Study – The main transformation challenges

Eight Advisory, an operational, financial and strategic consulting firm, is releasing a study that takes stock of the level of maturity and the major issues relating to Business monitoring (budget planning, closing, reporting and cash monitoring) by the finance departments of companies subject to LBO. The study was conducted, in a post-Covid-19 context, with the input of 35 CFOs by means of an c. 80-question survey.

Paris, 7^th July 2022: Following an extended period marked by the health crisis and its effects on the economic life and financial soundness of companies, the CFO Advisory teams of the Transformation Finance practice took an active interest in the challenges faced by, and workings of, finance departments of companies subject to LBO. In a post-Covid context, during which the shortcomings or absences in accounting and financial processes are exposed, Eight Advisory’s teams have studied LBO companies, who are often ahead of the curve on these issues, so as to gain a better understanding of the repercussions and the new challenges for finance departments in terms of transformation.

While not the main cause, the Covid-19 crisis has exposed the weaknesses in the cash planning and monitoring process. During this particularly difficult period, the uncertainty regarding the level of activity has also made these processes more complex.

Maxime Touvet, Partner, CFO Advisory, says: « Covid has not fundamentally changed the game in terms of closing and reporting – it is all about better understanding the structure of margins and sources of profitability or losses – but it has helped to accelerate, for the less mature LBO companies, the implementation of forecasting habits with a sharp eye on cash monitoring and landings.

Thanks to the insights and practices of LBO companies who are already accustomed to developing and transforming the finance department in a rapid manner, it is clear from this study that the 3 major factors that contribute to the performance of a finance department are:

1. The quality and speed of preparation of accounting data
2. The ability to analyze margins and results
3. The robustness of projections and re-forecasts

This impetus for LBO companies will inevitably impose a rapid and in-depth transformation. The real challenge is to encourage this approach at an early stage for several reasons: to secure and better control business planning; to better facilitate the execution of the investment strategy; and to prepare for an exit as effectively as possible. Capitalizing on quality reporting, generated in a timely manner, and a team capable of demonstrating an accurate reading of the performance and cash flow will be an essential element for maximizing the value of the asset.

In addition, there are levers for optimization, such as improving analytical granularity and margin readability or making projections more reliable. Only 45% of companies surveyed perceive their finance department as a true business partner.

Finally, finance teams are often very busy in the period following an equity transaction and can be overwhelmed by the new demands and the time required to implement them. External support is often the key to adopting an efficient project approach and gathering best practices, in order to define a concrete roadmap as well as the resources required for the transformation.

Bruno Gonnet, Partner, CFO Advisory, concludes: « Recent history has shown the importance of having a finance department that is connected to the business through its ability to support decision-making, that is efficient through optimized, digitalized and agile processes and is able to react in the periods of uncertainty as they arise. »