In private equity, the chief financial officer plays a significant role in the partnership between portfolio companies and the private equity firm and its lenders. By leveraging their unique expertise and insights, the CFO is essential in generating effective board reports that help influence impactful and informed decision-making and value creation.

A successful partnership is dependent on the CFO’s understanding of the private equity firm’s reporting requirements and deal thesis. Key elements for successful reporting include the CFO’s comprehension of the firm’s reporting and data requirements, adept utilization of technology and effective communication of the financials. This extends to illustrating how these figures align with the overall strategic plan and deal thesis of the company, emphasizing the CFO’s pivotal role in driving successful collaboration.

Discover the key responsibilities, strategic contributions and areas of priority that a portfolio company CFO should emphasize to foster impactful partnerships and deliver key results in private equity board reporting.

Data Requirements

While public companies have a fixed cadence of reporting (quarterly and annually), portfolio companies can establish their own, unique reporting cadence. Depending on the investment thesis, the board may choose to meet as frequently as every month during the first year. In these instances, it is critical that the CFO collect, review and disseminate information quickly and accurately.

Effectively mapping the private equity firm’s reporting requirements against the portfolio company’s data and reporting processes allows the portfolio company CFO to generate the right reports at the right time, rather than scrambling last minute to create custom reports.

Private equity reporting requirements tend to focus on measuring deal thesis and key performance indicators like synergies and cost optimization opportunities. Because of this, CFOs should establish processes that immediately address specific private equity reporting needs and continue mapping out key data requirements.

Areas that a portfolio company CFO should prioritize communicating within private equity reporting include:

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

As a long-term strategy, CFOs should work towards sustainable technology enablement to automate board reporting processes, such as enterprise resource planning and corporate performance management systems.

Technology Enablement 

Effective CFOs understand how to leverage available technology to scale their M&A growth. Thoroughly reviewing the existing technology software, platforms and infrastructure of the portfolio company with a focus on ERP and CPM tools is a critical step. This evaluation will identify any technology gaps that exist between the private equity firm’s reporting and business requirements.

A true understanding of these gaps empowers the CFO to identify the necessary technological upgrades needed to meet the portfolio company’s goals and the private equity firm’s reporting needs. Uncovering technological gaps and inefficiencies will allow the CFO to create a detailed roadmap to address them.

Common technology advancements that a portfolio company CFO will focus on addressing include:

  • Close process efficiency improvements through automation, centralization and specialization of roles and processes
  • Proactively monitoring and tracking KPIs in real-time
  • Quick and effective responses and completion of required audits
  • Improvements in budgeting and forecasting accuracy and processes

Effective Communication

Successful portfolio company CFOs often become the key drivers of change, taking charge of financial matters and properly communicating financial results across all functions of the private equity firm. However, numerous CFOs often face challenges in effectively conveying the financial data and overall strategic plan to their boards.

To communicate a clear strategic plan to the private equity firm, the CFO should lead improvements across all functions by holding their executive peers accountable for owning, implementing and monitoring functional changes. Three essential activities that contribute to successful communication in private equity reporting are:

  • Building a comprehensive strategy with clear KPIs/metrics by function with sign-off by the private equity firm
  • Delegating ownership to executive peers on specific initiatives to drive accountability and results
  • Maintaining consistent storytelling through quarterly KPI reporting and analysis

Common CFO Pitfalls

Effective private equity reporting is dependent on a portfolio company CFO’s ability to navigate business challenges and effectively communicate them with their board. Common pitfalls that portfolio company CFOs should avoid include:

  • Failure to consistently review the financial health of the company throughout the month
  • Lack of prioritization around technology management
  • Failure to create comprehensive action plans to address gaps against KPIs
  • Not seeking feedback and support from private equity stakeholders

Being proactive in addressing these common blind spots will set portfolio company CFOs up for success with their private equity firms, especially while navigating during uncertain economic times.

Related articles:

How MorganFranklin Consulting Can Help

 MorganFranklin Consulting has an experienced team of former executives and private equity professionals who understand the need to generate board reports that provide critical insights into the business with actionable next steps. Our team of experts are adept at creating board reporting packages tailored to a variety of stakeholders, including funders, lenders and board members. Our proven methodology streamlines the board reporting process and enables portfolio success.

 Learn how MorganFranklin Consulting can help improve your board reporting. Contact us today!

Talk to one of our experts today.