When a private equity firm invests in your company, the expectations for your finance function change immediately. What passed for “good enough” reporting before the deal closes rarely meets investor-grade standards after.
PE sponsors don’t invest in companies with messy financials—and they don’t keep management teams that can’t deliver the data needed to track value creation, manage risk, and prepare for exit. The CFO role, whether filled by a full-time executive or a fractional resource, becomes critical to meeting sponsor expectations and executing the investment thesis.
If you’re a portfolio company operator or a PE sponsor evaluating finance capabilities, here’s what the finance function needs to deliver.
What PE Sponsors Expect From Portfolio Company Finance Teams
Private equity investors approach portfolio companies with specific reporting and operational expectations:
GAAP or IFRS-compliant financials. Depending on the deal structure and eventual exit path, auditable financials that meet recognized standards are non-negotiable.
Timely monthly reporting. Sponsors expect monthly financial packages delivered within 10–15 days of month-end, not whenever the team gets around to it.
Variance analysis. Not just numbers, but explanation of variances to budget and prior periods. What changed, why, and what’s being done about it.
Detailed cash flow management. Cash is the lifeblood of PE-backed growth. Weekly or bi-weekly cash forecasts are common requirements.
Operational metrics alongside financials. Finance packages should integrate operational KPIs that drive financial results, not just accounting outputs.
Audit readiness. The ability to support external audits and due diligence processes without months of preparation.
Sponsors who’ve seen companies struggle with these basics tend to scrutinize finance capabilities heavily during due diligence—and push for upgrades quickly post-close.
The Gap Between “Good Enough” and Investor-Grade Reporting
Many companies acquired by PE firms have finance functions that worked for their previous context but fall short of investor expectations.
Common gaps include:
Delayed close processes. Month-end taking 20–30 days instead of 10–15.
Inconsistent accounting treatments. Revenue recognition, expense allocation, or capitalization policies that vary over time or lack documentation.
Limited reporting depth. High-level financials without the segmentation, business line, or customer detail that sponsors need.
Weak internal controls. Lack of segregation of duties, approval workflows, or documentation that creates audit risk.
Manual processes. Spreadsheet-based reporting that’s error-prone and difficult to scale.
FP&A gaps. Limited forecasting capability, no driver-based models, or inability to quickly model scenarios.
These gaps create friction with sponsors and can delay or derail value creation initiatives. Closing them is often a top priority in the first 100 days post-acquisition.
KPIs and Dashboards That Satisfy the Board
PE sponsors and boards want dashboards that connect operational performance to financial results. Common KPIs include:
Financial metrics:
- Revenue growth and trends
- Gross margin and trends
- EBITDA and EBITDA margin
- Cash conversion cycle
- Working capital efficiency
Operational metrics (varies by industry):
- Customer acquisition cost (CAC)
- Lifetime value (LTV)
- Customer retention and churn
- Employee productivity
- Inventory turnover
- Capacity utilization
Value creation metrics:
- Progress against investment thesis initiatives
- Synergy realization (for add-on acquisitions)
- Cost savings captured
- Growth initiatives performance
Dashboards should be visual, current (real-time or near real-time when possible), and actionable. Sponsors shouldn’t need to dig through spreadsheets to understand portfolio company performance.
M&A Readiness: What Clean Financials Look Like Pre-Exit
The quality of your financials directly impacts exit valuation. Buyers and their diligence teams evaluate:
Audit quality. Clean audit opinions without material findings or qualifications.
Earnings quality. Revenue recognition is appropriate, expenses are properly categorized, and adjustments are well-documented.
Normalization. EBITDA adjustments are supportable and reasonable, not aggressive or poorly documented.
Trend consistency. Financial performance tells a coherent story over time.
Data room readiness. Supporting documentation is organized and accessible.
Management credibility. The finance team can answer detailed questions about the numbers confidently and accurately.
Companies that prepare for exit with investor-grade financials achieve better valuations and smoother transactions. Companies that wait until a deal is imminent to clean up their books often face diligence findings that reduce price or kill deals entirely.
Why Fractional CFO Support Works for Portfolio Companies
Not every portfolio company needs—or can afford—a full-time CFO immediately. Fractional CFO support can bridge the gap.
Fractional CFOs work well for portfolio companies because:
Expertise on demand. Fractional CFOs with PE experience understand sponsor expectations and can implement the right reporting and controls quickly.
Cost efficiency. For smaller portfolio companies, fractional support provides CFO-level capability at a fraction of full-time cost.
Flexibility. Engagement can scale up during intensive periods (acquisition integration, fundraising, exit preparation) and scale down during steady-state operations.
Speed to impact. Experienced fractional CFOs have built these functions before and can implement quickly, often within the first 100 days post-acquisition.
No recruiting delay. Finding the right full-time CFO takes months. A fractional CFO can start immediately while you search for a permanent hire—or can become the long-term solution if the fit works.
Many PE sponsors actively recommend or require fractional CFO support for portfolio companies that lack sufficient finance leadership.
When to Bring in CFO Support (Hint: Not Just Before Exit)
The best time to strengthen CFO-level support is early—not when exit is imminent.
Post-acquisition (first 100 days): The transition period is critical. Implementing sponsor-grade reporting, closing finance gaps, and building the infrastructure for value creation should start immediately.
During scaling: Rapid growth strains finance functions. CFO support during expansion prevents the wheels from coming off.
Before add-on acquisitions: Integrating acquisitions requires financial diligence, purchase accounting, and systems integration—all CFO-level work.
12–18 months before exit: Exit preparation takes time. Building investor-grade financials, cleaning up audit issues, and preparing documentation shouldn’t start when you’re already in market.
Waiting until the last minute to bring in CFO support means paying a premium for rushed work and potentially leaving value on the table. The finance function should be an asset that drives value creation throughout the hold period—not a fire drill before exit.
