For emerging private equity firms, navigating the complexity of financial operations can be particularly challenging, especially for firms without a full-time chief financial officer (CFO) or controller. Alongside identifying portfolio companies and managing relationships with limited partners (LPs), these firms must also handle the demanding task of running day-to-day operations. However, for firms not yet ready to hire a full-time senior accounting professional, there is an alternative solution.
Outsourced CFO/Controller services, such as Petra's Chief Financial Officer Product Suite for Private Funds, provide firms with an experienced accounting professional who operates as an extension of the firm on a temporary or extended basis. This delivers efficiencies for fund managers and enhances their LP relationships without compromising experience or service quality. Outsourcing CFO/Controller services can be a cost-effective solution for PE firms as it offers the expertise and strategic insight of a full-time CFO or controller at a fraction of the cost, freeing up fund managers to focus on increasing value in portfolio companies.
What are the Responsibilities of an Outsourced CFO/Controller?
With this suite of services, a private equity firm outsources the operational, compliance and reporting responsibilities of the CFO office to an experienced provider. Those financial responsibilities can include:
· Setting up the financial infrastructure (i.e., systems, processes, teams)
· Establishing financial planning, reporting and KPIs
· Addressing cash flow management with internal controls
· Financial forecasting and budgeting
· Guiding long-term strategic business decisions and financial management
· Supporting fund managers in raising capital or refinancing debt
· Managing fund operations vendor relationships
· Supporting risk management and regulatory compliance
Let's look at three ways an outsourced CFO or controller can be a cost-effective and strategic partner for private equity firms.
Financial Strategy and Planning
Outsourced CFOs and controllers offer a wealth of experience in financial strategy and planning which is critical to emerging fund managers. They provide fresh perspectives and innovative solutions to complex financial challenges, such as developing detailed multi-year budgetary projections aligning with the firm’s growth objectives and anticipated expenses. For example, leveraging industry benchmarks, the CFO can determine whether the fund’s management fees will cover expenses or if the founders must inject personal capital. Additionally, their experience and network can be helpful in establishing best practices when selecting vendors, as they can identify partners that align with the firm’s operational goals.
Fundraising and Investor Relations
In the highly competitive fundraising environment, an outsourced CFO or controller is a valuable asset for private equity firms, providing specialized expertise in fund structures that are tax-efficient and compliant with varying jurisdictional regulations. Beyond fund structuring, a senior financial accounting professional plays a crucial role in building and maintaining investor confidence. They provide financial transparency by presenting complex financial data in an accessible and understandable way that instills investor trust. Furthermore, accessibility to a CFO or controller to answer questions and provide clarity during the due diligence process reinforces the firm’s credibility, fostering stronger investor relationships and ultimately supporting fundraising success.
Scalability
As private equity firms grow, their financial needs become more complex. Outsourced CFO or controller services offer scalability, allowing firms to ramp strategic financial support up or down based on current needs. This arrangement enables the firm to scale its financial operations as needed, adapting to fluctuations in deal flow, fundraising, and financial projects. For example, when fundraising, the fund manager may scale their hours up to get more CFO/controller support, but after, they can right-size the arrangement, so the person assists with monthly financial reporting.
Is an Outsourced CFO or Controller Solution Right for Your Firm?
There is no clear answer to this question. However, an outsourced CFO or controller can provide private equity firms, especially smaller firms during the fundraising process, with the support and clarity necessary to be successful. Harnessing the power of CFO/Controller services such as Petra’s model for middle and back-office operations, GPs can concentrate their efforts on essential activities such as fundraising, team building, and growing investments in their portfolio companies. This strategic allocation enhances the firm's operational efficiency and overall value.
Please get in touch with Erin Rathke to learn more about Petra's Outsourced CFO/Controller services for private funds.
