The Four CFOs You Encounter in Restructuring
By: Basil Karampelas, Managing Director
Several years back, Mitch Albom wrote a best-seller titled, “The Five People You Meet in Heaven”. That got me to thinking that in the course of my work as a restructuring professional, there are four different types of CFOs that we come across in some of our assignments that are often the lynchpin to our having a successful outcome. That is not to say that every CFO we work with falls into one of these categories; rather that when we come across one of the types described below, it informs us significantly regarding what we need to do in the early days of the assignment.
The Part Time CFO
Many companies that we encounter have a CFO who is fulfilling another role as well, often involving finance or corporate development. In other situations, we have seen CFOs who are simultaneously working full time for the private equity firm that has an equity stake in our client. In order to keep SG&A costs down, the PE firm has drafted their colleague to parachute into a company where they will be playing out of position during a restructuring – a time when subject matter expertise is essential. When this situation arises, it becomes essential that we help the Company by reducing the workload of the CFO. This can be done in many ways. For example, we can replace the CFO on an interim basis or we can take over some of the non-CFO functions. We work with the CFO to prioritize tasks and create time-sequenced action plans. As with all restructuring assignments, we will provide our guidance in helping the company develop an effective 13-week cash flow model to monitor liquidity as well as a key performance indicator (KPI) dashboard so that senior management can monitor the company’s operations. Our decision-making process will be guided by the CFO’s skill set and the timeline of our assignment, coupled with the degree of financial stress at our client. Most importantly, it will be a bespoke solution that is driven by the years of experience we have working in these types of situations.
The Detail-oriented CFO
We often encounter situations where the CFO is a Controller who has been promoted to CFO at our client company. Often, this type of CFO will be much more comfortable performing audit and reporting tasks rather than communicating with external parties such as equity investors, lenders, and other creditors. Additionally, these CFOs are often extremely good at providing large amounts of financial information; the issue is that there is often a dearth of actionable insight provided simultaneously. In these situations, our role is often that of intermediary between the company and the lender and/or creditor, providing interim financial updates as well as helping the CFO create the 13-week cash flow models that lenders rely upon during a company’s forbearance period. At the same time, we are coaching the CFO to help them develop the ability to combine their knowledge of the company’s financials with strategic insight and guidance for senior management. As we spend more time with this CFO, we can help them acquire the skills necessary to communicate with investors, lenders, and creditors on their own.
The 50,000-foot CFO
As the name suggests, this CFO is the mirror image of the Detail-oriented CFO. These CFOs are often former bankers or private equity professionals whose strength is in financial management and strategy rather than accounting or reporting. Because of the nature of their prior work experience, these CFOs often find that this is their first restructuring situation. As a result, they are often unfamiliar with the restructuring process nor are they typically familiar with the format of the 13-week cash flow model that lenders require. We typically provide significant input into KPI dashboards in these situations as well. Additionally, we often will participate with the management teams in their communications with creditors and customers to help them update these constituencies on the status of the restructuring, and we help the company to determine what information it should share with these parties as part of those discussions.
The New CFO
Turnover at a company undergoing restructuring is a very common occurrence, and the CFO role is not immune to the phenomenon. As a result, we often find ourselves working with a CFO who is either 1) new to the company or 2) a member of the Accounting department of the company who has received a “battlefield promotion” to CFO. Our role in these types of situations is dependent on the specifics of the situation. When the CFO is new to the company, our priority is to find a member of the finance/accounting organization to team up with the CFO to provide them with the institutional knowledge necessary for them to be successful. Simultaneously, we help educate the new CFO on the dynamics of the industry and the specifics of the company to allow them to prioritize tasks and create their cash flow model and the KPI dashboard. If the CFO is a veteran of the company’s Accounting department, then our role often focuses on prioritizing tasks, creating a cash flow model and KPI dashboard, and evaluating the accounting department to ensure that it is staffed appropriately to deal with the amount of work necessitated by the restructuring.
These are just 4 extreme examples of the types of CFOs that our firm encounters in restructuring situations. In practice, the CFOs we encounter are often a combination of the ones listed above. Regardless of where the CFO we are working with falls within the matrix of CFO archetypes, our mission is the same: to provide rapid, targeted, and cost-effective support to allow the CFO to manage the finances of the company undergoing the restructuring while simultaneously providing insightful finance and account reporting to both internal and external constituencies. The goal is to get the company through its restructuring process as quickly and cost-effectively as possible, to maximize the collateral for lenders and allow the business to relaunch once its financial house is in order.