The Chief Financial Officer (CFO) plays a critical portfolio company (PortCo) role for PE firms and lenders. For the CFO, establishing a successful partnership with the PE firm is highly dependent on understanding the firm’s reporting requirements and deal thesis.  These are both necessary elements for building well-defined PE and lender management reports. Throughout our work with PortCo CFOs, we’ve noted two key reporting success factors: 1) well-defined PE reporting requirements tied to effective data mapping and 2) effective communication of the numbers tied to the overall strategic plan and deal thesis. These factors are both underpinned by strong technology enablement. 

Private Equity Reporting and Data Requirements 

Effective reporting with accessible data is critical for PortCos, who report monthly and quarterly reports for their PE firms and lenders. Mapping the PE firms’ reporting requirements against the Portco’s data and reporting process enables a Portco CFO to create the right reports vs a last-minute rush to create custom (Excel-based) PE reporting. PE firms’ requirements are typically focused on measuring deal thesis and KPIs such as synergies and identifying cost optimization opportunities. As an interim solution, CFOs should establish processes that address immediate PE reporting needs while mapping out key data requirements. In the long term, CFOs should think about sustainable technology enablement (e.g., ERP, CPM) to automate this process. Key areas for a PortCo CFO to communicate with PE reporting include: 

  • Revenue growth including sales KPIs, EBITDA and gross margin improvements   
  • Expense management including cost and synergy initiatives   
  • Treasury management including cash forecasting and debt/covenant compliance   
  • Project updates including technology enablement, and other opportunities for Improvement    

Technology Enablement  

Effective CFOs understand how to leverage technology to scale their M&A growth and effectively communicate with their PE firm. The CFO should review their PortCo’s existing technology software, platforms, and infrastructure, focusing on their ERPs and corporate performance management tools. They should evaluate and identify technology gaps that may exist against the PE firm’s reporting and business requirements. Based on this review, the CFO should determine the technological upgrades necessary to meet the PortCo’s goals and the PE firm’s reporting needs. Upon identifying gaps and inefficiencies, the CFO should develop a roadmap to address these gaps. We commonly see PortCo CFOs focus on: 

  • Close process efficiency improvements through automation, centralization, and specialization of roles and processes  
  • Proactively monitoring and tracking KPIs in real-time 
  • Ability to quickly perform and respond to audits 
  • Improvements in the budgeting and forecasting process and accuracy  

Understand and Communicate the Numbers Effectively 

Effective PortCo CFOs often find themselves as the de-facto change agent owing to the fact that they own the financials and are responsible for explaining financial results across all functions to the PE firm.  However, many CFOs often struggle to effectively communicate the numbers and overall strategic plan to their PE firms. To improve financials and build an effective strategic plan that can be communicated to the PE firm, a CFO needs to drive improvements across all functions by holding their CxO peers responsible for owning and tracking functional changes. There are three key ingredients for PE reporting communication success: 

  • Building an overall strategic plan with clear KPIs/numbers by function with PE firm sign-off  
  • Assigning ownership to CxO peers on specific initiatives to drive accountability 
  • Maintaining consistent storytelling by quarterly KPI reporting 

Common Pitfalls 

PE reporting success is dependent upon the PortCo CFO’s ability to navigate business challenges and effectively communicate with their PE firm and lenders.  

Common pitfalls PortCo CFOs must avoid include: 

  • Failing to review the company’s financial health throughout the month 
  • Not prioritizing technology management  
  • Failing to create comprehensive action plans to address gaps against key KPIs 
  • Not seeking feedback and support from PE stakeholders  

Avoiding the above pitfalls can set PortCo CFOs up for success with their PE firms in this uncertain economic environment. 

How MorganFranklin Can Help 

If your organization is struggling with CFO reporting to your PE firm and it wants to improve the overall process, then having a trusted advisor with significant PE reporting experience is essential. MorganFranklin’s Office of the CFO and Private Equity professionals, which includes former CFOs and controllers, works with PortCos to design and implement improved CFO reporting that drive value to the PortCo and PE firm. 

Talk to one of our experts today.