Why your CFO is the key to unlocking additional value in your next business sale

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Smoothwall CEO, Georg Ell, explores why the Chief Financial Officer (CFO) is so critical to your next sale and reveals his tips to secure the right CFO for your business.

Take a look at your current CFO or accountant. Is the person across the table who you want representing your business for a phenomenal sale outcome in three to five years’ time? If the answer is: “I’m not sure”, they’re probably not the right person. With the benefit of my CFO hiring hindsight, here are my tips for recruiting your ideal CFO.

Why is your CFO so important to your sale outcome?

During a sale process, the CFO is at least equal to – and at times even slightly ahead of – the CEO in terms of importance. Although the CEO might be able to carry the sale, a CFO who can’t give the detailed responses buyers need can definitely tank value. Or even sink the sale itself. 

A CFO in a private-equity owned business is also under significant pressure to perform. Because private equity owners want every investment they manage to succeed, there’s a high level of scrutiny to ensure the business is understood and effectively supported. This relies on having the right person in the role. And, with the benefit of hindsight, I think these are the key attributes to focus on. 

What to look for in your next CFO

1 – Commercial focus

There are two main types of CFO. You get those who want to account for every penny and make sure it all ticks and ties. Then you get commercial CFOs who improve the performance of the business. I appreciate a commercial CFO because they focus relentlessly on growth and performance value drivers and act as a true business partner.   

2 – Private equity experience

CFOs with private equity experience have the confidence and knowledge to give the board the information they really need. And to push back where appropriate. Investors are highly financially literate. So your CFO needs to be even more so. They only have to understand one business, so they should be able to:

  • Answer intelligent, challenging questions. 
  • Communicate a story around the numbers that holds up to interrogation.
  • Hold the data in their head to quickly answer questions without referring to a spreadsheet. 

This helps to build investor confidence throughout the investment period and during the sale process.

3 – Independent thinking

Groupthink is dangerous to businesses, so someone who’s on board with the overall direction of the business but also willing to question and disagree is key. This often takes the form of challenging the business’ operational efficiencies. From supply chain and headcount to performance management, revenue per salesperson and sales compensation. 

“The best CFOs review and challenge everything in such a way that, although it’s slightly painful, you also know it’s good for you.”

Georg Ell, CEO, Smoothwall

Your CFO needs to see the ultimate truth in ones and zeros, pounds and pence. If it’s bad news, it’s bad. So you need someone who’s willing to tell you and never, ever hide bad news.

4 – Accuracy 

Really strong work where the figures add up correctly is critical in your CFO but not always a given. You don’t want to have to check their work or submit error-filled papers to the board. 

5 – People skills

The CFO needs to be a functioning member of the executive team and manage a potentially substantial finance team that works under a lot of pressure. Having the soft skills needed to excel here is important too.

“The CFO manages technical people who tend to see the world in black and white. It’s the CFO’s job to translate between the black and white of spreadsheets and insert the grey of strategy.”

Georg Ell, CEO, Smoothwall

6 – Planning

CFOs have multiple customers both internally and externally. You need someone who’s organised and thinks ahead because the problems they deal with can’t be solved at the eleventh hour.  

How to recruit for a CFO

The CFO is a tricky job to hire for. Which is why we were very happy to find that our Investment Lead at Tenzing was very hands-on when it came to recruiting the right CFO for Smoothwall. I learned a lot when I recruited for our CFO role. Here are my top hiring tips:

1 – Recruit someone who’s right for today and tomorrow

Although you need certain skills and capabilities right now, you also need to think about what you’ll need in two or three years. During the early period before a sale, you need an operational CFO, someone who’s going to transform the business by challenging the way it operates, so look for this kind of experience. Then consider the attributes I’ve listed above.

2 – Expertise over experience

Years of experience is not the criteria that defines expertise. It’s what someone’s done with those years that counts. I’ve seen younger CFOs with fewer years experience who are very good at the commercial side of the business. I’ve also met clever, experienced CFOs who extrapolate from their experience to see around corners. So hire based on what applicants have achieved and their talents.

3 – Delve into their broader business experience

Make sure the CFO understands the basic revenue cycle and financial mechanics for your type of business. I also ask how they hire their teams and what the differences are between certain roles – like a data analyst and financial analyst. 

4 – Quiz them about their private equity experience

Ideally, you’ll hire a CFO with private equity experience, particularly a private equity exit which is the ultimate litmus test of a CFO. Quiz them in detail about that process – how did the exit go? What went into the data room they built? What pitches were they involved in, and which did they lead? What was hard about the process? How did they prepare? 

5 – No private equity exit experience?

Then look for an alternative example where they’ve worked with external stakeholders. This could be taking a company through an IPO or raising debt capital from a bank or private equity fund. Then ask similar questions to those I’ve listed under point four. 

Choosing your CFO is the most important hiring decision the CEO makes. Get it wrong, and you can end up in all sorts of trouble. Get it right, and you’ll have the support, expertise and challenge you need to fuel your business’ growth and secure a strong sale.

ABOUT THE AUTHOR

Georg Ell

Georg Ell

Georg is CEO of Smoothwall, a dedicated safeguarding technology provider in UK education. Prior to joining the business in 2018, he was Tesla’s Director for Western Europe and served as General Manager, EMEA for Yammer, acquired by Microsoft for $1.2B. Smoothwall was our first investment from Fund I. In August 2021, we sold our stake to Family Zone, an Australian headquartered cyber safety software provider, generating a return of 5.6x invested capital and a 56% IRR. During the investment cycle, Georg led on multiple acquisitions and delivered many product innovations, whilst his team were awarded Three Stars in the Sunday Times’ “Best Companies to Work For” and recognised as a Top 100 Employer.