“Every executive has to think of themselves as a value creation driver,” said Scott Engler, Managing Partner of Sync Executive Partners, at an AFP webinar on elevating finance for private equity success. “Everything you do is related to realizing the investment thesis and thinking from the future investor’s perspective.”

Taking the future-investor perspective changes how finance operates, as the KPIs focus less on whether the company is meeting its financial targets and more on what it’s building — the capabilities, performance and financial story necessary to create value at exit.

What this means for finance leaders is that PE firms are looking for five leadership capabilities that will help with executing the value creation plan:

1. Performance leadership
2. Enterprise leadership
3. Transformational leadership
4. Insight leadership
5. Strategic investment leadership

Below is a closer look at each of these capabilities. Note that these capabilities only matter if they sit on a solid finance foundation of reliable data, consistent reporting definitions and strong controls. Finance must have its own house in order to make the higher level work possible and to be credible when interacting with sponsors and business partners.

Key Takeaways

Finance leaders in PE-backed companies should:

1. Drive the operational pace and reporting cadence that keeps the organization aligned on key value drivers.
2. Step across functional boundaries to create a unified financial framework for decision-making across the organization.
3. Work toward the goal of moving the company from its current state to its future value; look for opportunity in customers, products, projects and resources.
4. Develop "forward pattern recognition" by anticipating critical business decisions three, six, nine and 12 months out.
5. Serve as the financial compass, constructively challenging assumptions in the business and with the PE sponsor.

1. Performance Leadership: Drive Performance and the Pace of Execution

Performance leadership means finance identifies the key financial drivers, determines how to measure them, and establishes a reporting and operating cadence that keeps the organization focused on hitting its targets.

“Most finance people do not consider themselves the driver of the operational pace,” said Engler. “Finance actually has more levers than anyone else in the organization to drive pace.”

Those levers include reporting, metrics, financial analysis and decision-support processes. And, when used effectively, they help ensure management understands whether the company is moving quickly enough toward its objectives — and intervene when it’s not.

Engler described three levels at which a CFO can operate:

• Governance ensures that the fundamentals are working properly — the numbers add up, compliance requirements are met and reports get filed with the SEC.
• Guidance provides information that helps management make better decisions. Finance helps other leaders understand the strategy and the trade-offs.
• Performance actively drives those decisions and adjusts course when the results reveal any assumptions or strategies that aren’t working.

That distinction is particularly important in PE because the original value creation plan will inevitably encounter changing conditions. “All investment theses are wrong, and all value creation plans are wrong,” said Engler. “Everything’s built on squishy assumptions, which is why finance should continually test the underlying assumptions and make sure the organization responds quickly when reality differs from expectations.”

With this information, senior operators can act like investors in the business, taking ownership of the decisions, trade-offs and execution required to create value at exit.

2. Enterprise Leadership: Align the Enterprise Around Value Creation

Enterprise leadership requires finance professionals to step across functional boundaries and build a shared financial framework through which decisions get evaluated.

“Finance is the centering mechanism in the organization,” said Engler. “And we have the most tools to align the organization.”

Finance can influence alignment by creating accountability via performance metrics, compensation structures, reporting and the business conversations generated by financial information. But effective enterprise leadership requires that everyone in the company be on the same page.

“The key to enterprise leadership is that everyone walks around with the same mental financial model of the org,” said Engler. “And to do that, everyone on the finance team has to be playing that game.”

3. Transformational Leadership: Help Move the Company from ‘A’ to ‘B’

PE firms acquire companies expecting to increase their value. “They didn’t buy you to keep you the same,” said Engler. “They bought you in an A state to sell you in a B state — and make a lot of money off that.”

Transformational leadership is finance’s role in helping make that transition possible. That means rationalizing the customer base, the product suite and projects — in essence, ensuring capital and resources flow toward what creates value.

Though finance isn’t making the decisions, it is providing the analysis that informs the decision. “I do think there’s a common fallacy that finance has to have a recommendation,” said Engler. “I believe that finance has to provide the analysis that leads to good choice-making.”

The PE environment makes analysis challenging because transformation has to take place within a limited investment horizon. “You have a ticking time clock, so your analysis has to be quicker; it has to be a little dirtier,” said Engler.

4. Insight Leadership: Anticipate What Could Happen Next

PE-backed organizations also need finance to help them determine what could happen next. Engler calls that capability “forward pattern recognition,” which is key to insight leadership.

In business, historical patterns are likely to become obsolete in six months, especially in an AI-driven market. Finance needs to help management interpret emerging signals and think beyond current results. “What are the critical business decisions that the company is going to have to make in three months, six months, nine months, 12 months?” said Engler. “And what is finance doing to enable those?”

This doesn't mean showing leadership everything you're analyzing; you can conduct broader scenario analysis quietly, then bring emerging issues to leadership before they become urgent. You want to think two steps ahead while helping them navigate one step at a time.

5. Strategic Investment Leadership: Serve as the Financial Compass

Strategic investment leadership is finance's ability to think like an investor, not just an operator. The key question is, "What will the next investor pay for this company, and what must we do now to maximize that outcome?" Finance becomes the organization's compass, helping leaders understand which decisions will increase enterprise value and best support the investment thesis.

Unlike traditional FP&A, this capability is not focused on reporting results. It is about challenging assumptions, aligning stakeholders around value creation and ensuring the company makes the choices that will matter most at exit. As Engler notes, finance must be the "sensing mechanism" of the organization, helping executives see risks, opportunities and changes before they become problems.

In many ways, strategic investment leadership is the ultimate evolution of finance's role: connecting today's operational decisions to tomorrow's valuation. Rather than asking whether the company hit budget, finance asks whether the business is becoming more valuable and whether the organization is positioned to deliver the return investors expect.

If finance has acted on the first four levels of value creation, then it is uniquely positioned for this fifth level. “No other function can do this, and private equity can’t do it for you,” said Engler. “Strategic leadership is one of the most rewarding parts of the gig.”

Where Portfolio Company Finance Teams Can Start

While the five leadership capabilities are interconnected, finance teams don’t have to transform all of them at once. Engler recommends beginning with performance leadership and insight leadership because they fall most directly within finance’s standard responsibilities.

Start by asking:

• Are finance and business leaders aligned on the value drivers underlying the investment thesis?
• Are those drivers being measured consistently?
• Does the reporting cadence create accountability and support timely decisions?
• Is finance looking far enough ahead to identify changes before they become problems?

Engler also cautioned against overlooking execution. “Don’t overlook operating rhythm in a private equity environment and alignment,” he said. “You’ve got to drive alignment on the key drivers that underpin the investment thesis. You’ve got to report on them, and you’ve got to be able to drive reporting and cadence around them.”

These are not table stakes for every finance executive. Most finance leaders will not play all five roles consistently over the course of their careers. In a PE-backed environment, these capabilities are what separate strong operators from true A players — the finance leaders who can help translate the investment thesis into enterprise value.