The CFO'S Perspective

The CFO’s Role in a Change of Business Ownership


When a business changes ownership, the CFOs of both businesses have a particular set of duties and responsibilities. This article discusses the role of the CFO in the selling entity.


The primary role of a CFO in the pre-sale stage, which can be up to three years prior to an actual sale, is to ensure the financial reporting accurately and thoroughly represents the business. Hopefully, this will communicate positive growth trends and improved financial performance. To accomplish this, the financial reporting should include the following:

  1. A detailed P&L showing:
    1. Fixed and variable cost of goods sold (COGS)
    2. Margins
    3. Detailed functional expenses
  2. Profitability should also be reported by:
    1. Product line
    2. Customers
    3. Distribution channels
  3. Ratio analysis of the above
  4. Trends of the above that hopefully indicate growth and improvements
  5. Detailed balance sheets with ratios and trends
  6. Cash flow reporting
  7. Sales analysis by product, customer, and channel including profit margins of each

If the financial statements and analysis do not show growth or improvement, analysis, and explanations as to the reasons for the shortfall should be available that would indicate the company’s awareness of issues and an understanding of the factors impacting results.

Not all deficiencies adversely impact selling price. A good example is significant labor inefficiencies which could indicate untapped profit potential to a potential acquirer who excels in lean manufacturing. Thus, labor inefficiencies could provide the seller some latitude in calculating synergies and how much could be factored into a purchase price.

Early identification of issues such as obsolete inventory, uncollectable accounts receivable, incomplete fixed asset records, and unrecorded intangible assets, can give the company time to resolve issues or at the least set up appropriate reserves to address them.

Management unaware of issues can be a red flag to potential buyers wondering what else is unknown and not addressed. This could impact the purchase price or the terms of the acquisition.


The CFO is deeply involved in the sales process, beginning with involvement in selecting the right brokers and M&A professionals. The appropriate firm should have industry experience, national and international connections, and is the right size (i.e., equipped) to handle the transaction.

The CFO works closely with the M&A firm to co-ordinate the company management response to the needs of the M&A firm. The CFO works closely in the development of the various sections of the confidential information memorandum (CIM) as well as the all-important financial forecasts included in the CIM. The forecasts must be reasonable, given the historic results of the company and can be totally supported as to the growth assumptions. (Note: the CFO may have to live with these forecasts post acquisition as a member of the new organization.) The CFO then actively participates in the “in-person” meetings with prospective buyers to thoroughly explain the financial condition of the company, the financial forecasts and add insight into the other functions/issues of the company.

During the sale process, the CFO may be tasked with the co-ordination of other company management members in the preparation of the CIM and the in-person meetings. This may also include coordinating a communication plan as to who in the company is notified and when, regarding the company sale process. This also leads to discussions and plans about employee retention and the identification of critical personnel.

The CFO is involved in the evaluation of offers, not only the financial aspects but also the terms of the sale. They are also involved in the evaluation of the acquiring company as to fit, suitability and financial strength. The CFO not only works with the M&A firm but also with tax professionals to maximize the tax benefit of any agreement. They work with the legal advisors to ensure the LOI has pertinent safeguards and eventually work with them through the lengthy process of developing and negotiating the entire Purchase and Sale Agreement to maximize legal benefits and safeguards of the agreement. The CFO is involved in the negotiations with the acquiring firm.


Once the purchase and sale agreement (PSA) is finalized, the acquiring entity performs a due diligence review. This can be a formal quality of earnings effort by a 3rd party or significant data requests direct from the company, or both. The CFO is instrumental in ensuring the data is provided timely, is accurate and properly supports any representations. Any interpretation of data needs to be monitored to ensure the accurate and proper interpretation is accomplished and supports previous representations or is properly resolved between all parties.


After the sale is completed, there is now the task of integrating the sold company into the acquiring company’s organization. The CFO may be required to lead in the conversion of systems to be compatible with the acquiring company’s systems. This also entails modifying financial reporting to meet new management informational needs.

There are usually changes to policies and employee benefits that need to be communicated and implemented with minimal disruption. Employee retention programs noted earlier need to be implemented.

As part of the acquiring company’s evaluation of their new entity, synergies and savings are usually anticipated and the financial impact of these synergies will need to be tracked, monitored and reported. This may include bringing in consultants to implement new procedures such as lean manufacturing etc.

Often, assets are re-valued, which may mean coordinating 3rd party appraisers and providing supporting data etc.

And of course, there is the important task of reporting actual results vs the proposed forecasts included in pre-sale communications (CIM).


The CFO is not only a critical member of this entire “Change in Ownership” process and management team but in many areas takes a significant lead position. Financial information, thorough understanding of financial results, supplying required information, and working alongside a team of outside advisors are all critical to ensure the sale is maximized for the selling company and the transition to the acquiring company is accomplished for maximum benefit to both parties.

About the Author

roger-johnsonRoger Johnson has more than 30 years of private and public company experience as CFO, VP of Finance, Controller, and Director of Finance and Administration. His industry background spans manufacturing, distribution, supply chain, and financial services industries. Roger has over 20 years of extensive international experience in Asia and Pacific Rim countries and was an expert Foreign Lecturer in the People's Republic of China for the Central Institute on Finance.

Roger received his accounting degree from the University of Illinois and an MBA from Pepperdine University.  

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Topics: Mergers and Acquisitions, CFO Responsibilities

Topics: Mergers and Acquisitions CFO Responsibilities