With the help of three CFOs working in PE-backed businesses, this guide shows you how to maximize your effectiveness in a sponsored environment from the very start of your CFO tenure.
You only get one chance to make a first impression, particularly as the incoming CFO at a PE-backed portfolio company where time is money – and money is your responsibility. Other environments may have longer-term horizons, but if you don’t impress investors in your first 100 days, establishing your credibility becomes increasingly difficult, hindering your ability to create lasting company value.
Initial success requires a strategy that immediately employs your functional expertise and critical non-financial skills, namely communication, agility, and leadership. This three-part 100-day game plan ensures you match investor expectations with outstanding performance, no matter whether you’re a first-time CFO or a veteran CFO operating in the PE-world for the first time.
1. Assess the Situation
Craig Levy, a veteran CFO who frequently occupies the CFO seat in an interim capacity, experiences the first 100 days more often than his permanent CFO counterparts, and he agrees that incoming CFOs must quickly gauge these key organizational facets:
- The investors’ agenda: The CFO helps set the relational tone between the PE firm and the portfolio company’s executive leadership team. This requires you to quickly ascertain the sponsor’s culture, its playbook, and desired support role, whether that’s limited to operational advice as an intellectual partner or a broader role in critical decision-making around M&A or other transformational activity.
- The investment thesis: Financial reengineering only goes so far, so it’s up to you to review the investment thesis and compare it to reality. According to Allen Whitehead, CFO at Versant Diagnostics, this review helps you prioritize tasks to set the portfolio company on its desired path.
- Leadership’s thinking: You also need to ascertain whether the leadership team has a different view of the investment than the sponsor because a visional disconnect between the two can tank even the most favorable situations. To conduct this early assessment and build rapport and consensus, Ben Bier, the CFO of Soleo Health, established a weekly executive leadership team meeting to get and keep everyone on the same page.
- The finance organization: Your ability to achieve stated growth goals depends on the existing finance organization. Immediately assessing and evaluating all financial policies, procedures, systems, and human resources allows you to quickly design and execute a transformation that supports hockey stick growth. As part of this, Bier, Levy, and Whitehead all advise looking for sources of rework that aren’t adding bottom-line value.
- Company dynamics and culture: Does the organization have a clear reporting structure? Are roles and responsibilities well defined? Are workstreams integrated? If not, organizational optimization becomes one of your top early priorities.
2. Collaborate with Key Stakeholders
The sooner you engage with other stakeholders to build productive relationships, the more likely you are to achieve the company’s objectives. For the incoming CFO, Whitehead stresses that “every interaction, every transaction, every presentation is an opportunity to be successful.” This includes early and active engagement with the following:
- Senior Management: Listening to input from the executive leadership team and the board helps you determine the company’s most appropriate financial direction and to identify the strategies that will drive earnings and revenue growth. A strong partnership also helps you optimally balance any competing strategic, financial, and operational priorities.
- Lenders: It’s critical to determine whether capital usage is supporting company growth. To find out, you must assess the leverage situation and identify intricacies associated with the company’s current debt load and equity agreements. This will make it easier to work with lenders and successfully negotiate on the portfolio company’s behalf.
- Cash: With the financials, it’s all about effectively managing the company’s balance sheet, working capital, and cash flow so that they support long-term growth. Sometimes outside circumstances can cause cash to unexpectedly supersede other priorities, so you need to be prepared to pivot quickly, says Levy, who was days into a new CFO assignment in March 2020 when COVID-19 hit.
- M&A team: You need to be ready to conduct the necessary financial due diligence for any pending deals, including assessing the quality of the earnings report, working capital, and risk management. Moreover, you’ll need to develop, execute, and integrate acquisition plans. From inception, due diligence, valuation, and negotiations to closing and integration, your job is to ensure deals achieve their desired results, paying particular attention to post-close EBITDA and revenue targets.
3. Management and Monitoring
Throughout your first 100 days, you need to lead the budget, planning, and forecasting processes while also monitoring the overall business. As you do so, it’s important to establish these essentials:
- Accountability through KPIs and analytics: You must quickly identify the business’s critical financial and operational levers and the core metrics for evaluating them to provide the sponsor with consistent numbers backed by solid accounting practices. Whitehead says this requires determining the systems that house key data and setting up alert systems that identify and mitigate developing issues before they become dire emergencies.
- Problem-solving and decision-making: By monitoring the performance of the business through both its operational and financial KPIs, you can provide the leadership team, board, and PE firm with visibility into challenging business issues and identify proactive, data-driven solutions so that critical decision-making is always rooted in ROI thinking. Levy says it’s the incoming CFO’s job to find solutions to problems previously thought unsolvable.
- Executive gravitas: As CFO, you are uniquely positioned to provide a strategic perspective, which should be visibly demonstrated in your first 100 days along with a keen interest in the day-to-day operations of the business. Communicating openly and creating a vision for the future are hallmarks of this gravitas according to all three of our CFO experts.
- Interaction with capital advisors: Whether it’s peer benchmarking or near-term exit strategies, you also have to work closely with capital advisors from the outset of your tenure.
What Does the First 100 Days Look Like to You?
Let us know what you think about this 100-day game plan. Is it similar to how you approach the role of CFO or have you had success using a different strategy that your peers would find helpful? And check out a quick checklist here if you are embarking on a new role and want to make a strong first impression with investors.
By Monica Foster, Managing Directors, Focus Search Partners