In 2022, we wrote a new playbook for CFOs of private equity-backed companies. In our roles consulting with PE-backed CFOs, we saw that the conventional wisdom doled out to CFOs was antiquated, amorphous, and most importantly, at odds with what sponsors really want: Finance to revisit and rebuild a strong foundation to shape ongoing strategy and drive value creation.
For over a year, we have seen CFOs leverage the playbook as a guide to drive value creation in their first 100 days post-investment. The playbook has proven especially critical in this economic environment when dealmaking activity has been low and PE sponsors have been focused on optimizing their portfolios.
Driving that increased emphasis is an unpredictable and volatile economic environment that has put many new deals on hold. In place of executing new deals, private equity sponsors are zeroed in on operationalizing their portfolio companies: optimizing the people, processes, and technologies that ultimately drive value creation.
At the center of that sponsor focus sits data and analytics. Once a later-stage undertaking, data and analytics is now a priority initiative for a CFO’s first 100 days. Sponsors expect business visibility reports based on real-time data from the get-go, which requires a data strategy that streamlines data collection and consolidation — paving the way for timely, accurate, and reliable analytics. Sponsors and CFOs alike want performance visibility that can shape data-driven business decisions.
While the playbook remains effective, we have seen one major shift in the last year: an increased emphasis on data & analytics. To reflect the new data and analytics reality, we've revisited and updated the playbook for CFOs of private equity-backed companies.
The New 10-Step CFO Playbook
Step 1: Check Liquidity
PE portfolio companies don’t carry excess cash by design. Quickly kick the tires on the company’s 13-week cash flow forecast, examine the frequency and quality of receivables, and immediately identify any large vendor, debt, or one-off payments. New CFOs should look for “deathblows” lurking in the near term, such as liquidity crunches. Address them immediately and proactively with the board.
Step 2: Realign On Performance Visibility
New CFOs must tackle reporting inertia up front. Too many finance teams measure against outdated company strategies and investment theses. As a result, the reports provided to sponsors and management don’t align with the right KPIs, and finance is fielding too many burdensome requests for ad-hoc reports. Instead, CFOs must align with sponsors on the investment thesis, value creation levers, and the right KPIs and build out a corresponding reporting structure enabled by a strong data & analytics strategy. This will ensure finance converts granular data into actionable high-level insights management and sponsors need to make informed decisions.
Step 3: Determine the Future State of Technology Stack
To better clean and consolidate data streams, new CFOs must assess and invest in the right suite of integrated architecture to close system gaps and drive optimized financial and operational reporting. For example: does the enterprise resource planning (ERP) system cover core business operational and financial processes? If not, the company should implement supplementary, scalable corporate performance management systems (CPM) and data & analytics solutions to enable streamlined monthly close, reporting, budgeting, and forecasting processes.
Step 4: Invest in the Right Talent
After, or concurrent to, investing in the right systems, a CFO must also invest in a team that can guide and navigate those systems. As a key hiring requirement, CFOs should seek out finance talent with data proficiency that can leverage technology to organize and analyze data. A conduit between finance and technology is more essential than ever. Beyond that, CFOs must assess broader financial team needs. The Finance team should be well-rounded and built to scale, with expertise in FP&A, accounting, corporate development/M&A integration, procurement, and business applications.
Step 5: Build the Data Foundation
CFOs need constant visibility into granular metrics to understand variances and the root cause of performance or underperformance. Despite this, valuable data is too often locked away in disparate and outdated systems (like Excel)—rendering it ineffective for driving actionable insight. To achieve the visibility necessary to evaluate enterprise-wide performance, new CFOs should leverage their CPM, BI, and/or data warehouse systems to establish a “single source of truth” that collects and consolidates data for analysis.
Step 6: Generate Critical Analytics and Insights
Without a solid data foundation, finance is forced to spend too much time manually producing data. With a tech-enabled “single source of truth,” CFOs can spend less time crunching numbers and more time generating strategic analysis (while also focusing on other key areas of the business that demand finance’s attention). This is essential for driving data-driven decision-making, better overall performance, and long-term value creation.
Step 7: Establish Integrated Business Planning
Streamlined forecasting is at the core of managing the business; sponsors expect CFOs to harness real-time data that allows them to see around corners. While forecasting is a critical component of the CFO function, new CFOs should make cash flow an ongoing and integrated part of the cross-functional business planning process — educating, informing, and developing accountabilities for company leadership. An enterprise-wide team can ensure that the cash forecast is linked to the business forecast and supply & demand planning. This is key for driving organizational success.
Step 8: Look Ahead to the Budgeting Process
Forecasting, done right, will ease your budgeting process. Whether the first 100 days fall within the thick of budgeting season or not, establishing a tech-enabled budgeting structure from the get-go will make the budgeting job less painful when the time comes. Beyond just remediating the process, the CFO must also serve as a strategy leader. That means rigorously challenging assumptions, creating processes to hold business leaders accountable, and pushing to develop targets in line with historical trends and realistic drivers — ultimately driving accurate resource allocation and better business decisions.
Step 9: Prioritize Performance Levers
In a successful first 100 days, CFOs will have already aligned with sponsors on an updated value creation plan, built a strong data and analytics framework, and established integrated business planning — all of which provide new visibility into the state of the business. This means that CFOs are now well-equipped to gain insight into the tangible factors affecting performance, allowing them to properly prioritize performance levers going forward.
Step 10: Align With Sponsors On Finance-Led Transformation Initiatives
It’s now time for CFOs to collaborate with sponsors — and the broader company team — to put these transformation initiatives into action. Does transformation mean finance process optimization? EBITDA improvement initiatives (such as cost-cutting or ongoing cost management)? Digital transformation (such as robotic process automation or process re-engineering)? Transaction execution? All the above? The answers will set the course for what the years ahead will look like for the CFO. Tailoring transformation initiatives to where the company is in its holding period will ensure that the company is prepared to maximize valuation at exit.
While the general framework remains, data and analytics now permeate nearly every aspect of the CFO playbook. Making these adjustments will help CFOs of PE-backed companies set up themselves, the finance department, the portfolio company, and the sponsor for long-term success.
Sanjeev Parlikar and Jeremy Pawlak are managing directors at Accordion, a private equity-focused financial consulting and technology firm.