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22 May, 2018 17:28 IST
Life of a start up, after PE investment
Source: IRIS | 27 Feb, 2015, 05.37PM
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How a CFO can help?

The CFO plays a pivotal role in successful migration of a private company to a professionally managed PE environment. Working with a PE can be difficult for first time entrepreneurs.  Here the CFO plays a key role as the main conduit of information flow between the company and its PE investors. PE investees tend to have dynamic business models, are high on uncertainty, work in fast paced ecosystems, and entrepreneurs need smart CFOs to help them navigate this environment.  So, what should a start up entrepreneur expect from his CFO?

A good CFO’s very first focus should be to build a strong management reporting structure and ensure transparency in the flow of information. This would be a consequence of accurate and timely closures, and constant/rigorous watch of the business plan and budgets. The CFO needs to co-pilot the business with the CEO, drive the business agenda (not just the accounting function) and own the numbers. He/She plays a key role in challenging assumptions and identifying the weaknesses/ risks in forecasts coming from the folks on the business/ operations side of the business. 

Apart from strong technical finance knowledge and operational experience which are  given in a good quality CFO, a start up CFO needs to be very hands on, quick in decision making and be mentally open to constantly changing business realities.  Monitoring of cash burn in the business, on a month on month basis, ensuring that the company gets best value for every rupee of investment/ expense and keeping an eye on compliances with covenants signed by the Promoters with PE investors are focus areas for good start up CFOs. 

In addition to functional finance skills, the CFO has a leadership role to play, particularly in an invested environment. The need to enhance and expand the financial systems and processes to keep pace with the scaling up of the business, requires the CFO to attract and retain the right talent with the finance function while effectively interfacing with other functional heads.  

Lastly, to succeed in the PE environment, the CFO has to be able to handle a high level of scrutiny and should be a sophisticated communicator. The success mantra lies in effectively managing the flow of meaningful business metrics (not data!) between the company and the PE investors. A credible CFO who has a transparent and balanced view about the opportunities and challenges the company is facing, what the management is doing about them and the likelihood of success is a valued asset for an entrepreneur in a start up environment.

Globally, no PE firm makes an investment in a company and then sits back and lets things run the way they always have. Change is required; it is disruptive and is difficult. The CFO, in collaboration with the entrepreneur directs this change effort. And therefore, in any PE investee company, the CFO is usually the CCO- CHIEF CHANGE OFFICER!! 

(Contributed by Tanuja Bissa, Manager, Deliveries at MyCFO)

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