Role Of CFOs With Advent Of PE Investments

CFOs are the unsung heroes in terms of financial transformation on PE investments but the experience gained during this transformation process prepares them for higher responsibilities including Board positions and helming the business

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The Advent of the PE (private equity) gives great joy to the promoter group and establishes valuation and success for business built over the years. The PE investments go towards areas like retirement of debt, future expansion, cashing out by existing promoters etc. A change in a company’s ownership also requires significant changes in its finance organization. This is especially true when the new owner is a private equity (“PE”) firm. PE firms have huge appetite for data, particularly financial data of what drives a business. PE firms may change the company strategy to create value for shareholders. In such situations, a company’s CFO, as well as other functional areas, have to align themselves and support the new direction.

PE requires the CFO to create value by combining financial expertise with key operating facts to make business decisions. A traditional company’s finance organization may generally be subsumed by its monthly process and status quo. While the accounting process requires significant efforts of the finance team for recording of large volumes of accounting transactions and management of ERP systems followed by consolidated financial statements, there is limited strategization expected. The traditional CFO role gets further burdened by quarterly reporting addressing all compliance. The entire process can be extremely challenging for a company due to business complexity, the continually expanding compliance environment, and the speed at which financial results are expected.