CFOs are key to identifying the most addressable opportunities for EBIDTA enhancement and value creation.
How can CFOs better meet sponsor expectations? By understanding the context of a complex marketplace and quarterbacking a more unorthodox offensive gameplan in 2025 (one that goes well beyond the traditional jurisdiction of the finance function).
We don’t need to belabour the market’s complexity: While interest rates in the UK have dropped slightly from July 2024’s high, they are still significantly higher than January 2022, making cash expensive. The planning and liquidity concerns that spring from rate volatility are new to this generation of CFOs who had not experienced a high to low cycle. Finally, geo-political unrest in the form of actual and threated tariffs continue to impact the global supply chain, affecting the cost of trade. The market remains stalled, trapped in global uncertainty.
These macro levers force CFOs to make micro decisions: cash interest vs. pip interest; paydown debt vs. payout dividend; focus on free cash flow vs. focus on EBITDA; upgrade talent vs. cutting costs, and so on. PE-backed CFOs must make all these decisions amidst uncertainty while also balancing lofty sponsor expectations (and after years of sluggish deal activity, sponsors have become impatient for wins).
Where does a PE-backed CFO even begin? They should start by understanding what sponsors expect from them. According to a recent Accordion survey, sponsors want their CFOs to enhance EBITDA by:
- Focus on finance fundamentals: Sponsors need CFOs to double down on the fundamentals. Before you can get credit for the expanding influence of the finance function, you need to nail the basics: lead an effective close process, leverage traditional financial data to create actionable insights to drive value, and effectively integrate acquisitions.
- Prioritise equity performance: Along with those fundamentals, sponsors want their CFOs to not only wear the traditional finance hat, but to prioritise equity performance. They want CFOs focused on pulling the process and technology levers that lead to rapid value creation, as well as the operational levers that mitigate tariff impact—whether that’s via optimising cash flow, enhancing liquidity and profitability, and/or finding ways to transform their companies with digital and AI tools.
The CFO strategy guide
This three-step guide helps CFOs meet these sponsor expectations and give their PE team what they really want: EBIDTA enhancement and value creation.
Step 1: Implement data-led value creation
Everybody will tell you it’s all about clean data for the win – and we agree.
The CFO needs to make sure his/her team has effective processes to collect accurate data. As such, the finance team must build a state-of-the-art collection process, establish a master data governance strategy, and clean up existing data in order to have a “single source of truth.”
The finance team needs to get the data collection right, but the CFO also needs to spend their time mining the data for the analytical insights that are actionable in the near-term. Turning messy data into actual insights is a multi-layer process which includes a:
- Foundational stage: Harmonising/cleansing data (particularly needed in situation where there are multiple ERPs). From a master data perspective making sure to segment by customers, suppliers, items, products, and pricing – and assign data stewards to maintain/update it with changing business needs.
- Pointed analytics stage: Identifying the revenue, cost, and cash levers CFOs can pull. This should be considered with a laser focus on industry-specific levers and the company value creation plan.
- Predictive analytics stage: Leveraging traditional statistical analytics and (increasingly important) AI tools to both inform the goals, the right levers to pull, and to properly execute against them.
Step 2: Tech-enable scenario planning
CFOs need to not only be aware of the current market conditions which will inform strategic initiatives, they also need to plan for all possible types of market scenarios. But sponsors want more than typical financial scenario planning. They want CFOs to think through metric categories that go well beyond financial inputs —blending in operating metrics as well as macro-economic factors including leading and lagging indicators to address all potential business disruptions. This type of more holistic scenario modelling will enable CFOs to move from “reporting” to “quarterbacking” corporate responses to a wide spectrum of market variances.
Critical to this effort will be the CFO’s investment in the right tech stack, without which the scenario planning effort won’t just be difficult, it will be impossible. That tech stack should include tools that enable advanced planning solutions, machine learning, and artificial intelligence alongside public database feeds to modulate demand predictions in real time as well as to inform operational impact such as supply and inventory planning and staffing decisions.
Step 3: A bigger role in enterprise-wide transformation projects
The results that come from translating data into actionable insights and driving more holistic scenario planning should impact the entire company, well beyond the office of the CFO. To this end, CFOs must think of themselves not only as the leader of finance, but as the quarterback for enterprise-wide transformation. (According to our survey, sponsors want CFOs to act as if the company is always for sale and expect the CFO to optimize the company to be exit-ready).
But what does quarterbacking transformation really mean? It means partnering closely with operational executives. If, for example, the CFO finds that that X product is not profitable or that inventory is exceeding demand, s/he must work with operational executives to pull the right levers on price, discounting, warehousing, etc.
It can be quite challenging for the organisation to prioritise the changes (or the discrete transformational projects) that promise the most impact. CFOs can be key to priority-setting by helping management teams identify the most addressable opportunities and the right executives with whom to partner on appropriate value-creation levers to drive better bottom-line performance.