The conversion of the CFO's role towards the development of increasingly strategic functions takes on greater relevance in the case of a private equity investee, since it plays a key role in the creation of value throughout the life cycle of the investment, which, being “limited” in time, requires an effective and efficient execution of resources.
Therefore, it is essential for the CFO to adopt, from the outset, a growth- oriented approach that enhances the future of the organisation, overseeing the development of multiple functions that go beyond the scope of finance.
The aim is to find a balance between the strategic without abandoning the operational, understanding the associated risks that can be assumed by the company in order to maximise the returns foreseen in the investors’ ‘roadmap’
We can make an analogy with the task of driving a car, where a business-focused vision implies looking most of the time through the windshield, and thus anticipating what is to come, without leaving aside the “rear-view mirror”, which helps to remember the “dangers” that have had to be overcome in the past.
This implies that the CFO must be able to provide short-term financial guidance and long-term strategic planning, seeking at all times to align the company's strategy with the objectives set by private equity.
This is why their scope of responsibility is “double”, since beyond those corresponding to the management of the company, they represent the direct link with the shareholders, who, in these cases, are usually quite active in the management of the business, so achieving the best possible coordination is a more than relevant task to be accomplished.
At the same time, it must seek at all times to achieve a balance between driving growth and proper management of financial resources (“cash is always king”), allowing for sustainable EBITDA generation over time (key variables for the perspective of any private equity firm).
As the expected growth is sometimes achieved inorganically through different variants of M&A, the CFO must have the necessary expertise, which is not only limited to the sale and purchase activity, but mainly to the subsequent (cultural) integration of the teams. For this, it is essential to adopt a creative mindset, as new and different forms of management will need to be integrated.
The CFO's strategic management involves working closely with the CEO and other members of the company's management team, both in identifying opportunities for business expansion and in implementing and integrating them.
This is why it is essential that the CFO is able to carry out a cross-functional type of management with the rest of the organisation, taking advantage not only of their functional experience but also of their leadership and initiative to coordinate with other areas.
Therefore, the CFO's competencies must be aligned with the investment and growth alternatives that private equity seeks to carry out, and as mentioned above, the time factor is a critical variable to manage.
Moreover, all this without neglecting operational management, for which it will be necessary to adapt its finance team to this reality, in order to have the necessary profiles to achieve the proposed change.
Likewise, in the identification and preparation of the different exit scenarios, the CFO plays an essential role, since whatever option is chosen (sale, merger, IPO, etc.), they must prepare the necessary documentation in advance to successfully complete this process, aiming to maximise at all times the initial investment made by the private equity firm.
This is how the CFO has become a profile of strategic relevance for any private equity, where both parties “need each other” to achieve the expected objectives, for which, having the ability to discover and offer new opportunities for value creation, will be its main and differential factor with the rest of the company's management.
