Numerous CFOs who have positively changed the financial climate of privately owned and publicly traded companies would like to pursue a position in private equity. All the same, it can be difficult for CFOs to make the transition. Regarding these challenges, here’s a guide by Gary McGaghey, Group CFO of Williams Lea Tag, for how CFOs can thrive in private equity companies.
Despite having expertise in analyzing company balance sheets, cash flow, and debt covenants, economics can be more complicated for a private equity CFO as debt often drives their investments, and so too can the need for solid cash flow. CFOs must often go into great detail to see how different processes create value and how much money it costs to use them.
Another point Gary McGaghey makes is that when a chief financial officer joins a private equity company, they often need to build their knowledge of the company quickly. And in an ideal world, they should use an ever-expanding, reliable fact base to uncover opportunities for value creation, especially opportunities that the company can capitalize on quickly. However, many private equity companies don’t have much data to start with, and many lack the technology needed to keep up with competitive pressure, meaning that CFOs need to invest in new technologies.
Building a team
Most CFOs are natural when hiring talent, but finding the right people to fit their particular needs in a private equity company can be difficult because the management structure constantly evolves, and investors want quick results. Though typically, the CFO is an outsider, they must find candidates who can be a leader, operate under different circumstances, and remain resilient under pressure.
The CFO’s essential duty in a private equity company is to ensure the company’s evolution. This means defining clear performance indicators and managing them through thoughtful – but not overbearing – strategies. As a CFO of a private equity-owned business, one will need to make contributions across many fronts, including the procurement of debt financing, making business allocation decisions, and transforming the business to create the greatest return for its private equity owner at the time of its exit.