As 2022 draws to a close, many companies are reassessing their financial strategies as they brace to endure continuing economic headwinds in the coming year.
Private equity (PE) firms are being proactive when it comes to their financial leadership, said Sean Mooney, CEO and founder of “business builders” network for private equity-grade service providers, BluWave.
BluWave, which combines technologies including artificial intelligence (AI) and concierge-like consultative support to serve its over 500 private equity clients, is seeing “tremendous amounts of hiring in the private equity sector,” Mooney, a 20-year PE veteran, said.
In economic times like now, PE firms are moving to ensure they have the support they need in their organizations, “so we're seeing a tremendous amount of interim CFO activity and new hiring activity, in large part because they're bringing in wartime generals in place of peacetime ministers,” Mooney said.
Companies that are searching for new financial leadership may be running up against a number of challenges, including the need to swap out their “peacetime” leaders in favor of executives which have the skill sets necessary to navigate stormy economic seas.
“They need very serious professionals who are cash hawks, and are able to understand the tenor, the pace and the future of a business in a supernatural way,” he said.
The three board meeting problem
Economic stresses are unlikely to ease moving into 2023: The labor market remains tight, and reports by entities such as Fannie Mae are predicting a mild recession will start within the first quarter of the coming year.
The Federal Reserve has also continued to raise interest rates in a continued effort to clamp down on soaring prices, with economists predicting inflation in 2023 is unlikely to slow to a rate that would persuade the Fed to reduce borrowing costs very soon.
The need to have a steady hand at the financial wheel during such economic times is one of several factors that could be influencing the surge in hiring for CFOs and other key positions BluWave is observing. While “nobody wants to make that change” in regards to switching up one’s financial leadership, Mooney said, companies that are facing declining numbers, labor challenges and other economic headwinds set to linger in 2023 may be motivated to search for a new CFO to take the helm.
Firms in the private equity space may be responding to what Mooney — during his own days within the space — referred to as the “three-board meeting problem.”
In the first board meeting, the company is beginning to miss numbers, he said. Three months later, conditions are worsening, and the firm is realizing they have a problem. By the third meeting, “you have to do something, because it's gotten so bad,” he said.
Finding the right financial skill set
While private equity firms may tend to act “more proactively and generally a step ahead,” the same challenges are being felt “everywhere,” Mooney said.
“What's happening is the private equity industry, and I think companies in general, are realizing different people are better for different times,” Mooney said of CFO hiring trends.
Bringing in an interim CFO could be one step companies could take as they look to set themselves up to weather a looming economic downturn.
“CFOs are the nerve center of a company,” Mooney said. “They're touching all the data, information, they're highly sought after, even today with layoffs.”
It could take companies six months to “find an A player,” he said, but firms who are seeing wobbling financials also can’t afford to keep on their current track or to have the seat empty for that amount of time, he said.
Firms that need to recast their strategies in the face of a coming recession can also bring in an interim CFO who has the specialized skill set necessary to shepherd the company through the next six to 12 months amid ongoing economic strife, he said. Such a leader is able to minimize cash leakage, knows how to maximize liquidity and is able to “very tactically forecast the business,” he said.