by Brian DeChesare Comments (12)

Corporate Finance vs. Corporate Development: How to Decide

Corporate Finance vs Corporate Development

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:

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 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 Deal3 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 Deal3 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 Deal3 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. Other1 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 development roles 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.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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Comments

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  1. Hi Brian,
    I am a freshman who will be working in corporate finance at an F500 Company this summer. I hope to eventually get involved with M&A. Which division in corporate finance (FP&A, investor relations, treasury, accounting) will provide me with the best experience for a role in M&A? Also, if I have the opportunity to work in corporate development, will this provide me with more relevant experience?
    Any insight or advice would be appreciated. Thanks!

    1. Corporate Finance doesn’t help that much for M&A roles, but if you had to pick one, probably FP&A because you at least create projections there. Corporate development would be far more relevant, so try to move there if you can.

  2. In your opinion, would it be possible to go from being a successful consumer research analyst (10+ years) over to either corporate development OR corporate finance, having not worked directly for a business? If so, what steps would you advise to make the move?

    1. No, probably not. For corporate development, you need transaction experience in investment banking or related roles first. For corporate finance, you need some type of accounting/finance background.

      With 10+ years of experience, your best shot at this stage is probably an MBA at a top school. Or, maybe try to transfer into a more relevant group at your current firm and then go from there to corporate finance.

  3. Brian,

    Thank you for the great article. I’m currently working at a REIT doing both corporate finance / corporate development work about ~1 year. How can I use my corporate development experience to make a transition to project finance/Infra PE?

    My challenge is that (i) small deal size & limited involvement in the deal, and (ii) ~80% of my role is CF not CD. How can I best extrapolate that 20% of limited CD experience and standout amongst candidates with IB/PE experience? Know this is going to be a tough battle so I would appreciate any advice.

    Lastly, I know how you feel about CFA.. but would it make sense to pursue the designation? I’m fairly confident about passing level 2 this year.

    1. I think it would be tough to go directly from a REIT to Project Finance or Infrastructure PE because they are different industries, even though they have some similarities. I would probably aim for RE PE first, maybe find a firm that has more of a development or value-added focus, and then transition in from there.

      RE PE should not be too difficult to get into from your current role. Just emphasize your deal experience, and spin the CF experience by saying that RE PE firms also need to monitor their portfolio of properties, and you have a lot of experience doing that via the reporting required in your current role, so you can do both deals and portfolio company management.

      The CFA might be marginally helpful, but more so you can say, “I’m studying for the CFA.” You don’t actually have to pass any level of it to use it in interviews.

      1. Thank you for the detailed response. Makes a lot of sense to go after REPEs first.

        I have a follow up question.. I omitted my prior experience in the previous comment.

        I have prior BB public finance internship experience, graduated from an ivy graduate school with energy/infrastructure project finance focus, and I work at a development focused REIT.

        I wonder if my experience can put me in better position to aim for project finance group or infra PE…

        Also, I had an interview at infra PE firm previously, but failed miserably on writing investment memo. Do you have any recommendations on how to practice writing an investment memo? (Or is it even common for a firm to test on this)

        Thank you always for your quality contents and answers!

        1. Potentially, but most firms still tend to focus on work experience rather than what you studied in school, so I still think it would be difficult to make this move.

          For writing an investment memo, maybe take a look at some of our real estate examples… there are shorter ones in the new version of the Real Estate course, and I’m going to release free samples from some of them on the site this year. This article explains how you generally want to think about writing an investment memo:

          https://www.mergersandinquisitions.com/private-equity-investment-recommendation/

          It’s fairly common to get tested on short memos, but more so in take-home case studies. For on-site tests, you’re more likely to get a model and a few questions to answer.

  4. Hi Brian,
    I’m an economics major at a semi-target UK university. I’m currently on a 9-month internship as part of my course, working in MO of a Commerical Bank. I really hate the work that they have me doing as I feel it’s not improving my skill set or even adding value to my CV. I’m thinking of leaving this internship 2 or so months early and cold calling some small PE firms/Boutique Investment banks, and offering to work for 2 months unpaid, just to gain some valuable experience that will boost my chances of securing a summer internship in 2019. What do you think about this idea? Would you think that any firms like this might be open to a student coming in for 2 months unpaid just for experience? Also, will leaving the internship I’m currently on earlier than expected come back to haunt me? I plan on telling them well in advance, and just that I don’t see myself spending my career here so hopefully leave on good terms.
    Any advice would be really appreciated, Thanks!

    1. If you’re not gaining anything from your current experience and it’s not even a front-office internship, then yes, that idea is fine. Please see this story for ideas and example emails:

      https://www.mergersandinquisitions.com/private-equity-internship-to-investment-banking-networking/

      I don’t think leaving early will hurt you because it’s a middle-office role at a commercial bank, not an investment bank.

      1. Would you think that in the future, when applying for internships/grads, that I will have to explain myself for leaving one job early for the other, with the firm afraid that I might leave another one so soon? Or would it not matter as much because the move was from a commercial bank to a private equity firm, and it would be seen as an appropriate/smart move to make?
        Thanks

        1. I don’t think it will matter. Just say that it was your plan all along to move into a PE internship and then use the experience to get into banking (or another field).

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