Many financial leaders are on the hunt for a new opportunity to expand their skills and challenge themselves. And CFOs who have transformed the financial environments of listed and privately owned companies may be keen to transition to a private equity company where they can take the lead on revival strategies and/or multi-year growth plans. Few career opportunities give CFOs the same chance to strengthen and transform a company for success as becoming a private equity CFO.

However, switching from a privately owned or listed company to a private equity company often comes with challenges. CFOs often have less time to reach target results. They’re often under scrutiny from investors. Borrowed capital usually equals bigger risks. And some private equity companies request frequent updates from the CFO so other business leaders can also contribute to financial decisions.

But when a CFO is new to the private equity company, and maybe the industry too, they probably don’t have relationships established with members of the C-suite team. And they probably don’t have a legacy in the company to support them. Therefore, CFOs who are new to private equity need to establish a strong team quickly so they can progress with their transformational ideas and the implementation of future-proofed initiatives.

The group and divisional CFO Gary McGaghey explains that private equity challenges are much easier to tackle when the CFO can build a strong fact base for making financial decisions, catch up with the economics at play, recognise talent gaps in teams, and lead with transformation in mind. Here, he shares four strategies to help CFOs who are new to the private equity space prosper in their roles.

1.    Get Comfortable With Complicated Cash Flow Requirements

Experienced CFOs will be confident handling a company’s cash flow, debt covenants, and balance sheet. But the economics can get more complex in private equity companies. Debt usually fuels these companies’ investments, which can lead to demanding cash flow management. CFOs in private equity companies often need to report on cash flow every month or even every week.

Gary McGaghey explains that private equity CFOs also often need to spend time evaluating the details of what creates cost and what creates value in an exit scenario. They often need to analyse variable and fixed costs to identify the most important factors in a company’s operating leverage. In this situation, a deep understanding of IT systems and tools can be key to understanding critical data.

However, pre-existing data reports don’t often help CFOs understand the company’s position, especially when these reports aren’t providing a robust, consistent “end to end” perspective of the business cash model. CFOs typically need to develop their own understanding of the company’s cash levers over time while managing cash improvement initiatives and financial operations.

2.    Develop an Ever-Expanding, Reliable Fact Base

It can be challenging for a CFO who starts a new role in a private equity company to build their knowledge of the company quickly. Ideally, they should develop an ever-expanding, reliable fact base to pinpoint value creation opportunities, especially opportunities that the company can capitalise on quickly. But most private equity companies lack large volumes of data and the data analysis and tracking capabilities that would allow them to make the most of value-creation decisions.

As a result, Gary McGaghey explains that CFOs need to know where and how to set up low-cost digital technologies to maximise benefits quickly. As an example, a CFO could make targeted investments in productivity-focused tools, such as cloud-based invoice-management software to save time, improve policy enforcement, and improve transparency. CFOs can make targeted investments by seeking the data initiatives that will deliver high-value quick wins and avoid sacrificing long-term gains.

3.    Recruit Good-Fit Talent

Many CFOs excel at talent acquisition and people management. But recruiting the best-fit talent can be especially difficult in private equity companies, where management infrastructure tends to evolve and where investors push for quick results. Although the CFO is often an outsider, they must select candidates who can work effectively under different pressures and circumstances of the business and industry operated within.

Gary McGaghey adds that the CFO might also coach employees from other fields so that they can integrate productively opportunities within the finance team. Employees who develop a thorough understanding of the company’s financial position can become invaluable to the finance team in helping unlock opportunities to adapt the business processes which will drive productivity improvements in the business.

4.    Lead the Company Towards Transformation

From a big-picture perspective, a private equity CFO’s over-arching goal should be to oversee the company’s transformation. To achieve this, they need to manage metrics through robust, although not overwhelming, strategies and clearly define key performance indicators (KPIs).

Gary McGaghey explains that the private equity sponsor will likely identify an investment thesis and assume momentum. In the meantime, the CFO should identify how the company can generate value on both the cost and revenue sides of the thesis. They should then direct resources towards the desired outcome. In an ideal scenario, the CFO would manage or co-manage initiatives to develop a showcase that models the transformation the company is progressing towards.

Prospering as a Private Equity CFO

Gary McGaghey explains that when a CFO has an in-depth understanding of how to generate value for the private equity company and has a firm hold on its finance function, they can become both a challenger and an influencer. Reaching this position enables CFOs to hold CEOs and business unit leaders to account.

The CFO should host monthly business reviews with leaders in all functions. During each review, they should analyse the factual foundation of every business activity and examine every business proposal from an impartial perspective. They should also make certain that every investment decision aligns with the shareholdervalue creation thesis and the priorities in delivering that outcome. This approach can help the CFO become invaluable to the company as they make the financial decisions and lead the strategies that generate desired results.

Learn more about Gary McGaghey’s success as a private equity CFO.

About Gary McGaghey

As a chartered accountant in South Africa and a chartered management accountant in the UK, Gary McGaghey is a divisional and group CFO who has helped an array of companies achieve their transformation goals. These companies operate in a range of industries, such as beverage, pharmacy, media, and fast-moving consumer goods (FMCG).

Having led these listed and privately owned companies to success through impressive organic and M&A-driven growth, Gary McGaghey is now the CFO of the €1.3bn end-to-end marketing production services group Williams Lea Tag. Here, he manages the company’s carve-outs, mergers and acquisitions, divestitures, cost-restructuring programmes, and balance-sheet reconfiguring.

Gary McGaghey is also the non-executive director of Fitmedia UK, which develops children’s fitness analysis and testing solutions. Before taking on his current roles, he held statutory executive director and non-executive roles for listed companies and privately owned companies, including Robertsons, Nelsons, and Unilever.

During the pandemic, selling on Amazon became more competitive as a lot of new sellers came onto the marketplace looking to replace their jobs. In fact, in 2021 alone more than ​​1,029,528 new sellers signed up to sell on Amazon!

This new influx of sellers meant that Amazon had to start placing restrictions on how many units a seller could send into FBA warehouses.

However, in 2022 many of those new sellers have gone back to their day jobs. This is great news for new sellers who are just starting to learn how to sell on Amazon FBA as it means there are a lot more opportunities out there.

In this short guide we are looking at 4 things that have changed for Amazon sellers in 2022 and how you can take advantage of them.

1) Restocking Limits

In 2021, Amazon places restocking limits on new sellers. The reason they did this was to reduce the amount of dead stock they kept on their shelves and allow more space for new products to come through. Amazon loves having stock that sells quickly, so these restrictions were good for experienced sellers.

However, as the pandemic has calmed down a little bit, these restrictions on stock limits have reduced so new sellers can now send in more stock. This is great news for new sellers who are taking their business seriously, as they can send in more units and grow their brand faster.

Take advantage of these stock limit increases by growing your product range or by ensuring you always stay in stock of fast-selling items.

2) Fees have increased

Amazon has increased the selling fees by 4.3% in order to deal with the rising cost of fuel. These extra costs mean that new sellers need to be particularly careful when working out their profitability numbers. The changes only affect the FBA fulfillment fees, not the referral fees, so if you are shipping the products yourself (as a Fulfilled by Merchant or FBM seller) then the changes won’t affect you.

Make sure you are factoring in the fee increases into your profitability assessments.

3) Pan EU shipments have resumed

After Brexit, Amazon stopped allowing sellers to ship from the UK to Europe using the Pan-European network. This network allowed sellers based in the UK to keep their stock in the UK, but fulfill orders from European countries such as France, Germany, Italy and Spain.

The reason Amazon stopped allowing the Pan-European network was because Brexit made the cross-border taxes too complicated. However, Amazon have restarted this scheme, which is great news for sellers based in the UK or sellers in other countries who are looking to expand into Europe.

4) Videos on all listings

In 2022, Amazon allowed all listings to have videos. Previously, sellers needed brand registry to have videos. Brand registry involves getting a trademark, so it was a big blocker to a lot of sellers.

Videos can increase the conversion rate for listings by over 20%, so allowing non-brand registered sellers to have videos on the listings is a huge change.

If you haven’t created videos for your products before, then a great place to start looking is Upwork and Fiverr. Fiverr is great for smaller budgets but if you are looking for more professional videos, you can find some amazing freelancers on Upwork.

Some great ideas for videos that will convert browsers into buyers include

• Unboxing videos – Show the customer what it is like to open the product. These videos are great for giftable products as you can get the customer to visualize themselves giving the gift.
• Lifestyle videos – Show some people using the product in their lives. This is perfect for products that are useful. You can show some models using the products and improving their lives.
• Instructional videos – Give instructions on how to use the products. Instructions are a perfect way to get the customer thinking about how they will be using the product in their lives.
• Simple information – Tell the customer some info about the product, such as ingredients or materials. Here is a great opportunity to show off the benefits of the products.

Wrap Up

The pandemic caused some major headaches for Amazon sellers, especially with all the issues with the global supply chain network. However, it looks like things are starting to turn a corner, which is great news for businesses that made it through.

Some of the changes on Amazon will really help new sellers and experienced businesses alike. This is great news for online ecommerce business owners who are serious about growing their business.