How to Prepare for Private Equity

How to Prepare for Private Equity Investment

Private equity investment transforms a business. It brings capital, often introduces experienced non-executive support, accelerates growth plans, and — for most owner-managed businesses — represents the most significant financial event in the company’s history. It also introduces a level of financial rigour, reporting discipline, and governance accountability that most businesses have never experienced before. The businesses that navigate private equity investment most successfully are the ones that prepared their finance function before the investors arrived — not after.

This guide is written for founders, CEOs, and business owners who are either considering approaching private equity, already in conversation with PE houses, or preparing for a process that is likely to begin in the next six to eighteen months. It covers what private equity investors examine when they assess a target business, why the quality of the finance function is one of the most important factors in both deal completion and post-investment success, and how appointing the right CFO or Finance Director — often on a fractional or interim basis — is one of the most value-adding steps a business can take before entering any PE process.

FD Capital has placed CFOs and Finance Directors for businesses preparing for, completing, and operating post-PE investment since 2018. Our team recruits across the full range of PE scenarios: first-time institutional investment, management buyouts, buy-and-build acquisitions, refinancings, and exit processes. Call 020 3287 9501 or email recruitment@fdcapital.co.uk to discuss your situation.

“FD Capital has supported SBS Insurance Services over the past three years through the provision of a Fractional FD/CFO. Their expertise has made a significant difference in professionalising our finance function and delivering accurate, timely management information — exactly what our business needed to grow with confidence.”

— Tracey Rees, COO, SBS Insurance Services Ltd

What Private Equity Investors Are Actually Looking For

Private equity investment is not simply the provision of capital. PE houses are acquiring a stake in a business with the expectation that they will exit that stake — typically within three to seven years — at a multiple of their entry price. Every decision a PE investor makes from the moment they first engage with a target business is made through the lens of that exit. They are asking, from the first conversation: what will this business be worth in five years, and what needs to happen to get it there?

The finance function sits at the centre of this question. A PE house cannot make a credible investment decision without accurate historical financial information, a coherent financial model, and confidence that the business’s financial management is sufficiently robust to deliver the performance they are projecting. They need to trust the numbers — and trusting the numbers requires trusting the people who produce them.

EBITDA quality and normalisation

The primary valuation metric in private equity is EBITDA — earnings before interest, taxes, depreciation, and amortisation. Most PE acquisitions are priced as a multiple of EBITDA, so the quality, accuracy, and sustainability of EBITDA is the single most important financial characteristic of any target business. Before a PE house will commit to a valuation, they will scrutinise the EBITDA figure intensively — through financial due diligence — to understand whether the reported EBITDA is a fair representation of the business’s underlying earnings power.

Normalisation adjustments — removing one-off costs, owner benefits, non-recurring items, and other distortions from the reported EBITDA — are central to this process. A business that has robust, well-documented management accounts and can clearly articulate its normalised EBITDA will present significantly more credibly than one where the EBITDA figure is unclear, inconsistently calculated, or subject to large adjustments that the PE house discovers rather than the seller presents. The CFO or Finance Director’s role in EBITDA presentation is material — the quality of the financial story being told directly affects the valuation multiple achieved.

See our guide to EBITDA and why it matters for a detailed explanation of how EBITDA is calculated and the specific adjustments most PE houses will request.

Management accounts quality and timeliness

PE investors expect monthly management accounts — typically produced within ten to fifteen working days of month-end — that provide a clear picture of the business’s revenue, gross margin, operating costs, EBITDA, and cash position. If a business cannot close its monthly accounts within a reasonable timeframe before investment, the PE house will have low confidence that it can do so after investment when the reporting obligations become more demanding. The quality and timeliness of management accounts is one of the most important indicators of finance function capability that PE investors assess during due diligence. A business preparing for PE investment should invest in producing genuinely investor-grade management accounts at least six to twelve months before entering a process.

Financial model and business plan

PE investors do not invest in historical performance. They invest in future performance — specifically in the credibility of the financial projections that underpin the business plan. A well-constructed financial model for a PE investment should include a three-to-five-year income statement, balance sheet, and cash flow projection — with clearly articulated assumptions, sensitivity analysis, and a direct link between the operational drivers of the business and the financial outcomes. The model must be able to withstand detailed scrutiny from the PE house’s financial advisers and from the vendor due diligence process. A CFO who has built financial models for PE transactions before understands exactly what level of rigour is expected.

Working capital management

Working capital — the difference between current assets and current liabilities — is a critical element of any PE transaction. The agreed working capital target becomes a key deal term, and a business that does not manage and understand its working capital position risks a significant post-completion adjustment that reduces the proceeds received by the sellers. PE houses and their advisers are experienced at identifying working capital that has been manipulated or is unsustainably managed in the run-up to a transaction. A CFO with transaction experience will manage the working capital position carefully throughout the pre-sale period and will negotiate the working capital mechanism on a fully informed basis. See our guide on management accounts and working capital for more detail.

Financial controls and governance

PE investors require confidence that the business’s financial controls are robust. Specific areas of focus include: the segregation of financial duties, the quality of the audit process and the auditor relationship, the completeness and accuracy of the purchase ledger and sales ledger, the management of intercompany transactions, and the existence of appropriate authorisation controls over significant expenditure. A business that has operated with minimal financial governance — common in owner-managed businesses where the owner’s personal authority substitutes for formal controls — will need to invest in implementing proper financial governance before a PE investor will be comfortable completing a transaction.

Tax compliance and structure

PE houses conduct detailed tax due diligence alongside financial due diligence. Common areas of focus include: employment tax compliance, particularly around off-payroll workers and benefits-in-kind; VAT compliance; R&D tax credit claims and their defensibility; transfer pricing where the business has any cross-border transactions; and the appropriateness of the corporate structure including any pre-transaction restructuring that may have been carried out. A CFO or Finance Director who has managed a business through a previous PE transaction will anticipate these areas and ensure they are clean before the due diligence process begins.

The Finance Function Requirements of Private Equity

One of the most significant operational changes that PE investment brings is the transformation of the finance function from a compliance-oriented back-office operation into a strategic, forward-looking function that is central to the business’s value creation agenda. This transformation is often the most challenging aspect of the post-investment period, and the businesses that manage it most effectively are those that began the transformation before the investment completed.

Why most businesses need to upgrade their finance function before PE investment

The typical owner-managed business approaching private equity for the first time has a finance function that was built for compliance rather than performance management. It may have an excellent Finance Manager or Financial Controller who produces accurate accounts and manages tax filing diligently, but it is unlikely to have board-level financial leadership — the strategic CFO or Finance Director capability that PE investors require from completion day one.

PE houses invest on the basis that the business can execute its financial reporting obligations from the moment the deal completes. Monthly management accounts need to be produced on time, board packs need to be investment-committee ready, covenant compliance testing needs to begin if the acquisition involves debt, and the investor relationship — which is a continuous, active financial communication — needs to be managed professionally. This cannot be built from scratch after completion. It needs to be operational before the deal closes.

The most common and cost-effective solution for a business preparing for PE investment is to appoint a fractional CFO or interim CFO six to twelve months before the planned investment date. This gives the CFO time to implement the required financial infrastructure, produce a track record of high-quality management accounts, build the financial model that will be used in the investment process, and be present and credible during the due diligence phase. The cost of a fractional CFO engagement in the pre-investment period is almost always recovered many times over in the valuation premium achieved by presenting a well-prepared finance function.

What PE houses require from the portfolio CFO post-investment

Once the investment completes, the CFO’s obligations change significantly. The monthly management accounts must be produced to a tighter deadline — typically eight to ten working days post-month-end rather than the fifteen to twenty days that many businesses operate to pre-investment. The board pack must include financial commentary, KPI dashboards, a forecast versus budget comparison, and a rolling twelve-month cash flow forecast. Covenant compliance testing — where the acquisition involved debt — must be performed and submitted to lenders on schedule. The quarterly investor reporting pack must be prepared to institutional investment standards.

Beyond the reporting obligations, the portfolio CFO is a central participant in the PE house’s value creation programme. This involves active financial support for commercial initiatives — pricing analysis, margin improvement projects, acquisition financial modelling, cost reduction programme financial oversight — and the analytical contribution to strategic decision-making that the PE house expects from a finance leader who is genuinely plugged into the operational management of the business.

See our CFO recruitment for PE-backed businesses page for the full profile we recruit to for post-investment portfolio CFO appointments.

The Private Equity Investment Process: A Finance Function Timeline

Understanding where in the investment process the finance function is most exposed helps businesses prioritise their preparation. The typical PE acquisition process runs through the following stages, each of which makes specific demands on the finance function:

12–18 months before: Finance function assessment and gap-filling

This is the ideal time to appoint a fractional or part-time CFO if the business does not already have one. The CFO’s initial focus should be on: establishing a regular monthly close and management accounts process; building or improving the financial model; reviewing the quality of the underlying financial records; identifying and resolving any compliance gaps (VAT, employment tax, audit); and implementing the KPI and reporting frameworks that will form the basis of the investor reporting after completion. A business that starts this process eighteen months before an anticipated investment date arrives at the process in a materially stronger position than one that waits until the investment banker is appointed.

6–12 months before: Preparation of the information memorandum and financial model

The information memorandum — the primary marketing document for any PE process — relies heavily on the financial section. The historical financial analysis, the management accounts track record, the financial projections, and the financial narrative of the business are all the responsibility of the CFO working alongside the CEO and the corporate finance adviser. A CFO who has contributed to an information memorandum before will understand the standard of financial disclosure required and will produce a financial section that enhances rather than undermines the overall investment case.

3–6 months before: Vendor due diligence and data room

Vendor due diligence — the process by which the seller appoints an independent accountancy firm to produce a financial due diligence report on the business — is increasingly standard in PE processes and is essentially required for any process where multiple bidders are invited. The VDD report, produced by firms such as Grant Thornton, BDO, RSM, or the Big Four, requires the business to provide extensive financial information in a structured format. The CFO manages this process, fields queries from the VDD team, and reviews the draft report before it is finalised. The quality of the CFO’s engagement with the VDD process directly affects the quality and tone of the VDD report, which in turn affects bidder confidence and valuation.

Simultaneously, the data room — the secure electronic repository of due diligence documents — must be built and organised. A well-organised data room signals competence and transparency. A poorly organised, incomplete, or inconsistently presented data room signals financial management weakness and invites additional due diligence enquiries.

Completion and day one readiness

At completion, the PE house expects the portfolio company’s finance function to be operational from day one. The monthly close process must run on schedule; the lender covenant compliance must begin; the investor reporting must commence at the end of the first full month. A CFO who joined the business six to twelve months before completion will have all of this in place. A CFO appointed at or after completion faces a significantly steeper learning curve and is more likely to produce late or poor-quality reporting in the critical first few months of the investment — a period when the PE house is forming its view of the management team’s credibility.

Types of Private Equity Investment and Their Finance Function Implications

Institutional growth capital

Growth capital investment — where a PE house acquires a minority or majority stake in a profitable, cash-generative business to fund an acceleration of its growth strategy — is typically the least transformative from a finance function perspective. The business retains its existing management team and operating model, and the CFO’s primary new obligations are investor reporting and the financial support of the growth programme. This is the most common PE scenario for owner-managed businesses approaching PE for the first time, and the finance function requirements are well-matched to the capabilities of a strong fractional or part-time CFO.

Leveraged buyout (LBO)

A leveraged buyout — where the PE acquisition is partially funded by debt secured against the target company’s assets or cash flows — introduces significantly more demanding finance function requirements. Debt covenant compliance, lender reporting, cash management against debt service obligations, and the financial disciplines of operating a leveraged balance sheet require a CFO with direct LBO experience. The covenant structure — typically including a leverage ratio, interest cover ratio, and cash flow cover ratio — must be tested and reported monthly or quarterly, and a covenant breach is an extremely serious event that the CFO must prevent through careful cash and financial management throughout the investment period. FD Capital specifically recruits CFOs for LBO environments and assesses candidates on their direct experience of covenant compliance and leveraged financial management. See our private equity Finance Director page for the specific PE FD profile.

Management buyout (MBO)

In a management buyout, the existing management team — typically including the CEO and a small group of senior executives — acquires the business from its existing owner, usually with PE backing. The CFO in an MBO has a dual role: representing the management team’s interests in the acquisition process while also supporting the PE house’s due diligence and transaction requirements. This dual role requires careful management and experienced judgement. The MBO CFO must also manage the financial aspects of the management equity arrangement — the sweet equity, co-investment, and ratchet structures that form the management team’s economic participation in the transaction. See our guide to sweet equity in PE transactions for detail on management equity structures.

Buy-and-build

A buy-and-build strategy — where a PE house acquires a platform business and then makes a series of bolt-on acquisitions to build scale — places exceptional demands on the finance function. Each acquisition brings its own financial due diligence, integration challenge, and post-acquisition financial management requirement. The CFO of a buy-and-build platform must be able to run the monthly close of an increasingly complex multi-entity group while simultaneously managing the financial aspects of ongoing acquisition activity. This is one of the most demanding CFO roles in the PE-backed market and requires a candidate with direct experience of this specific environment. See our group CFO recruitment page for the profile we recruit to for these roles.

How to Find Private Equity Investors

Many of the businesses that contact FD Capital are not yet in a PE process — they are in the earlier stage of understanding how to approach private equity investors and what the process looks like. While FD Capital is a finance recruitment firm rather than a corporate finance adviser, our team has worked alongside enough PE transactions to provide useful orientation on how the PE market is structured and how businesses typically access it.

The UK private equity landscape

The British Private Equity and Venture Capital Association (BVCA) represents over 700 member firms across the UK PE and VC ecosystem. The BVCA’s member directory is a useful starting point for understanding which PE houses are active in a specific sector or deal size range. UK private equity is typically segmented by deal size: small-cap (enterprise values typically up to £25m), lower mid-market (£25m–£75m), mid-market (£75m–£250m), and large-cap (above £250m). The majority of owner-managed businesses approaching PE for the first time are operating in the small-cap or lower mid-market range.

Active UK PE houses in the small-cap and lower mid-market include BGF (Business Growth Fund), which provides growth capital to businesses with revenues of £5m–£100m and does not require majority control, making it a less disruptive first institutional capital partner for many owner-managed businesses. Maven Capital Partners, NVM Private Equity, Beechbrook Capital, and YFM Equity Partners are among the other active lower mid-market investors. For technology and growth businesses, venture capital firms including Octopus Ventures, Notion Capital, and Episode 1 Ventures operate in the earlier-stage growth equity space.

How corporate finance advisers work

Most PE transactions are managed through a corporate finance adviser — typically a specialist M&A advisory firm or the corporate finance arm of an accountancy practice — who represents the seller or the management team in the process. Appointing a good corporate finance adviser early is important: they will run the competitive process, introduce the business to the right PE houses, manage the data room and VDD process, and negotiate the deal terms. The quality of the financial information and the finance function that the CFO presents will directly affect the corporate finance adviser’s ability to run a competitive process and achieve the best possible valuation.

The relationship between the CFO and the corporate finance adviser is a working partnership throughout the process. A CFO who can produce the financial analysis and modelling that the corporate finance adviser needs — quickly, accurately, and to a high standard — materially improves the efficiency and quality of the process.

Investor readiness: the finance function as a competitive advantage

In a competitive PE process, the quality of the finance function is a competitive advantage. A business that can present audited accounts produced within four months of year-end, monthly management accounts available within eight working days of month-end, a financial model that has been stress-tested and is clearly linked to operational assumptions, and a CFO who presents confidently and credibly in investor meetings will command a valuation premium over a comparable business whose finance function is weaker.

Conversely, a PE process that stalls or fails because of concerns identified during financial due diligence — inconsistent management accounts, unexplained EBITDA variances, working capital that appears to have been manipulated, or a CFO who cannot defend the financial model under questioning — is one of the most expensive outcomes a business can experience. The professional fees, management time, and opportunity cost of a failed or damaged PE process can be significant. The relatively modest cost of appointing a qualified CFO before the process begins is an extremely effective insurance policy against this outcome.

Private Equity and the Condition of Investment: When PE Requires a CFO Appointment

One of the most specific scenarios that FD Capital encounters regularly is the business that has secured or is close to securing PE investment, where the investor has made it a condition — either formal or informal — that the business appoints a qualified CFO before or immediately after completion. This is increasingly common in smaller deal sizes where the target business has strong commercial performance but weak financial management infrastructure.

In these situations, the speed of the CFO appointment is critical. The PE house typically expects a CFO to be in place within weeks of making the requirement known, and the quality of the appointment — a CFO who has worked in a PE-backed environment before — is non-negotiable. FD Capital specialises in this scenario. Our team can shortlist qualified, PE-experienced CFOs and Finance Directors within days of receiving a brief, and can deploy them in interim, fractional, or permanent arrangements depending on the stage of the investment and the business’s specific needs. See our dedicated page on CFO appointments as a condition of PE investment for this specific scenario.

“Adrian worked with us as our Fractional CFO for six months and we are genuinely grateful for the contribution he made. His financial expertise and calm, professional approach gave us confidence in our numbers and supported better decision-making across the business. I would recommend Adrian and FD Capital without hesitation.”

— Josh Haugh, MAS Technicae Group (International) Ltd, West Sussex

PE Investment and EIS / SEIS: Smaller Raise Scenarios

Not all investment events are institutional PE transactions. Many early-stage and growing UK businesses raise capital through the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) — government-backed tax-efficient investment vehicles that are particularly popular with UK angel investors and family offices. While EIS and SEIS investment is typically smaller in scale than institutional PE, the financial management requirements — HMRC advance assurance, investor reporting, compliance monitoring — are specific and demanding, and benefit from CFO oversight with direct EIS/SEIS experience.

Similarly, businesses raising through venture capital — Series A, Series B, and later rounds — have specific finance function requirements driven by the VC investor’s portfolio management needs. See our dedicated CFO for fundraising page for detail on all raise types and the specific CFO profile required for each.

Private Equity CFO and Finance Director: Salary and Rate Guide

PE-backed CFO and Finance Director compensation typically includes a performance bonus tied to EBITDA growth, deal completion, or specific value creation milestones. Management equity participation — sweet equity — is common for CFOs who join a PE-backed business at or near deal entry and participate in the exit multiple. See our CFO salary guide and guide to sweet equity for full detail.

Frequently Asked Questions

How long before a PE process should we appoint a CFO?

The ideal lead time is six to twelve months before you expect the investment process to begin — not before you appoint the corporate finance adviser, but before you make the decision to pursue investment. This gives the CFO time to implement management accounts improvements, build or stress-test the financial model, clean up any compliance gaps, and develop a credible track record of board-quality financial reporting before the due diligence process starts. A CFO appointed six months before investment will be significantly more effective than one appointed during the process.

Do we need a permanent CFO or can we use a fractional or interim appointment?

For the pre-investment preparation period, a fractional or interim CFO is almost always the right model. The work is intensive but defined — management accounts, financial model, data room, VDD support — and a fractional arrangement (one to three days per week) or an interim appointment (full-time for the process period) provides the coverage required without the commitment of a permanent hire before the deal structure is known. Post-investment, most PE houses prefer a permanent CFO appointment, though a fractional arrangement can bridge the gap while a permanent search is conducted. FD Capital can deploy both models and transition between them smoothly.

What does a PE house look for when assessing the CFO or Finance Director?

PE houses assess the CFO on four dimensions: technical capability (the ability to produce accurate, timely management accounts and manage the financial reporting obligations of a PE-backed business); PE experience (direct experience of the PE investment cycle, including awareness of covenant compliance, investor reporting standards, and the financial management disciplines of a leveraged environment); sector knowledge (relevant industry or sector experience that contributes to the commercial finance agenda); and personal credibility (the ability to present financial information confidently to the investment committee, lenders, and board).

What if the PE house makes our CFO appointment a condition of investment?

This is a scenario FD Capital handles regularly. PE investors — particularly in smaller deal sizes where the target business has not previously had a board-level finance executive — often make a qualified CFO appointment a formal or informal condition of completing or drawing down the investment. In these situations, speed and quality are both critical. FD Capital can shortlist PE-experienced CFO and Finance Director candidates within days of receiving a brief, and can deploy interim or fractional executives within 48 hours for urgent requirements. See our dedicated page on CFO as a condition of PE investment for more detail.

Can FD Capital place a CFO who will participate in management equity?

Yes. Many of FD Capital’s PE-backed CFO placements involve management equity participation for the incoming CFO — either through a sweet equity arrangement at deal entry or through a ratchet structure tied to exit multiple. Our team advises clients on structuring the equity offer appropriately for the level of seniority and the deal structure, and our candidates are experienced in evaluating and negotiating equity participation alongside their cash compensation. See our guide to sweet equity in private equity transactions for detail.

What is the difference between a PE-backed CFO and a standard CFO hire?

A CFO for a PE-backed business operates in a fundamentally different environment from a CFO in an owner-managed business of comparable size. The reporting obligations are more demanding, the timelines are tighter, the investor relationship is more structured and active, and the financial disciplines — particularly around covenant compliance, working capital management, and EBITDA optimisation — are more rigorous. A CFO who has not previously operated in a PE-backed environment will face a steep learning curve. FD Capital specifically assesses PE-backed CFO candidates on their direct experience of this environment and will not present candidates who lack this background for PE-specific mandates.

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CFO as a Condition of Investment | CFO for Fundraising | Investor Ready CFO | CFO Recruitment for PE-Backed Businesses | Recruiting a CFO with PE Experience | Private Equity Finance Director | Fractional CFO | Interim CFO | M&A CFO | Portfolio Finance Directors | Group CFO Recruitment | EIS and SEIS Fundraising | Sweet Equity Guide | EBITDA Guide | Transformation CFO & FD

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How to Prepare for Private Equity | CFO as a Condition of Investment | Investor Ready CFO | CFO for Fundraising | PE House CFO Recruitment | Series A CFO | CFO for Business Sale | Increasing Business Valuation with a CFO | Fractional CFO | Interim CFO | CFO Recruitment for PE-Backed Businesses | Recruiting a CFO with PE Experience | Recruiting a CFO with VC Experience | Private Equity Finance Director | Portfolio Finance Directors | M&A CFO | EIS and SEIS Fundraising | EBITDA Guide | Sweet Equity Guide | Raise Private Equity | SaaS CFO | Transformation CFO & FD | CFO Salary Guide