A finance director is vital for the success of any private equity (PE) transaction.
For any business seeking PE investment, getting your house in order before the transaction can mean the difference between success and failure. You will be required to provide detailed financial information repeatedly throughout the process and show an in-depth understanding of the connection between operations and your financial statements.
This makes having a chief financial officer (CFO) and resources across your finance function a vital supporting pillar, not just for getting your business through a PE transaction, but also maximising value and getting the best deal.
Even when a CFO is in place, the right adviser should also be able to support you with a structured approach to help prepare financials correctly
But what if I don’t have a CFO?
The general rule of thumb is that the larger the company, the higher the expectations that there is a CFO and considerable supporting resources in place. At a certain size, any PE buyer will start taking it as a negative signal if this is not the case.
In the majority of cases, if you don’t have a CFO in place at the time of the transaction, the buyer will insist on recruiting one as soon as possible after the transaction and will include the corresponding costs when assessing your business plan.
However, for some high-growth companies seeking PE investment that are still relatively small in scale, having a CFO in place is not a given. In these circumstances, it is often the case that a chief executive officer would take on the role of the CFO, which brings its own risks, such as overloading.
Working with the right advisors
Across all scenarios, it is vital that you choose the right adviser, who knows when you need a CFO or other finance department resources, such as accountants, financial controllers, and business controllers.
Even when a CFO is in place, the right adviser should also be able to support you with a structured approach to help prepare financials correctly, with the right granularity and the appropriate adjustments, as well as supporting management during due diligence to help reduce the overall workload.
Complexity requires specialist knowledge
It’s not good enough to just show a basic knowledge of the numbers - you need to explain how and why things have changed over time. Adding to this pressure is that, particularly during the due diligence phase, there will be extensive questions that need to be answered with short lead times.
These requirements often get more challenging the more complex your business is. For example, the more complicated your company is in terms of legal structure, divisions and product categories, the more important it is to have robust reporting and analysis routines.
As complexity increases further, more requirements will be placed on your finance function to ensure you are living up to expectations. This makes it essential you have the right level of resources and knowledge across the function, with a CFO being a vital component.
Failure to do so can mean that buyers start to mistrust the accuracy of your financials.
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