I love the people, the pace and the unlimited variety of companies that PE firms invest in. I especially love the CFO position within a PE portfolio company and think it’s one of the most important and toughest jobs in business.
When I speak with CFOs who have never been in a portfolio, they always want to know what it’s like. Here’s what I tell them:
You get no extra credit for having a world-class financial background.
It’s expected. It’s the ticket to the game. You’ll create, grow, improve, manage and run a world-class finance and accounting department. You’ll close your books in single-digit days; financial statements will be accurate and timely. You’ll collect cash promptly; everyone will be paid when expected and the banks will be happy. Audits will be completed on time with no adjustments. Everything ticks and everything ties, and that is the expectation.
You have two important and demanding bosses.
A major tripwire for CFOs working in a PE portfolio for the first time is the challenge of understanding and navigating the reporting relationship with their CEOs and private equity partners.
You’ll report directly to the CEO of your company who will expect your undying loyalty – as that executive should. Having said that, the reporting relationship to the private equity firm isn’t dotted; it’s as solid as the solid line to your CEO. As CFO, you’re the financial steward of the PE firm’s investment, and the firm’s leaders will look to you to keep them up to date about anything that could put their investment at risk.
Issues will develop, and you must be selective about which issues you share with your PE partner. Knowing what and when and how isn’t always easy, but it’s essential. Acknowledging this unique reporting relationship, and the skill to deftly navigate it, is key to being a trusted PE portfolio CFO.
There will be an exit, and you may lose your job.
It’s no surprise that when people are asked about their biggest job-related fear, one of the common responses is that their company will be sold. As a PE portfolio CFO, it’s your job to make sure there’s an exit and ownership of the company is transitioned.
Whether it’s sold to a strategic buyer, to another PE firm or taken public, it’s your duty to ensure that those two objectives happen and to maximize the results. Your risk profile needs to include the very real probability that you’ll do everything right, perform at the highest level, succeed in everything you do and, as a result, lose your job. It comes with the territory, but it also comes with a liquidity event. More on that below.
You’ll be a strategic partner to your CEO and leadership team.
This isn’t a chief accountant type of position in a PE portfolio. All the blocking-and-tackling finance and accounting must be complete, accurate and timely, but the true value you’ll bring is being a strategic business partner to the company.
You’ll be the CEO’s right hand, advising, directing and challenging them to drive the portfolio’s growth. I recently heard someone say that CFO is the only position, except for CEO, with a complete view of every function and aspect of a company. This is especially important in a PE portfolio, where your reach touches every department, person and decision in the organization. The best portfolio CFOs understand the business and help make history, not just record it.
It’s a fast-paced life.
When we begin a new search for a CFO, I always ask the PE firm’s leaders when they plan to exit the investment. The most common answer is three to five years. Some firms hold an investment longer, some shorter, but most fall into this range.
It’s important to understand just how short 3-5 years really is, and how much needs to be done in such a short period of time. Minimally, the company will need to double or triple in size in conjunction with a significant increase in EBITDA. There will be a new ERP system for you to select and implement. There will be bolt-on acquisitions to evaluate and close. There will be staff to hire and bring up to speed. There will be lenders to manage and debt to reduce. There will be an exit to prepare for and successfully complete – all in 3-5 years.
It sounds daunting, and it is. It’s also exciting. A strong PE firm can be nimble in its decisions, bypassing clunky bureaucracy and using strict discipline to ensure its fast-paced decisions yield good results. There’s no time to sit still, and it’s one of the best aspects of working in PE portfolios.
There will be an exit, and you’ll participate in a wealth event.
You’ll come in, and you’ll work hard. You’ll navigate challenging relationships dealing with multiple hard-charging, Type-A personalities. You’ll take a great/good/challenged business and grow/improve/remake it, creating true value for the company’s employees, its customers, suppliers, owners and investors – including you.
You’ll think like an owner because you are an owner. It may be the first time in your career that you’ve had this type of opportunity, or the most recent in a string of successful exits, but it’ll be rewarding. Your successes may have put you on the street, looking for your next job, but another portfolio opportunity will be out there for you, and you’ll be going after it with money in the bank.