sight of routine accounting and controllership. This includes developing and deploying KPIs that measure and promote profit and cash flow, which represents the business’s health. Candidates should be able to discuss cost- and revenue-side cash management and capitalization tactics they’ve leveraged to allow PE investors to calibrate expansion and contraction activities for ongoing company viability appropriately. Additionally, a proven ability to manage debt service is critical.
7. Modern Financial Modeling
Today’s CFOs must also manage the demands of a new type of financial modeling that generates proactive versus reactive forecasting and does it at an accelerated pace. The goal is establishing the proper framework for facilitating intelligent long-term decision-making. This need gives an edge to candidates who have successfully established effective data-driven FP&A functions during their careers.
8. Quantitative Intellect
Furthermore, it’s not enough to know the numbers; PE-backed CFOs need to understand how they correlate to current operations, forecasting, and, ultimately, the investors’ objectives. Are they able to effectively frame information for sound decision-making? Can they identify the key levers of the business and show how and when pushing and pulling on them can accelerate business plans? Do they know how to manage and improve a business within a leveraged balance sheet?
9. Change Management and Process Excellence
With a high sense of urgency, CFOs must promote rapid change and continuous improvement without causing negative surprises. This includes providing general managers with objective KPIs and helping them implement more efficient processes and more effective controls that are streamlined via appropriate systems.
10. Business Insight
Finally, PE-backed CFOs need to quickly gain an in-depth understanding of the company and be able to think and act like a business owner continuously focused on forward evolution. They must drive fact-based investment decisions and strategically align with the value creation plan. Therefore, a reputation for rigorously determining when and how to spend money is highly prized, as is the ability to explain how such expenditures support business priorities and financial transparency.
The Ideal Match of CFO Responsibilities to Candidate Skills
CFO candidates and PE firms pay a steep opportunity cost when a mismatch occurs due to inadequate vetting by either side. For the CFO, a brief, unsuccessful stint means a loss of future equity and potentially a squandered chance at a more suitably matched CFO role. For the PE firm, it delays the implementation of its business plan and often deflates key staff members.
Focus Search Partners has the executive search experience to help both sides of the hiring equation make more informed decisions. For example, we can help identify when an up-and-comer with in-depth expertise in a highly specialized industry makes a better choice than a veteran CFO from another sector. This insight leads to better hiring results for everyone involved.
Ready to find your ideal CFO match? Contact Focus Search Partners today.