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The economic environment of 2024 is as challenging for PE and VC firms as it is for those companies seeking investment.
Having the option to appoint a part-time (or fractional) CFO who has worked with investor-backed portfolio companies before and can understand and anticipate the increased demands of an investor will almost certainly increase the probability of the investor making the return they expect.
In this blog, we explore the challenges faced by PE and VC firms and their portfolio businesses in this time of great uncertainty and the CFO options help them grow their portfolio businesses.
What are the challenges facing PE and VC firms and their portfolio businesses?
Challenge #1: Difficult times to grow a portfolio business
Market volatility and economic uncertainty are forcing investors to rethink how they engage with and manage their portfolio companies.
Fractional CFO services companies, like iFD, offer investors options.
A sector-specific fractional CFO with a track record who excels in supporting investor-backed companies will give investors:
- An independent voice who is also an integral part of the management team
- Someone able to build a financial strategy for growth
- An operationally well-run business
- A finance professional who understands they need to stay close to the detail and deliver basic reporting as well as high-quality management reporting
- Reassurance that their money is in a safe pair of hands
Challenge #2: Rising interest rates in leveraged businesses
In the current environment of rising interest rates and unabating inflation, the pressures faced by leveraged businesses have become more acute.
Risk assessments, financial planning, and ongoing monitoring by an experienced fractional CFO will mitigate the downside of high leverage during these times to ensure long-term success and stability.
Challenge #3: Lack of a ‘critical friend’
During times of uncertainty, CEOs need a ‘critical friend’, someone who can constructively question the senior team, expose vulnerabilities, and reaffirm the finance team’s position.
Through experience and independence, a fractional CFO can challenge the existing business model and leadership whilst also enhancing the messaging between investors and the management team.
Related article | In a crisis, a strong CFO-CEO relationship is paramount
Challenge #4: Full-time CFOs are expensive
A full-time CFO is often not the right solution for rapidly growing companies tending to be an expensive, underutilised fixed cost.
In the current climate, there is a need for management teams to have the capability to dial up or down the usage of a CFO. This allows a business to access strategic support as and when required.
Related article | What is the true cost of a CFO?
Challenge #5: Upskilling the existing financial controller
Sometimes, leaders want to promote from within the business. However, it is not always that easy, especially if you have a reliable financial controller who lacks strategic experience at the CFO level.
Engaging a highly experienced fractional CFO can allow a business to upskill the existing finance resource through mentoring and coaching. Not only is this beneficial for the financial controller, who will receive 1:1 support, but it also allows for the moulding of the finance team towards the future needs of the business.
Challenge #6: Managing the relationship between portfolio businesses and investors
The interaction between the portfolio business and its investor can sometimes prove challenging, but the development of a positive rapport is crucial.
Investors need a continual dialogue with their portfolio businesses on how the business is performing. Being able to access and communicate key financial information in the right language and the right format at the right time gives them confidence that their money is in good hands.
An experienced fractional CFO will anticipate this and build a framework for managing the relationship with their investor.
How can iFD help with CFO options for investors?
At iFD, we have a proven track record of augmenting portfolio businesses by providing CFO options for investors (PE and VC firms).
Since the pandemic and high inflation economy with increasing interest rates, iFD has been the go-to solution for our growing number of PE-backed clients.
Mike O’Connell, former CEO at Isosceles Finance, says: “During uncertain times, we give our clients financial control but with options; to dial up or down depending on what happens next or to recruit later. Our twenty-year history has demonstrated that this flexibility is invaluable.”
Author’s Biography
Written by Matt Smith, Senior Digital Marketing Associate at Isosceles.
(Image Source: Shutterstock)