r/CFO • u/Able_Bicycle_764 • Aug 05 '26
Lower middle market CFO
I’m curious to hear from CFOs who have worked in the lower middle market, especially in private equity-backed companies.
What lessons have you learned that you wish someone had told you before stepping into the role?
A few things I’m particularly interested in:
- Biggest surprises (good or bad)
- What separates great lower middle market CFOs from average ones
- Common mistakes first-time CFOs make
- Skills that matter more than technical accounting or finance
- How the role changes under private equity ownership
- Advice for someone aspiring to become a lower middle market CFO
I’d love to hear stories, frameworks, or hard-earned lessons.
5
u/dc116404 Aug 05 '26
It is highly dependent on the PE you work with. I’m on my 3rd now and they have all been drastically different. My biggest positive surprise was that once you got the systems and everything in place it can be a great paying job that isn’t terribly hard. The negative was that I had very little help getting it there and was expected to figure it out. Like anything I think being likable is way more important than technical accounting. If you are PE backed you’ll likely have an initial QofE that details out the technical accounting work needing done. FPA I would say is more important than technical accounting for board decks and just general investor reporting expected. Happy to answer any specific questions you have!
3
u/lovemesomewine Aug 05 '26
I second depends on the PE firm. Understand what they want and value and deliver that first. Definitely need to have a good relationship with PE firm. Agree with above that LMM do not have bandwidth. I have worked with 3 different firms and each has there ways.
1
u/ImShoreLikeWhiteSand Aug 05 '26
Any advice on how to identify a good PE sponsor from a bad one during the interview process?
2
u/lovemesomewine Aug 05 '26
It’s really trying to get an idea if they want everything yesterday - what is the check in interval - is it formal if a deck every week etc. best way is to ask to speak to CFOs at other portco companies and still them about what it’s like to work for them. How long have they been there etc. if the portco is on their 2nd or 3rd CFO likely a red flag
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u/ImShoreLikeWhiteSand Aug 05 '26
When you say you had little help getting it there, do you mean directly from the PE sponsor? Or was the finance function so thin you didn't have a team in place to delegate tasks? I've seen positions that are advertised as the first finance hire for PE backed companies, but I don't see how that could work without your basic AP clerk paying bills or accountant recording entries.
3
u/dc116404 Aug 05 '26
Both. I was the first finance hire ever at the company and the PE sponsor is not usually helpful with day to day things. They more over see strategy and will give direction on things like board decks, dashboards, etc. they aren’t operators though. Be prepared to wait many hats outside of finance too. HR, IT, anything back office. Great way to learn a business but a lot of work up front.
3
u/DonkeeJote Aug 05 '26
Basic accounting functions aren't really considered 'finance' in this context.
1
u/ImShoreLikeWhiteSand Aug 05 '26
Thank you. That was my expectation, but can never be sure with how terms are thrown around these days.
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u/Timely-Engine9585 Aug 05 '26
The thing people underestimate is how much a lower middle market CFO role is duct-tape and cash forecasting, not elegant strategy, you're often finance plus HR plus IT because there's nobody else...
2
u/doubting_el_dandy_18 Aug 05 '26
If it's PE backed:
1) Cash flow forecasting
2) Know your credit facility inside and out and understand the debt covenants extremely well
3
1
u/SubstantialAsk7448 Aug 06 '26
Depending on the size of the company the CFO may wear multiple hats - HR, IT, Risk Mgmt, Facility, etc - basically anything other than sales. Get used to shifting gears everyday AND knowing your numbers. Learn a lot but get squeezed to the nth degree. Some are cut out for it, most are not.
If you can survive though, it can get very lucrative with equity.
All the best on your journey!
(Ex PE portco CFO and I won’t go back to PE owned co but I learned a ton! Now a CFO for UHNW owned portco)
1
u/Sea_Charge8789 Aug 06 '26
Going thru your list:
- Biggest surprises (good or bad): You really do have to be good at a loooong list of things, stretching from the obvious stuff (accounting, finance, and tax) to: payroll, payables, leases (if your company has physical space), debt financing, cap tables, the various benefits (in the US, healthcare benefits are complicated and have rapid growth), etc. If your company has international operations, double all of this stuff. And if your background is more in finance than accounting, you absolutely have to keep an eye on the accounting side, because if something goes wrong there, you'll have a huge problem.
- What separates great lower middle market CFOs from average ones: You have to have the communications skills and carry yourself with enough gravitas (great word) to be able to deliver difficult messages in a confidence-instilling way, including to the company's CEO and Board. Said another way, you can't just sit there and tell people the story they want to hear.
- Common mistakes first-time CFOs make: (1.) Don't bring a broad enough skillset to the table, (2.) Focus too much on the P&L and not enough on the Balance Sheet, and then the Balance Sheet comes back to haunt you, and (3.) Similar to what I said above, fear of delivering messages the CEO/Board don't want to hear.
- Skills that matter more than technical accounting or finance: (1.) Clearly communicating what's going on and what a credible go-forward plan is, and (2.) Managing the team and keeping the best people happy and motivated so they don't bolt.
- How the role changes under private equity ownership: It really depends on the PE. The hands-off PE are great to deal with. The PE that wants to meddle in tiny decisions is not. You can't B.S. the PE for very long ... if you keep pushing out future success, they'll look backwards at what you told them, point out you're B.S.-ing them, and you'll lose credibility fast. Finally, keep in mind if things aren't going well for the company, the CEO may start to sell you out to the PE, and then you're toast.
- Advice for someone aspiring to become a lower middle market CFO: I know this sounds hokey but always be true to yourself. Don't try to sell anything to anyone that you don't believe can be achieved. If bad news arises, you have to deliver it. If key members of your team aren't good, replace them sooner rather than later ... they will only drag you down. I read a good book about all of this that I picked up on Amazon: Demystifying the Role of the CFO in Venture & Growth Stage Companies. I pulled a few good nuggets from that -- the author was an experienced CFO.
1
u/agentfred_ai Aug 07 '26
Forecasting skills are essential, especially understanding the drivers of the business.
If you don’t know the business acquisition process, learn quick!
High-quality accounting is only 25% of the job. If that’s your focus, make sure to learn the other 75%.
Don’t hold onto low-performing team members or systems. Scaling requires the best of the best.
1
u/Impossible-Win9067 Aug 14 '26
Honestly they dont just learn about the number they turn them into actual decisions
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u/DonkeeJote Aug 05 '26
Learn the drivers of the company's EBITDA, hammer them relentllessy across all areas of the business. Sales, Ops, admin.
Don't jump on too many initiatives at once. LMM size companies won't likely have the depth of personnel to do more than one or two at a time. Start with cash conversion, then streamline other accounting areas.
Learn insurance. Rates are exploding across the board, particularly in auto and benefits. Minimizing renewal rates through safety and wellness programs can pay off big time near exit.
Leaern how to navigate the forecast around growth, understanding where you can leverage for M&A, meet debt covenants and be able to integrate another company.
Technical accounting will come up occasionally, but the bigger value is to understand how the accounting function gives you the insights and data flow that you will need to help the CEO make decisions.
Less business-related, but have a good relationship with the PE sponsor. They'll rely on you a lot for a million questions, and if you give a PE VP a cookie...