- Sponsors often require a hard monthly close accompanied by rigorous reporting.
- A close must be both accurate and timely to maximize its value to company operations.
- PE-backed CFOs may overlook the importance of a well-managed balance sheet amidst eagerness to report revenue and EBITDA.
- Strong PE-backed CFOs bring an outsider’s perspective to identify and address the most destructive flaws in their close.
Every additional day required to lead a monthly close inhibits value creation and therefore IRR. Most portfolio companies expect to close their books within six business days. A close requiring ten or more days is unacceptable to most sponsors. Achieving maximum efficiency while delivering the detail sponsors demand requires robust systems and widespread commitment.
Exceptional PE-backed CFOs leverage several best practices to enhance the speed and quality of their monthly close.
Formalize the Process
Where most see dysfunction, PE firms see opportunity.
Given the nature of most LBOs, a PE-backed CFO can often add enormous value by implementing fundamental safeguards to their function.
For example, too many businesses rely almost entirely on institutional memory to execute their close.
If a portfolio company does not have an up-to-date close checklist, one must be created. Forcing employees to put their processes in writing will often result in discovery of significant inefficiencies that thereto had withstood the test of time.
A closing checklist must include:
- A clearly delineated schedule of activities.
- Specific deadlines for each action.
- Any required signoffs to move an item forward.
CFOs should ensure their company has a standard chart of accounts whose format and usage is consistent throughout the business. This baseline consistency can save an accounting team hundreds of working hours a month.
These documents should be kept in a secure digital location where employees can access 24/7 and updates are reflected in real time.
Too many CFOs fail to formalize their close process because it is “good enough” to check the box for another month. This mindset monopolizes the team’s time and does little to drive top-quartile returns.
Expand “Pre-Close” Activities
Executives who fail in PE-backed roles ofte...