Middle-market and start-up companies no longer have the luxury of skimping on a Financial Planning and Analysis (FP&A) and Reporting practice, even if they lack the personnel skills or budget to build one internally. This has led to an emerging market for outsourced solutions, though not all options are created equal.

Founders often reminisce about their early days, from ramen dinners to beginning milestones celebrated in the garage “office.” Back then, it was about the idea, the new groundbreaking service or product, and not the infrastructure to take that business to market and ensure it flourishes. However, this honeymoon phase has been shrinking for years now, as the best new ideas are catching the attention of venture capital (VC) and private equity (PE) firms earlier and earlier.

For decades, PE investors have targeted small, thriving family businesses and fast-growing middle-market enterprises, often helping them professionalize their operations, even if it means moving beyond their charming origin stories. One critical element that PE investors can offer a potential portfolio company is proper FP&A and Reporting. Today, they don’t need to build that in-house at the company, which more often than not is unaffordable. Instead, they can tap an outside consultant to tackle the FP&A duties.

Consero, a leader in “Finance as a Service” (FaaS), recently launched an Advisory Services division offering FP&A and Reporting. Given their long history of delivering entirely outsourced finance functions, they have experience acting as an extension of the client’s office. “It became clear that some clients needed us only in a FP&A capacity, and we wanted to make sure they had that option,” says Tyler Nelson, Executive Vice President of Consero’s Corporate Development and General Manager of Advisory Services.

Many private equity firms have used Consero for its Finance as a Service (FaaS) model. Client have also noticed that there are cases when they might have a capable finance function but lack the resources for comprehensive FP&A. “Rather than lose a great internal team, the company can simply tap us to complement the effort,” says Nelson. But how important is FP&A when it comes to some of these businesses on the lower end of the middle market?

“In my experience, any business generating more than $2-3M a year in revenue with outside investors/stakeholders should have a robust FP&A practice with subject matter experts either internally or externally, dedicated to the maintenance of whole business monthly views and a subset of KPIs that are real-time,” says Nelson.

For private equity portfolio companies, a solid FP&A practice is essential, regardless of their size or age. These companies often have ambitious plans and must meet stringent reporting requirements typical of PE investments. Consero’s comprehensive FP&A services are designed to meet these needs.

Consero’s services include annual budgets, rolling forecasts, three-statement models (Balance Sheet, P&L, Cash Flow), and variance analysis. They provide tailored KPIs for industries like SaaS, Healthcare, and Investment Management, along with industry-specific reporting packages. Additionally, they offer weekly cash forecasting, bank covenant and debt reporting, and investor and board reporting.

Consero is not alone in offering such services. According to preliminary data from AICPA, 84% of the top 100 accounting firms named Client Advisory Services as a growing service area. However, clients need to vet if a potential service provider is treating that new business line as a core offering, by investing in senior expertise and dedicating time to master the discipline. Large firms might assign junior staff to such duties,,but that’s not the case with Consero’s FP&A and Reporting offering.

“Consero has a dedicated FP&A and Reporting consulting team that builds, maintains and interprets business intelligence models and reporting for all levels of operational and executive leadership,” says Nelson. “And we have dedicated SMEs who focus on board, governance, regulatory and investor relations reporting.”

Built on extensive experience and reinforced by significant investment, Consero’s FP&A and Reporting services are rigorous and fully integrated with their clients’ operations, a feat that Consero has been doing since its own early days.

To learn more and connect with Consero, visit below:

https://conseroglobal.com/financial-planning-and-analysis/

Growing middle-market businesses today face a number of financial challenges, from improving cash flow and profit margins to managing inflation and high interest rates. Many are turning to fractional CFOs to help them navigate these challenges.

A fractional CFO is an experienced finance professional who provides strategic financial guidance on an outsourced basis. This is ideal for businesses that aren’t big enough to employ a full-time CFO but need a higher level of financial expertise than a controller can provide.

Here are 12 key benefits high-growth middle-market businesses typically gain by hiring a fractional CFO:

1. Cost-effectiveness — Fractional CFOs are usually hired on a project or part-time basis, allowing you to access high-level CFO guidance without the expense of a full-time CFO. This is especially beneficial for companies that don’t need full-time CFO oversight and/or can’t afford the compensation package required to attract a full-time CFO.
2. Reduced overhead — Since fractional CFOs aren’t full-time employees, there’s no need to provide them with employee benefits, office space or other costs associated with FTEs. This can add up to significant cost savings for your company over the long term.
3. High-level expertise — Typically, fractional CFOs are experienced finance professionals who have a diverse background working with companies across a wide range of industries. Their experience can bring fresh perspectives and new strategies to the finance function, as well as a better understanding of market trends and opportunities. Also, since fractional CFOs are often hired for a specific project, you can tailor your company’s needs to the CFO’s area of expertise.
4. Scalability — As your business grows, so do its financial needs. With a fractional CFO, services can scale up or down along with your business’ growth and needs. For example, the number of hours worked can vary depending on which tasks need to be accomplished. A fractional CFO can also work on a project basis and be renewed once a project is complete if the services are still needed.
5. Specialized industry knowledge — A fractional CFO may possess specialized knowledge that your existing finance team doesn’t have. This includes knowledge in the areas of M&A, regulatory compliance, fundraising, internal controls, and more.
6. Strategic guidance and insights — Financial decisions must be made based on the most current and accurate data available. A fractional CFO can provide strategic guidance and insights that lead to improved decision-making in the areas of budgeting, investing, debt management, and more.
7. Objective, unbiased advice — Fractional CFOs are “outsiders” who aren’t influenced by internal company politics or interpersonal relationships and power dynamics. This enables them to offer more objective advice, which in turn can lead to better and more informed decisions for the company.
8. Faster onboarding — It can take months and cost thousands of dollars to recruit and hire a full-time CFO and get him or her up to speed on your business. However, a fractional CFO can usually be hired and onboarded much quicker, which lessens the potential finance leadership gap and minimizes lost opportunities. Many fractional CFOs also work remotely, eliminating delays related to relocation and commuting.
9. Improved cash flow — More companies fail due to a lack of cash flow than a lack of sales or profits. A fractional CFO will implement best practices that shorten the cash flow cycle by improving collection of accounts receivable. This includes utilizing the latest financial technology tools offered by financial institutions.
10. Increased productivity — A lack of high-level financial leadership can lead to inefficiencies and low productivity among finance department staff. With a fractional CFO in place, your finance department employees are freed up to focus on core activities that can enhance your bottom line.
11. Strengthened financial compliance — Depending on your industry, your company may be subject to strict financial compliance rules and regulations. A fractional CFO will make sure that you always remain in compliance with these rules, which will reduce the risk of fines or other financial penalties.
12. Enhanced internal controls — Fraud and embezzlement are growing concerns for many middle-market businesses. The best way to guard against them is by establishing solid internal controls designed to uncover fraud schemes or prevent them from happening in the first place.

Fractional CFO Services from Consero

Consero offers fractional CFO Advisory Services to middle-market companies in need of strategic CFO support. These services work in tandem with our other financial solutions to help you manage all aspects of your finance function.

With Consero’s Strategic CFO Advisory Services, you pay only for the time and resources you need, when you need them. Our services can meet your needs at any stage, whether you need assistance on a single project, long-term support or big-picture strategic guidance. Our CFO team brings strategic thinking and experience to your engagement from many different companies across multiple industries.

To learn more about Strategic CFO Advisory Services from Consero, visit us online or call us at 866-588-0495.

As the role of the CFO has evolved in recent years and become both strategic and more complex, the difficulty of sourcing CFO talent has grown substantially for growth equity and private equity investors looking for looking for the right CFO talent for expansion stage and middle market portfolio companies. But now with Consero’s CFO Advisory Services – there is a solution.  

Private equity understands that market uncertainty will remain a constant for the foreseeable future and are trusting in their own ability to create value within their portfolio.  But this dynamic only increases pressure around those value creation efforts and the ability of any portfolio company leadership to deliver against investor expectations.

CFOs have always been part of the executive leadership “team” but historically within the middle market these CFOs tended to be Chief Number Crunchers who assemble and deliver financial performance reports. But today’s CFO is increasingly looked to as a business partner to the CEO and provides higher-level strategic guidance, especially for those companies undergoing major changes or realignments, which describes virtually all PE-backed enterprises. At the same time, it is challenging to find the higher caliber of talent for CFO roles, especially for smaller companies in the middle market.

This dynamic has created demand for a new suite of advisory services that acts like a “CFO on speed dial” that allows a portfolio company to enjoy on-demand expertise of top financial executives, without committing to a long-term compensation package. So Consero, a pacesetter in Finance as a Service (AKA ‘FaaS’) , has formalized and launched an advisory business that includes CFO Advisory Services in response to ongoing needs within our own customer base of 500+ growth stage and mid-market enterprises.

“Many of these clients might be founder-led businesses that are growing fast enough they need sufficient senior financial leadership and might be struggling to produce reliable pro-forma financials and KPIs,” says Tyler Nelson, Consero EVP of Corporate Development and General Manager of Advisory Services.  “But they also need that extra level of strategic stewardship that CFOs weren’t expected to have in prior times.”

Having served as CEO for a number of companies before joining Consero, Tyler has seen first-hand how the CFO role has evolved. “It used to be about closing the books on time and delivering an accurate forecast, but now companies are relying on CFOs to deliver actionable business intelligence to make decisions in real time,” says Nelson. “And that level of CFO upskilling can be unaffordable for a mid-market enterprise to establish, which is why we offer these capabilities as part of our Advisory Services.”

This kind of offering becomes crucial as companies move towards a sale process to a buyer, explore strategic M&A, need further equity or debt financing, or feel unprepared for some upcoming due diligence. They might have secured funding from an institutional investor but lack the expertise to manage complex issues such as valuation or are unable to appropriately plan their future growth.

Consero’s CFO Advisory Services works closely with CEO’s, Boards and executive teams to tackle these issues. Consero’s team can lead strategic and technical initiatives across the gamut such as debt restructuring initiatives; equity financing; capital investment; or product pricing and unit-level economics. They can quickly get a company into sale process readiness or drive acuity into working capital management and cash burn rate projections. And they can tackle the more traditional budgeting and forecasting, as well as offer access and guidance around critical partner relationships.

“Not every company needs to bring that kind of CFO in-house,” says Nelson. “But that doesn’t mean they don’t need everything that CFO might bring to the table. We aim to offer an alternative solution that’s tailored to the unique needs of that company.”

So private equity investors struggling to find the right CFO to meet all of their needs, tapping Consero’s CFO Advisory Services will exactly the resources needed in real time delivered through our flexible, on-demand resourcing model.

Learn more about Consero Advisory Services here: https://learningcenter.conseroglobal.com/consero-advisory-services

The CFO position has evolved considerably in recent years, from what was sometimes derisively called a “bean counter” in the past to more of a strategic role. In fact, it’s not a stretch to say that the CFO-CEO relationship is the most important partnership in most businesses.

Jack McCullough, the founder and President of the CFO Leadership Council, knows all about the responsibilities and expectations of CFOs today. Throughout his long and distinguished career, he has served as the CFO for 26 different companies and worked with 35 different CEOs. 

McCullough has written a book titled The Secrets of Rock Star CFOs. He recently shared some of his thoughts about these secrets in a recent webinar hosted by Consero.

Secret #1: Think Strategically

The CFO should serve as the strategic partner to the CEO. “It’s the single most important relationship in the company,” says McCullough. “CFOs must have a strong, strategic relationship with their CEO who sees the value they add to the company.”

McCullough notes that sometimes there’s a lot of pressure on public company CFOs to hit numbers for the quarter in order to please investors. “But you can’t mortgage the future for short-term goals,” he says. “Sometimes the CFO has to be the one to emphasize this.”

Secret #2: Provide Ethical Leadership

Integrity is critical for organizational strength, so it’s important to create a corporate culture where ethics are emphasized. “The way I like to put it is you have to be ethical even when it’s inconvenient,” says McCullough. “Once you make the first ethical compromise, it’s easier to make the next one and then the one after that.”

Secret #3: Master Dealmaking

It’s up to the CFO to assess the risk of potential deals and help identify opportunities. “When it comes to dealmaking, the CFO is the most important executive on the team, right along with the CEO,” says McCullough.

Traditionally, the CFO’s job when analyzing deals was to try to avoid making mistakes. But McCullough believes CFOs today should be more proactive in looking for reasons to make a deal happen. He refers to this as “CFO-go” instead of “CFO-no.”

Secret #4: Build Elite Teams

McCullough sums up this secret as follows: Hire people who are smarter than you and don’t be afraid that they’ll outperform you. “Also, be forward-looking when building your teams: Hire for what you’ll need in three years, not what you need today. Look for employees who can grow with the company and who share your passion, energy and work ethic.”

Secret #5: Learn Continuously

This isn’t just about ongoing formal education like an MBA. It also refers to peer-to-peer networking, which McCullough believes is just as important. “Elite executives learn from each other,” he says. “For example, we have informal networking for an hour before and after CFO Leadership Council events.”

Secret #6: Develop Board Relationships

McCullough believes it’s important for CFOs to talk regularly with board members without the CEO around. “For example, plan to meet with a couple of board members every month and really get to know them. Nothing bad has ever come from having good relationships with your board members.”

Secret #7: Perform Cross-Functionally

The old-school accountant approach to the CFO role doesn’t work in today’s world. A CFO’s job today has to be cross-functional — they must understand the entire business and overall corporate strategy, including sales and operations.

“CFOs shouldn’t think of themselves as financial executives,” says McCullough. “They should think of themselves as an enterprise-side executive who happens to be a financial expert.”

Secret #8: Maintain Financial Expertise

A CFO can be strategic, but if they can’t perform basic financial functions like closing the books, it won’t matter. “If the numbers aren’t right, then nothing else is credible,” says McCullough. When it comes to financial expertise, “the buck stops with the CFO,” he says, “not the controller.”

Finance as a Service (FaaS) can help CFOs accomplish the basic blocking and tackling tasks involved in financial operations, like closing the monthly books, more efficiently. This frees them up to spend more time on strategic tasks that add value to the company.

Secret #9: Keep Your Work and Life in Balance

Studies have consistently shown that workaholics usually aren’t the best performers, so it’s important to maintain a healthy work-life balance. “Exercise regularly, eat right and don’t spend too many hours at the office,” says McCullough. “Also, guard your mental health by participating in hobbies or anything else that you find enjoyable and relaxing.”

Contact Consero to learn more about how using Finance as a Service could help strengthen your position as a strategic leader for your organization. 

You can also order this book on Amazon.

There’s a reason why cash flow has been called the “lifeblood” of a successful business. Companies can operate without profits for a period of time — just look at Amazon, which was unprofitable for years while it built market share in the emerging e-commerce space. 

But it takes cash to pay operating expenses and overhead. Businesses can only keep going for so long without cash, which is why boosting cash flow should be a top priority for financial executives and CFOs. In fact, poor cash flow is one of the main causes of business failures.

Here are 7 strategies for strengthening your company’s cash flow.

1.  Tighten your cash flow cycle. The goal here is to shorten the time between cash outflows used to pay expenses and cash inflows from collected receivables. To accelerate collections, pay close attention to your accounts receivable aging report. This will help you prioritize your collection efforts by showing which clients’ payments are past due, how late the payments are and how much money each overdue client owes. You can also negotiate payment terms with customers and offer discounts for prompt payments, such as 2-10, net-30.

On the flip side, try to stretch out payments to suppliers as far as possible. Talk to vendors about extended payment terms and take full advantage of the terms offered by setting up your accounts payable system so that payments are made on the due date, not before.

2.  Cut costs and overhead. It’s always smart to operate as “lean and mean” as you can, but this is especially important in today’s inflationary environment. Money saved through diligent expense management frees up cash and drops straight to your bottom line.

Scrutinize your expenses looking for waste at all levels of the business. One way to do this is to ask if an expense is generating return on investment or not. If it isn’t — underperforming sales and marketing efforts, for example — cut it now.

3.  Improve inventory management. Excess inventory represents a big expense for many companies — it’s literally cash sitting on the shelf. Examine your inventory and purge slow-moving items by discounting them deeply, if necessary. When it comes to raw materials, use just-in-time (JIT) inventory management techniques so they are delivered to your warehouse just when you need them, not weeks early.

4.  Consider equipment leasing. Leasing instead of buying equipment frees up cash you might otherwise spend on big-ticket items that you can use to meet current expenses instead. Equipment leasing also provides protection against equipment obsolescence and may offer tax benefits in certain situations. Be sure to speak with your tax advisor about these potential tax breaks.

5.  Partner with your bank. Banks offer a wide range of solutions that can strengthen cash flow, including lockbox and remote deposit capture (RDC). These solutions accelerate funds availability by getting checks deposited into your account faster. With lockbox, customers’ payments are mailed directly to a bank post office box for immediate processing. With RDC, checks can be deposited directly from your office using a special scanner and software.

Also talk to your bank about investment sweep accounts that automatically sweep excess cash in your business checking account into an interest-bearing account, like a money market fund or government obligation fund. Conversely, a loan sweep account will automatically sweep funds from operating accounts to pay down your business line of credit or other business loans.

6.  Roll out new product and service lines. You can potentially boost revenue and cash flow by introducing new products and services that your customers might be interested in purchasing, especially ones that complement existing products and services. Similarly, you could potentially expand marketing of your existing products and services to new geographic areas and/or customer segments.

7.  Consider outsourcing your finance function. Nearly half of all businesses now outsource their finance and accounting to a third-party specialist.1 Doing so by using Finance as a Service (FaaS) can help control costs, increase efficiency and boost cash flow. In fact, studies have shown that using FaaS can lower the cost of the finance function by between 30% and 40% compared to the fully loaded costs associated with staffing an internal finance department.

FaaS goes beyond simply outsourced accounting by offering a comprehensive approach to financial and accounting management, along with greater transparency and rigor. It provides a full suite of staff, services and software that’s capable of managing your entire finance and accounting operation. With FaaS, you can quickly scale up or down the finance function as needs arise or subside. 

Contact Consero Global to learn more about how using Finance as a Service could help strengthen your company’s cash flow.

The current market climate is as volatile and uncertain as it has been at any time since the Great Recession of 2008-2009. On top of 40-year inflation highs and soaring interest rates, we’re now facing uncertainty in the banking sector with the collapse of three U.S. banks over just five days in March.

Silvergate Bank and Signature Bank failed mainly due to turbulence in the cryptocurrency markets, while Silicon Valley Bank failed after a run that was triggered when it sold its Treasury bond portfolio. SVB was the second-largest bank failure in U.S. history and the largest since the financial crisis. 

Boost Efficiency, Control Costs with FaaS

In the face of so much volatility and uncertainty, it’s more important than ever for companies to increase efficiency and control costs. One way to do this is to adopt the Finance as a Service, or FaaS, model for outsourcing finance and accounting.

With FaaS, companies outsource their finance and accounting function to a third-party partner. Finance is now the second most outsourced business function behind information technology and ahead of payroll and customer service. Nearly half (44%) of businesses now outsource their finance function.1 The global market for FaaS is projected to grow from $37.9 billion in 2020 to $53.4 billion by 2026.

FaaS is a modern alternative to building an in-house finance and accounting team. It delivers greater financial visibility and improved operational scalability, along with a lower and more predictable cost structure. Studies have shown that using FaaS can lower the cost of the finance function by between 30% and 40% compared to the fully loaded costs associated with staffing an internal finance department.

How FaaS Works

Finance as a Service is sometimes confused with outsourced accounting. However, FaaS offers a much more comprehensive approach to financial and accounting management, along with greater transparency and rigor. 

FaaS provides a full suite of staff, services and software that’s capable of managing a business’ entire finance and accounting operation, including processing transactions and customer payments, paying vendors and producing monthly financials. In other words, FaaS is a one-stop finance and accounting services shop.

FaaS offers a single, self-serve software interface that provides clarity and transparency. Knowledge isn’t concentrated with a single individual who is the only one who can access relevant financial and accounting data. Instead, this data can be easily provide access to anyone on the team with department-level visibility when needed. 

FaaS operates on a subscription-based pricing model with flexible and transparent pricing, which makes it easy to forecast costs as the company’s needs change in the future. FaaS service providers charge based on the technology utilized and service offered. This way, businesses know exactly what they’re paying for and how their costs will rise or fall as they scale up or down.

Five Benefits of FaaS

FaaS allows companies to quickly scale up the finance function, standardize reporting across portfolio companies and reduce costs. Here are five key benefits of FaaS:

1. Cost savings — FaaS eliminates the high cost of hiring, training and retaining in-house staff. As noted, using FaaS instead of building an in-house finance department can result in cost savings of between 30% and 40%. In addition, FaaS automates many manual activities while improving financial reporting.
2. Time savings — Since the finance function can run with minimal oversight, CFOs and other finance executives can spend their time focusing on high-impact business development initiatives and strategic activities that lead to company growth. In a study conducted by Consero Global, finance leaders whose companies switched to FaaS saved an average of 17 hours per week that they could spend on more strategic initiatives with high impact.
3. Scalability — The FaaS model allows companies to quickly scale up the finance function as needs arise. FaaS providers can deliver the right level of support and resources for the specific tasks required to grow along with your company’s needs.  
4. Less exposure to labor volatility — The labor shortage is especially acute in the finance and accounting industry, where highly sought-after employees can pick and choose from the best jobs. With FaaS, companies don’t have to worry about the headaches caused by constant turnover among finance and accounting staff. 
5. Standardized reporting and improved financial visibility — This enables companies to quickly and accurately assess the financial health of their portfolios and better understand financial metrics across time periods. With FaaS, companies receive financial reports in a unified and easy-to-read format that clearly presents both opportunities and challenges for the business and makes it easy to understand the current financial and cash flow position.

FaaS from Consero Global

Consero offers Finance as a Service via a fully managed software platform that’s equipped with pre-integrated, enterprise-grade finance and accounting software, featuring digital processes and workflows. With Consero’s cloud-based finance and accounting solution, you can complete a full digital transformation in 30 to 90 days — much less time than it would take to build an in-house finance and accounting function.

We can help you realize the many benefits of using the Finance as a Service model. Schedule a 20-minute introductory call to discuss your needs in more detail.

Depending on which economic forecaster you’re listening to, a recession or economic slowdown in the U.S. is probably likely sometime this year. Therefore, now is the time to start planning for how your company will prepare for whatever economic conditions arise.

Consero recently spoke with Kurt Ostermiller, an executive coach who specializes in working with CFOs and CEOs, about how executives can best prepare their companies for a recession or economic slowdown. Ostermiller was interviewed by Consero’s Bridget Howard in the “Beer with a CFO” video series where he stated, “It’s important to recognize that recessions are part of the normal business cycle”. “Many fortunes have been made during recessions, but you have to prepare ahead of time for how your company will weather the storm.”

Ostermiller uses the acronym L.I.K.E to describe how he believes CFOs and CEOs should prepare for recession. This stands for Leadership, Internal, King and External.

Leadership: Projecting a Positive Mindset

Ostermiller quotes leadership guru John Maxwell, who said that everything rises and falls on leadership. “Entering a recession or economic slowdown, employees look to the C-suite for leadership and direction,” he said. “The CEO and CFO need to project a positive mindset and an attitude that the company is going to make it through no matter what so this attitude can cascade throughout the organization.”

You’re probably familiar with the concept of “fight or flight” in which people either fight or run away when facing threatening circumstances. Ostermiller says there’s one more option that’s worse than either: inaction or freezing up and doing nothing. “Leaders can’t become paralyzed during times like this,” he said. “You have to be decisive and then make adjustments to your strategy as circumstances dictate.”

Or another way to put it: Act decisively even if you have imperfect information. “Face the facts with no denial, devise a strategy and move forward,” said Ostermiller.

Internal: Communication is Critical

Internal communication between leadership and staff is absolutely critical during recessionary times. “So is communication between the CEO and the CFO,” said Ostermiller. “This is actually one of the biggest problems I see at companies. The CEO and CFO must be aligned with each other and present a united message to the rest of the company.”

The board of directors is also part of the internal audience. “Most boards operate ‘noses in and fingers out,’” said Ostermiller. “But during times like this, boards need to be accessible and maybe a little more hands-on.” He recommends that businesses create a dedicated communication portal for board members to enable instant communication between them and executives. “Events are going to happen quickly and decisions have to be made fast,” he said.

King: As in Cash

Having a strong cash flow is always important, but it’s absolutely crucial during a recession. “We all know that Cash is King,” said Ostermiller. “Cash flow is vital to ensuring the survival of a business during recessionary times. You need to extend the runway and reduce the burn rate through cash flow analysis, rolling forecasts and scenario building.”

Ostermiller cautions against making cost cuts that could harm employee morale, like cancelling Christmas parties or employee lunches. “How much money do cuts like these really save in comparison to the damage to employee morale?” he said.

External: Customers and Supply Chains

There are two external audiences that CEOs and CFOs should pay especially close attention to during recessionary times. The first, obviously, is customers. “This is the perfect time to get out and visit your customers and talk about what’s going on in their business,” said Ostermiller.

The good news is that video technology like Zoom makes meeting with customers fast and easy now. “You can meet with customers all over the world in a matter of hours without leaving your office,” said Ostermiller. “Take advantage of this technology to have honest conversations with customers about their cash flow, markets and other aspects of their business.”

The second is supply chains. “You need to identify any potential risks in your supply chains,” said Ostermiller. “Everybody is going to buckle down during a recession so you don’t want to end up getting stuck in the middle.”

Harness Technology, Including FaaS

Ostermiller also stressed the importance of harnessing technology during recessionary times to speed up the flow of information and allow data to be shared in real time. This includes using Finances as a Service, or FaaS, to outsource the CFO and/or finance and accounting function.

Consero Global offers Finance as a Service for middle-market businesses across a wide range of industries. To learn more about how FaaS can help your company prepare for a recession or economic slowdown, visit us online and where you can schedule a complimentary introduction and consultation.

Chris Hartenstein, VP of Client Solutions, talks with us about carve-outs and roll-ups, which are two common strategies used in the corporate M&A world. Following is a closeup look at these strategies, including some of the challenges associated with each.

Carve Out: Divesting a Business Line

In a carve-out, a larger company will spin off or divest a line of business out of the existing company typically to become its own new entity.

The carve-out separates completely from the parent company and becomes its own standalone entity. As a result, new company will have to set up its own finance and accounting system so that it can provide financial statements to its new board of directors.

The new entity will typically sign a Temporary Services Agreement (or TSA) with the parent company (or seller) with a defined timeline that’s usually between four and six months. During this time, the parent company agrees to continue to provide finance, accounting and administrative support while the new entity sets up it’s own finance and accounting system.

These new spinoffs face a number of challenges that need to be solved very quickly due to the limited among of time the parent has agreed to support them. These challenges include the following:

• They must start from scratch with everything this includes recruiting and on-boarding a completely new finance and accounting team selecting and negotiating software agreements for a new ERP, T&E package and any other F&A software that may be needed developing new process and procedure documents for operations, invoicing, AP, payroll and creating reporting and KPI packages
• The team that is hired probably hasn’t implemented new systems more than a few times in their career and necessitates the hiring of outside consultants to assist with software implementation
• Internal implementation will take between six months and one year, which may be longer than the TSA lasts.
• The new entity may be unable to provide basic financial reports on a timely basis.
• It can be difficult to obtain starting balances and other support (e.g., trial balances, AP and AR, and accrual and prepaid details).

Keep in mind that once the carve-out deal is closed, the seller will not place a priority on providing financial information to the new entity. It becomes “out of sight, out of mind.” Therefore, it’s usually smart to try and negotiate a holdback of some of the purchase price until the transition is complete and all of the financial information and support has been provided.

Roll-up: Acquiring and Merging Similar Businesses

In a roll-up play, a private equity firm acquires multiple small companies that offer similar types of services and have similar revenue streams and merges them together. This allows the firm tobuild economies of scale through a single brand supported by shared sales, marketing and operations to increase the value of the whole.

The acquired companies are usually smaller businesses that sometimes don’t place great value on high-level finance and accounting support. As a result, the accounting team skillsets are often lacking at the companies. There may also be turnover risk at the acquired businesses if employees don’t want to stick around after the acquisition.

Companies may face a number of challenges when performing a roll-up, including the following:

• Just like with a carve-out, companies have to start from scratch with everything.
• The staff at the acquired businesses sometimes lack high-level accounting knowledge and experience.
• Similar to a carve-out, internal implementation will usually take between six months and one year and the new entity may be unable to provide basic financial reports on a timely basis.
• The acquired small businesses typically use cash basis accounting requiring additional work to move them to accrual/GAAP accounting

Before adding a roll-up, be aware that you may need to convert from cash basis to accrual basis or GAAP accounting. Also be prepared for difficulty in obtain starting balances and other support due to the cash basis accounting. Sometimes the individual businesses and the private equity firm may not be on the same page as it relates to the structure, processes and procedures and reporting.

Both carve-outs and roll-ups will require their own implementation including:

• Software setup (e.g. Intacct, Nexonia, BILL)
• Entering prior period data, vendors and employees
• Training acquired businesses on processes and procedures
• Setting up consolidations

How Consero Can Help

Consero can help your business with a carve-out or roll-up. We have a set of best practice processes and workflows and dedicated implementation to support the transfer and setup, along with a predetermined integrated tech stack.

We can complete the implementation of a carve-out in a 30 to 90-day timeframe and a roll-up in a 30-day timeframe. This allows CFOs to focus on strategic issues and further acquisition targets. Connect with us to learn more about how Consero’s Finance as a Service solution can help your investment firm and your portfolio companies: https://conseroglobal.com/request-a-consultation/

In the current uncertain economic environment in which some economists are predicting an economic slowdown or even recession, it’s important for CFOs to carefully evaluate cost containment.

Consero recently hosted a virtual CFO Roundtable in which several CFOs discussed how they are doing this. Participating in the panel were Steve Isom, CFO of Bloomerang, a vertical SAS company; Jessica Hamilton, the CFO/COO of ActiveProspect, a marketing technology company; and David Dolmanet, the CFO of BryComm, a supplier to the commercial construction industry.

Preparing for a Downturn

In response to the question, “How can CFOs prepare for and predict the impact of a potential downturn?,” Steve Isom stated that “the era of free money is over and with it the mindset of growth at all cost. This doesn’t mean growth isn’t important, but efficient and durable growth is critical.”

Isom noted that there’s a lot of talk about softness in the market and negative signals. “I encourage CFOs to look closely at their own demand signals and understand what’s happening in their business,” he said. “For example, we manage and monitor top-of-funnel metrics daily to stay on top of what’s happening. It’s the old saying: Plan for the best but expect the worst.”

Scenario planning will be critical in 2023, said Isom. “You need to have a good handle on what happens if your business doesn’t hold up well in 2023,” he said. Isom cautioned against cutting too much. “Keep a firm handle on your own demand signals and keep an eye on macro trends.”

Balancing Growth and Investing in Operations

Jessica Hamilton was asked about how she sees the grow-at-all-cost strategy evolving and finding the right balance between growth and investing in operations. “Finding this balance is more important now than ever,” she said. “For us, it’s the balance between growing and investing capital in sales and marketing and product engineering.”

ActiveProspect has always operated with the Rule of 40 in mind, said Hamilton. The Rule of 40 is an indicator of the balance between revenue growth and profitability. It states that a company’s combined growth rate and profit margin should not exceed 40%. This helps ensure capital efficient growth and wise spending.

“When we have to cut back on some investment initiatives, we’re prepared,” Hamilton said. “We’re not cutting all the way back to hit the Rule of 40. Our plan for 2023 is Rule of 31 — we’re not comfortable making any more cuts than this.”

Lowering the Cost of Debt

In response to the question “How do you lower expenses when cost of debt is increasing each quarter?,” David Dolmanet noted that many people on his team have only experienced an economic environment in which interest rates have been at or near zero.

“In this environment you don’t have to make decisions regarding the time value of money,” he said. “Since our interest expense has more than doubled, I now manage my cash position much tighter in managing my line of credit balance. If I continue to use the line of credit while maintaining a high cash balance, we’re paying significantly more in interest than we were before.”

Dolmanet added that the company is trying to manage its line of credit and inventory more tightly and focus more on its cash cycle than it would during a grow-at-all-cost environment.

Winning the Talent and Wage Wars

Talent is one of the biggest costs companies face today and it isn’t going down anytime soon. Hamilton talked about her company’s strategy when it comes to hiring and retaining top talent.

“We decided we weren’t going to engage in the ‘wage wars’ when salaries started going up extraordinarily and lost a few employees who left for higher pay,” she said. “But we had done succession planning and had built a strong bench.”

The company took a hard look at the benefits and perks employees valued, eliminating perks they didn’t place value on and replacing them with perks they did value. “Happy hours and virtual games that were popular coming out of the pandemic were no longer valued,” she said. “What our employees do value is workplace flexibility and career development so we focus on these.” For example, the company is now 100 percent remote.

Isom said Bloomerang is focusing on high-impact employee perks. “Since we’re in the non-profit space, we gave each employee $100 to donate to the nonprofit of their choice on Giving Tuesday,” he said. “The amount of uplift we got from this really paid off for us.”

Dolmanet said that the tight labor market and rising inflation have made compensation strategies challenging. “Employees expect raises to keep pace with inflation,” he said. “We are focused on taking care of the employees who have the greatest impact on the business.” The company is also using variable compensation to grow overall compensation for more employees and recognize their contributions to the success of the company.

Outsourcing the Finance Function

In the current economic environment, some CFOs are considering outsourcing functions they might not have outsourced before, including all or part of the finance function. Isom says this depends on the specific circumstances of each company.

“One of the good things about outsourcing finance is that you can pick and choose which functions you outsource and which ones you keep in house,” he said. “For example, we kept FP&A in house and outsourced day-to-day accounting. This was a good balance for us.”

Consero Global offers outsourcing of the finance function via Finance as a Service (FaaS). To learn more about FaaS and how it can help you manage costs during an economic downturn, connect with us at https://conseroglobal.com/request-a-consultation/

Many CFOs and finance managers are currently facing the most challenging economic environment they’ve ever encountered. Near-record inflation is putting pressure on corporations to cut costs and some economists are predicting a recession in the upcoming year.

These challenges could make it harder for finance professionals to lead digital transformation efforts at their companies. In an environment like the one we’re in now, CFOs will have to focus on strategic decision making in order to shepherd digital transformation initiatives through their organizations.

Accelerating Digital Transformation

While the current environment certainly makes digital transformation efforts more challenging, nearly half (49%) of CFOs who responded to the most recent PwC Pulse Survey said they plan to capitalize on digital transformation initiatives, which they consider to be a high-growth opportunity that has exploded following the pandemic.

In addition, the Global CFO Survey 2022 by Everest Group found that digital transformation is moving higher up the priority lists of CFOs. Judgement-intensive investments, including financial planning and analysis (FP&A), are especially high on CFOs’ priority lists.

However, four out of 10 respondents to the KPMG 2022 CEO Outlook survey said that while digital transformation is still a priority, their organizations have currently paused their digital transformation strategies. And more than a third (36%) said they plan to pause these strategies in the next six months due to economic uncertainty and recession fears.

Acquiring the Right Technology

The first step to leading digital transformation in the current environment is to assess your company’s competitive priorities and differentiating factors. Then you can identify and acquire the right technology for your organization’s digital transformation. For many organizations, this includes FP&A, financial modeling and scenario planning tools.

If your digital transformation budget is tight due to recession or other financial challenges, consider initiating smaller projects that can demonstrate faster ROI than larger long-term initiatives like ERP and ERM projects. It can take years and long demo periods to gauge ROI on projects like these, which can make them easy targets for budgets cuts when finances get tight.

In contrast, smaller, best-of-breed digital solutions can usually demonstrate ROI much sooner. For example, an FP&A tool might cost $10,000 a year and yield positive ROI right out of the gate.

During challenging financial times, CFOs often have to work harder to cost-justify expenditures, including those for digital transformation initiatives. They can’t just make investments like these because “everybody else is doing it.” Instead, companies expect accountability when it comes to what benefits they can realize from digital transformation initiatives.

FaaS and Digital Transformation

Recessions and economic slowdowns often present opportunities for businesses to invest in digital technologies that improve current financial processes, lower costs and boost efficiency. Finance as a Service, or FaaS, is one good example.

FaaS is a modern alternative to building an in-house finance and accounting team that delivers greater financial visibility and improved operational scalability, along with a lower and more predictable cost structure. With FaaS, companies can achieve a full digital transformation by outsourcing their finance and accounting function to a third-party service provider.

In fact, finance is the second most outsourced function among corporations — nearly half (44%) of businesses say they outsource their finance function.

With FaaS, businesses enjoy scalability and cost efficiencies when compared to maintaining an in-house finance team. Studies have shown than using FaaS can lower the cost of the finance function by between 20% and 40% compared to the fully loaded costs associated with staffing an internal finance department.

The FaaS model allows companies to quickly scale up the finance function as needs arise. This results in both time and cost savings, as well as standardized reporting so companies can quickly and accurately assess the financial health of their portfolios and consistently understand financial metrics across time periods.

FaaS also allows CFOs to focus on more impactful business initiatives while reducing the cost and complexity of maintaining an in-house finance operation. Employees can reallocate their time from administrative finance functions to high-impact business development initiatives. Meanwhile, companies can reduce staffing and technology costs in the finance department, instead paying an affordable monthly fee.

FaaS from Consero Global

Consero Global offers Finance as a Service that can help you achieve your digital transformation goals. You can connect with us today at https://conseroglobal.com/request-a-consultation/ and learn more about the potential role of FaaS in your company’s digital transformation.