Exit strategy

Seven tips for interim CFO’s of PEG portfolio companies; tip 5 – Be an agent of change

This is part five of a seven-part series of tips for interim CFO’s at companies in the portfolio’s of private equity groups.  These tips are intended for financial professionals who already have the skills and experience to be a successful CFO at a typical mid-market company.  They specifically address the differences between being a CFO at a typical mid-market company and being an interim CFO at a growth-oriented mid-market company in the portfolio of a private equity group.

Tip #1: Be an ambassador

Tip #2: Be the advance team

Tip #3: Understand the exit strategy

Tip #4: Get to know the portfolio

Tip #5: Be an agent of change

You are not there merely to maintain the status quo or fill in the gap between permanent CFO’s.    The company probably does not have adequate budgeting, forecasting or financial reporting in place.  They may not have been audited and their tax strategy may need to be overhauled.   You may need to implement radical changes, but you need to do it in a way that is respectful to the folks who built the company that way.  Help them understand that their efforts helped the company get where it is today, but changes need to be made to get to the next level.  Embrace your role as an agent of change.

Seven tips for interim CFO’s of PEG portfolio companies; part 4 of 7

This is part four of a seven-part series of tips for interim CFO’s at companies in the portfolio’s of private equity groups.  These tips are intended for financial professionals who already have the skills and experience to be a successful CFO at a typical mid-market company.  They specifically address the differences between being a CFO at a typical mid-market company and being an interim CFO at a growth-oriented mid-market company in the portfolio of private equity group.

Tip#1:  Be an ambassador

Tip #2:  Be the advance team

Tip #3:  Know the exit strategy

Tip #4:  Get to know the portfolio

The strategy of a company in the portfolio of a PEG may be related to other companies in the portfolio, so get to know the other companies and their CFO’s.  Situations that present a win-win situation for two companies in the same portfolio are particularly advantageous.  Do not hesitate to help the other sister-companies when requested or to seek assistance from the other companies when needed.   Opportunities range from sharing advice on vendors and customers, or sharing policies and procedures to sharing employees, cooperative marketing or even joint ventures.

Help other employees understand how the portfolio may impact the company’s strategy and how helping the sister companies can help their company and even benefit them personally when their efforts are reciprocated, which they usually are.

Seven tips for interim CFO’s of PEG portfolio companies; part 3 of 7 – Understand the exit strategy

This is part three of a seven-part series of tips for interim CFO’s at companies in the portfolio’s of private equity groups.  These tips are intended for financial professionals who already have the skills and experience to be a successful CFO at a typical mid-market company.  They specifically address the differences between being a CFO at a typical mid-market company and being an interim CFO at a growth-oriented mid-market company in the portfolio of private equity group.

Tip #1:  Be an ambassador

Tip #2:  Be the advance team

Tip #3:  Understand the exit strategy

Most companies make money on the bottom line.  As CFO’s, that is ordinarily our obsession.  PEG’s primarily make money by buying and selling companies. Obviously, improving the bottom line is one way to boost the value of the company, but it is not the only way.  The strategy should always be in the long-term interest of the company, but also in the short-to-mid-term interest of the shareholders.  Building the company in a way that will fetch the highest price at exit sometimes leads to a different strategy than a company might take if it is solely concerned with the bottom line.

For example, adding new customers may in some cases reduce your gross margin percentage and do little for your bottom line, but it will diversify your customer base (reducing risk) and might increase your top line enough to “move the needle” for prospective strategic buyers.  Another example is a particularly risky product line that is currently profitable may discourage prospective buyers when trying to sell the company, or distract the focus from the product lines that are the most marketable to potential strategic buyers.

As the interim CFO, make sure you understand the exit strategy and any related confidentiality issues.  Help other key employees understand this so they do not get frustrated when they see decisions being made that do not seem to contribute to the bottom line.