Key terms used in PE and VC-backed finance, defined plainly. No jargon used to explain jargon.
Interim CFO
An Interim CFO is a fully qualified Chief Financial Officer who fills the role on a temporary, full-time basis. Interim engagements are typically used to cover a permanent hire gap, lead a specific transformation programme, or manage the finance workstream through a transaction such as an acquisition or exit. The interim CFO holds the same authority and accountability as a permanent CFO — the "interim" refers to the duration of the engagement, not to the seniority or scope of the role.
Typical engagement length: 3–18 months.
Fractional CFO
A Fractional CFO provides CFO-level capability on a part-time, ongoing basis — typically one to three days per week. The model suits businesses that need senior finance leadership but cannot justify or afford a full-time hire. A fractional CFO attends board meetings, manages the finance team, owns the numbers, and is accountable for outcomes — they are not a consultant. The key distinction from an interim CFO is time commitment: fractional is part-time and ongoing; interim is full-time and temporary.
Vendor Due Diligence (VDD)
Vendor Due Diligence is a financial and commercial review of a business commissioned by the seller, typically 3–6 months before going to market. The VDD report is provided to prospective buyers as part of the sale process. Its purpose is to surface issues early — giving the seller time to address them before they become price chips in negotiation — and to accelerate the buyer's own diligence process. A clean VDD requires a finance function with reliable data, robust controls, and a coherent financial narrative. Weaknesses found in VDD routinely reduce enterprise value by 10–15%.
EBITDA Bridge
An EBITDA bridge is a waterfall chart that explains the movement in EBITDA between two periods — typically prior year to current year, or budget to actual. It breaks the variance into its component drivers: volume, price, mix, cost, currency, and one-off items. PE sponsors use EBITDA bridges to understand whether performance is driven by structural improvements or temporary factors, and to assess the quality of earnings ahead of exit. A well-constructed EBITDA bridge tells a clear story; a poorly constructed one raises more questions than it answers.
Exit-Ready Finance Function
An exit-ready finance function is one that can withstand the scrutiny of buyer due diligence without surprises. The characteristics are consistent: a month-end close completed within five business days; board reporting delivered within ten business days of month end; controls that are documented, tested, and auditable; financial data that is clean, complete, and traceable; and a finance team that can respond to information requests at pace without the process breaking down. Exit readiness is not a project that starts when a sale process is announced — it is the result of 12–24 months of deliberate preparation.
Finance Diagnostic
A Finance Diagnostic is a structured assessment of a finance function across multiple dimensions: process maturity, data quality, systems landscape, controls and compliance, people and capability, and strategic alignment. It produces an evidence-based picture of where the finance function stands and a prioritised roadmap for improvement. A diagnostic typically takes 2–3 weeks and is the appropriate starting point before any transformation programme — it ensures effort is directed at the right problems in the right order.
Month-End Close
The month-end close is the process by which a finance team finalises the financial accounts for a given month — reconciling all accounts, posting accruals and journals, and producing the management accounts and board pack. Close cycle length (measured in business days from month end to final accounts) is a key indicator of finance function maturity. World-class is three to five business days. Twenty or more days — common in under-resourced mid-market businesses — means the board is making decisions on information that is nearly a month old by the time it arrives.
Working Capital
Working capital is the difference between a business's current assets (cash, receivables, inventory) and current liabilities (payables, accruals). It represents the capital tied up in day-to-day operations. In a PE context, working capital is scrutinised at acquisition (the completion accounts mechanism determines whether the seller delivers the agreed working capital level) and monitored throughout the hold period as a cash efficiency metric. Poor working capital management is one of the most common causes of cash pressure in otherwise profitable businesses.
Data Room
A data room is a secure repository of documents and financial information made available to prospective buyers during an M&A process. It typically contains audited accounts, management accounts, board packs, legal documents, contracts, HR information, and responses to due diligence questionnaires. The quality of a data room — how complete, organised, and up-to-date it is — signals the quality of the management team to buyers. A chaotic data room creates doubt; a well-organised one builds confidence and keeps the process moving.