Corporate Finance vs. Corporate Development: How to Decide

What if you just can’t decide?

Many roles in finance are similar, and they often have similar-sounding names.

This problem comes up with corporate finance and corporate development roles.

Yes, both names contain “corporate,” but the jobs are very, very different.

To find out more about how they compare, I recently spoke with a reader who did a rotational program at a Fortune 500 company that offered both roles:

Background & Breaking In

Q: You know how this works. Your story?

A: Sure. I’m from the Midwest in the U.S. and attended a target university, but I earned “borderline” grades there (3.3 GPA) and didn’t have extracurricular activities beyond sports.

I wanted to do finance because many of my classmates and friends were entering the industry, but I didn’t see a path into investment banking.

So, I decided to apply to corporate finance roles at Fortune 500 companies, and I won an offer for a rotational program at a large healthcare company.

I spent a few years there, started out in corporate finance roles and then moved into corporate development over time.

Q: OK. Your program is a bit unusual since corporate finance rotations tend to be for other roles within corporate finance.

But let’s step back: What types of candidates are these groups seeking, and how do the requirements differ?

A: The corporate development team targets two main groups:

• People with deal experience in investment banking or corporate development groups at other companies; and
• High-potential finance managers from other business units at the company.

The finance managers come in to gain deal experience over 2-3 years, and they plan to return to their business units with the benefit of M&A exposure.

Some corporate development teams also recruit professionals in Big 4 advisory roles, but they rarely, if ever, target undergraduates or recent graduates.

By contrast, corporate finance teams recruit from a much broader pool of candidates.

They still have “target schools,” just as banks do, but the set is wider and includes many universities that are considered “semi-targets” or “non-targets” for IB roles.

You don’t need full-time work experience to win these roles.

Sometimes, too much experience hurts you since these groups may want undergrads or recent grads.

You do need knowledge of accounting and a demonstrated interest in finance, but you could get in even as an engineering or liberal arts major if you know your stuff.

Q: Great. And what about the recruiting process and interview questions?

A: Corporate finance tends to be more “on-cycle” since many teams recruit undergraduates.

You’ll go through a phone screen, in-person interviews, and assessment centers if you’re in Europe, and the company will stick to a predictable week-by-week schedule.

The questions focus heavily on “fit” and why you’re interested in the company and industry, but interviewers will also ask you about accounting and the financial statements.

Knowledge of topics like accounting journal entries is far more important than it is for IB roles.

While they go more in-depth into accounting, they will not ask you questions about valuation, M&A/LBO modeling, or other modeling-related topics.

You could get a case study or group exercise, but they are more likely in the EMEA region.

By contrast, the corporate development recruiting process moves more slowly and randomly.

They don’t necessarily “need” team members because there’s less monthly reporting and there are fewer day-to-day tasks.

Also, they tend to focus almost exclusively on your deal experience and your ideas for useful joint ventures (JVs), partnerships, and acquisitions.

You still need to know about accounting and the financial statements, but they’re less likely to ask about debits/credits and journal entries; IB-style technical questions about valuation and merger models are more common.

You’re very likely to get a case study or modeling test, which often takes the form of a 60-minute exercise where you have to read about a target company, build a simple model, and recommend for or against an acquisition.

Q: But what do you talk about if you’re moving in from corporate finance or another division, and you don’t have deal experience?

A: Get some!

Learn valuation and M&A modeling yourself, analyze recent deals, and research potential acquisition targets so you can present ideas to the team.

If you haven’t had direct deal experience, act as if you have worked on deals, and prepare to walk through several examples.

On the Job in Corporate… Something

Q: OK. Let’s switch gears and go into the job itself. How would you compare the two roles?

A: The main differences are:

• There’s a predictable work cycle in corporate finance; and
• In corporate finance, the work depends on your sub-group, but in corporate development, the work depends on your company.

In corporate finance, you spend 80% of your time on monthly reports and scorecards and another 20% on ad-hoc projects, and you work about 40-50 hours per week, on average.

The main divisions in the corporate finance career path are Financial Planning & Analysis (FP&A), Controllership, and Treasury.

In FP&A, you create P&L forecasts, analyze performance against forecasts, and explain what caused variance.

In Controllership, you work with auditors and check the company’s internal accounting and compliance, and in Treasury, you manage the company’s cash flow and cash balance.

There may be busy periods in those groups, especially when a big strategy plan is due in FP&A or when your company is in a cash crunch in Treasury.

In those periods, the hours could jump up to 60-70 per week or more.

But for the most part, you follow a fairly regular schedule where you create reports and complete set tasks each week.

In corporate development, things are less predictable since your work schedule depends on deal activity.

You might work only 50-60 hours per week if there are no live deals, but that could jump up to a much higher number when a deal heats up.

Also, your work depends on the industry you’re in and the maturity stage of your company.

For example, if you’re at a mature manufacturing conglomerate, you might spend time working on divestitures and spin-offs of divisions.

But if you’re at a high-growth technology company, you’ll spend more time on acquisitions of promising startups and joint venture deals.

Other aspects, such as sourcing, differ widely based on your company.

At a large, conservative financial institution, you might not be responsible for sourcing at all, and you’ll just review deals that bankers show you.

But at a smaller company, they might tell you, “Go find deals for us!”

Q: Thanks for that detailed comparison.

How might an average workday differ in both groups?

A: You’ve featured a few “Day in the Life” and “Week in the Life” accounts for corporate finance before, and I don’t have much to add to those.

Those stories focus on FP&A roles; for the others, you would spend less time explaining your projections and more time working with auditors (in Controllership) or with DCM bankers and lenders (in Treasury).

In our corporate development team, about 90-95% of our deals are traditional acquisitions, and I might work on ~3 deals at different stages most of the time.

A typical day with a lot of deal activity might look like this:

1. Early-Stage Deal – 3 Hours – I’ll review the teaser from a company we’re looking at, build a preliminary model, and send it to the relevant business unit to refine the assumptions.
2. Mid-Stage Deal – 3 Hours – I’ll refine a PowerPoint deck with the business strategy teams and schedule time with executives to review and approve the deal price and structure, such as the mix of cash and stock or the exchange ratio we’re offering.
3. Late-Stage Deal – 3 Hours – I’ll meet with various due diligence teams, such as those responsible for HR, IT, and Operations, to check their results, finalize inputs to the model, and tweak our valuation.
4. Other – 1 Hour – I might hold meetings for process improvements, meet with lawyers, or talk to managers at the company about the deals they want to see.

Q: What’s your impression of the bureaucracy and advancement opportunities?

A: You deal with a lot of bureaucracy and office politics in both roles because it’s the nature of big companies.

In corporate finance, the challenge is getting information from people; in corporate development, the challenge is winning approval for deals and making sure all departments are on board with transactions.

Advancement is time-consuming and difficult in both groups.

The main problem is that no one ever wants to leave – senior people have good hours, earn high salaries, and are quite comfortable in their roles.

The end goal in corporate finance is to become the CFO, which is possible but unlikely.

In corporate development, the top position is usually VP of Corporate Development.

It would be almost impossible to become a C-level executive coming from corporate development unless you move to another division first.

To become a CFO, knowledge of accounting, audit, and regulations is more important than deal analysis, so corporate finance candidates are favored.

Q: OK. And what if you decide to leave the industry altogether?

A: From corporate finance, you’re most likely to go to corporate finance at another company.

A few people move into investment banking or consulting, but it’s extremely difficult because the skill set is less relevant.

If you want to get into one of those, you might be better off going to business school and completing a pre-MBA internship.

In theory, you should be able to move from corporate development to investment banking or private equity because you work on M&A deals in all three industries.

But I’m not sure how often it happens; most people who leave end up joining other corporate development teams.

As you’ve pointed out before, it’s ridiculously hard to get into PE even if you have directly relevant experience.

Q: How does the compensation compare?

A: In corporate finance, you might start at around $70K USD as an entry-level Analyst.

Within five years on the job, you can earn above $100K, and you can reach the $200K level in ~10 years as you become more senior.

After that, advancement slows down significantly, and you have to wait for another promotion in 7+ years or jump to another company.

You could potentially earn up to the low-7-figure range if you make it to the executive level, but it will take a long time to get there.

You’ll earn more in corporate development, but it will still be a discount to IB/PE compensation.

If a mega-fund PE Associate in NY earns ~$300K per year, you might earn 50-60% of that as an Associate in corporate development.

Pay increases modestly as you move up, and it might top out at around $400K per year.

However, that figure varies a lot between different companies, and the ceiling may be higher in major financial centers and high-margin industries.

One big issue in both fields is that stock-based compensation enters the picture early on, especially if you’re in the technology industry.

It’s not much of a factor in private equity, and in banking, it doesn’t matter much until you’re at the VP level or beyond.

But even Associates in corporate finance and corporate development careers can earn a fair amount via stock, options, and RSUs, so you need to understand the terms thoroughly.

(NOTE: All compensation figures above as of 2017.)

Long-Term Planning and Long-Term Fit

Q: Thanks for that summary.

So, bottom line: How can you decide whether corporate finance or corporate development is right for you?

A: That’s not the right question because most people cannot start out in corporate development.

Instead, think about where you’re at and where you want to end up.

If you don’t have the stats to get into investment banking out of university, going into corporate finance and then into corporate development is a nice “side door” into the industry.

You earn less, but you still work on deals and think like an investor.

If you can get into investment banking right out of undergrad, that’s probably a better move than corporate finance because it gives you more options and exit opportunities.

On the other hand, if you’re an accounting/finance person, you want good work/life balance, and you don’t care that much about exit opportunities, corporate finance might be a better fit for you.

Q: And what is your long-term plan?

A: My original plan was to advance to the Director level in corporate finance, move into a separate business division, and then move into a General Manager (GM) role since I like doing a bit of everything rather than specializing.

This path is a common one at my firm.

But after working in corporate development, I’ve become more interested in starting my own business or possibly doing an MBA.

Many corporate development professionals want to get into private equity, but I’m less interested: It’s nice to gain deal experience, but the learning curve flattens out after a few years.

And, as I said, I’m more interested in doing a bit of everything rather than focusing on one specific skill set.

Q: Great. Thanks for your time!

A: My pleasure.

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If you liked this article, you might be interested in reading The Corporate Finance Analyst: Promising Career Path, or “Plan B” if Investment Banking Doesn’t Work Out?