How Private Equity Firms Help Their Clients By Outsourcing Finance & Accounting?

How Private Equity Firms Help Their Clients By Outsourcing Finance & Accounting

We can all agree that efficient communication is the most critical bridge between private equity firms and their clients. Since regulatory requirements are constantly changing, it can be hard for in-house teams to keep up. During recent years, these changes in regulation have indirectly requested a digital transformation in every portfolio company. There is a high emphasis on transparency and accurate financial reporting. Putting together these special reports can become time-consuming for the company’s accounting staff and, in turn, require more resources and knowledge. With business process outsourcing, private equity firms don’t only help their portfolio companies, but they help themselves as well. Let’s try to explain that in a bit more detailed fashion.

Allocation of resources

All successful private equity managers have ROI in mind at all times. By calculating the cost of having an in-house finance & accounting team for each portfolio company and comparing them to outsourced solutions, it is easy to understand the need for outsourcing administrative tasks. In-house staff requires space, technology investments, constant education, and a certain level of expertise. This is not only costly; it also limits the company’s staffing choices. Finding experts in finance and accounting within your area can turn into a very lengthy process that may or may not bring you positive results. Depending on the physical location of your offices, your choices may be limited.

By using outsourced accounting, a private equity fund can focus on its investment management while a third party handles finances across their portfolio. Their outsourced partners have the ability to employ the very best talents worldwide thanks to remote work. By removing the burden of accounting from the in-house staff, portfolio companies have more time for investment management and their clients.

Your clients value transparency

Your clients aren’t only concerned about investment strategies. Transparency enables trust, and just like the regulations that are in place, clients are also interested in cash flows. By utilizing a third-party administrator, private equity firms have easy access to accurate and timely financial statements and reports from their portfolio. If you want to meet regulatory requirements, these reports need to be available on-demand, and that can be a hard task for an unequipped and unskilled in-house staff. By providing the right information, you make the due diligence process a lot easier for your potential clients. Technological improvements backed with artificial intelligence are now offered by finance-as-a-service. This brings more efficiency and shortens times for providing client support and meeting investor demands.

Outsourced accounting provides consistent scalability

Providing consistent support to your portfolio is essential if you are looking to leverage more avenues of growth. With outsourced finances, portfolio companies can allocate more resources toward customer support, enabling them to scale that department as needed. By cutting the costs of in-house accounting, you open new possibilities for alternative investments and further market growth. A stable financial scaling process requires your level of communication with clients to scale as well. This process is simplified due to financing as a service since there is no need for additional accounting staff.

Maximizing profit with minimal capital expenditures

The operational costs of portfolio companies can have a significant impact on private equity firms. Since PE companies usually place debt on a portfolio company, it can limit their ability to operate. With outsourcing, things can work out completely differently. Investments in technology and staff are kept at a minimum, which leads to lesser expenses and higher ROI but has no impact on the overall customer experience quality. By lowering the operational costs of running an in-house accounting staff, portfolio companies can focus on profitability and customer experience.

Efficiency and accuracy

The key to constant growth and satisfied clients is efficient decision-making based on accurate information. Outsourced finance enables fund managers to make the right decisions based on the financial health of their portfolio. Having a professional accounting staff allows easy access to valuable information and a set of advantages as well:

  • Fast and accurate financial reports
  • Access to advanced software and technology
  • Constant and timely updates on regulatory requirements
  • A streamlined and automated process of accounting

A highly skilled outsourced partner provides a clear overview of your capital and expenses. By having access to such information on-demand, a fund manager can focus on decision-making and scaling. Fund administration is considered to be a growing distraction for portfolio companies because structures are more complex, and reporting is more demanding than ever. Regulations are spreading worldwide, and there is no doubt that the fund administrator job is getting harder by the day. This has put the US private equity industry in a position where they need to review the oversized back-office teams in their portfolio and consider the costs and efficiency levels of in-house accounting. A maximized ROI requires maximum efficiency with minimal expenditure.

Conclusion

The capital markets in the US have come to a point where PE firms need to adapt constantly. This is especially hard when it comes to accounting due to constant regulatory changes. Back-office teams are getting bigger and bigger while the reporting process is becoming more complex by the day. This situation causes a distraction that prevents portfolio companies from focusing on their clients. The demand for transparency is at an all-time high, but in-house accounting staff can struggle to meet those demands without additional spending on education and equipment.

The success of your PE firm depends on accurate reporting from and financial insight. Outsourced accounting allows portfolio companies to allocate more funds toward strategic investments by cutting the cost of operating an in-house accounting department. In turn, this enables more time and resources to be allocated toward your clients and scaling. A constant ROI growth can only be achieved with meaningful partnerships, satisfied clients, and a clear investment strategy. Without clear insight into your financial health, it can be hard to make the right decisions. This is easily achieved with outsourced accounting thanks to technological improvements and access to global experts via remote work.


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