A chief financial officer (CFO) for a private equity company is a real test of mettle. A private equity CFO is expected to transform a portfolio company and achieve rapid growth within a short timeframe. The high demands of the position, as well as the need to quickly adapt to company practices, have contributed to a high turnover rate for PE-backed companies.
In fact, a 2019 survey discovered that the CFO turnover rate for portfolio companies is actually more than 80 percent. Between burnout and the inability to deliver results, finding a successful private equity CFO can be a challenge. Below are some qualities you should look for in a CFO as well as a few things a CFO should already know about working for a private equity company.
The ideal private equity CFO has a unique combination of professional experience and leadership qualities which ultimately lead to success. Many CFOs unaccustomed to PE firms struggle to navigate the internal and external pressures that accompany the private equity CFO role. The top four qualities and skills a private equity CFO needs for success include:
Below is a closer look at each quality or skill and how it plays a key role in making private equity CFOs successful in companies of various sizes and across several industries.
Communication is the main pillar of any successful business leader. Clear communication not only keeps investors, board members, and employees informed of progress, it also reduces conflict between involved PE parties. Managing PE finances is a complex business but that doesn’t mean communication with company leaders can fall to the wayside. Financial clarity must be maintained and communicated effectively to ensure progress is being made at a satisfactory rate.
A private equity CFO needs to be skilled at adapting because they typically aren’t given much time to settle into their new positions. PE-backed CFOs are expected to start driving a certain return on investment as soon as they arrive, which means they need to quickly adapt to the company culture and industry standards. Efficiently understanding and adjusting to the company culture helps drive growth and keeps systems running smoothly within the business.
Burnout is a common problem among CFOs inexperienced in private equity expectations, which is why the CFO you select must be able to demonstrate their resilience. During the hiring process, ask for examples of a candidate’s resiliency to determine if they’ve faced similar situations and work demands in the past.
The ability to anticipate the impact of various financial strategies is an essential quality of an ideal CFO. Foresight allows a CFO to mitigate any potential downside that could accompany various strategic moves the company makes. You need a CFO who knows how to take the pulse of the market and anticipate how your business will be financially impacted by various issues.
A private equity CFO position is quite different than working for a publicly traded company. Not understanding the differences of a position with a PE firm is part of the reason so many CFOs fail in their first role.
They aren’t expecting the demands and nuances of the position, so they struggle to perform.
Below are a couple of things you need to make sure a CFO knows before hiring them for your portfolio company.
Experienced CFOs are accustomed to working closely with the CEO and reporting directly to the company leader. However, when working for a PE firm, the CFO must report to the CEO as well as the private equity partners.
Navigating the relationships with the CEO and partners can be difficult and demanding. At times, the CFO’s loyalty between the two reporting leaders can be in conflict.
Partners want to be kept abreast of all the latest information while at times a CEO would prefer the CFO keep a new development quiet for a bit. It’s imperative that a CFO fully understand the relationship expectations of the CEO and PE partners going into the position, so they know when to disclose information and how best to deliver various reports.
After acquiring a new company, a PE firm is typically ready to invest in the business for the next three to five years. This means an incoming CFO doesn’t have a lot of time to settle in, grasp the industry, and start making changes. Your incoming CFO needs to recognize how fast-paced the work is at a private equity portfolio company.
Everything from managing employees and filling talent gaps to implementing new technology and applying a strategic business plan must all be done efficiently and effectively right from the start. If your new CFO comes in thinking they’ll have a few months to settle into the role and learn the ropes, the growth progress of the company is going to be too slow.
Ensuring a CFO candidate knows what to expect when working with a PE-back company and has the four main leadership qualities mentioned above will help set your company up for success.
Cowen Partners is a national CFO search firm, driven to create value for our clients, and we have a long-standing record of placing exceptionally qualified Chief Financial Officers across all industries. In this post we highlight the average cfo salary for both public and private companies based on revenue size. Other variables apply, such as location and industry.
|Company Revenue||Private Company||Public Company|
|$10 – $50 Million||$150,000 – $250,000||$160,000 – $260,000|
|$51 – $100 Million||$170,000 – $275,000||$175,000 – $300,000|
|$101 – $300 Million||$200,000 – $300,000||$200,000 – $325,000|
|$301 – $500 Million||$225,000 – $350,000||$240,000 – $375,000|
|$501 – $999 Million||$250,000 – $450,000||$250,000 – $475,000|
|$1 – $1.5 Billion||$300,000 – $550,000||$300,000 – $650,000|
|$1.6 – $3 Billion||$450,000 – $600,000||$450,000 – $700,000|
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