Every business’s financial transactions need to be processed without the risk of either error or fraud. They also need to condition their daily financial and accounting activities, in the form of creating financial statements, closing books on time, or providing accurate reporting, among others. Yet, if the financial leaders are constantly drawn into the company’s other details, the business often misses tackling these matters effectively.

This is where Finance as a Service (FaaS) comes into play. More than outsourcing back-office and other non-core finance functions, FaaS can provide organizations with enhanced reliability, timeliness, and quality insight into their financial performance. To achieve a similar level of financial management as a multinational enterprise, small and mid-sized organizations have to integrate their financial, accounting, and business strategy streams. That is precisely what FaaS has to offer. It provides middle-market businesses with an enhanced ability to:

• Focus on execution and business continuity.
• Consolidate all of their value streams.
• Gain access to the services of an entire finance team at only a fraction of the cost in terms of overhead costs.

FaaS providers use scalable systems, standard operating procedures, and advanced cloud software, which increases business agility enough to meet any company’s unique needs while also providing them with easy-to-read dashboards alongside custom reporting.

And in light of the COVID-19 pandemic, businesses, while having to contend with various uncertainties, also have the opportunity to build a stronger organization overall. There are several ways that companies can make a nimbler finance function that can support a more informed decision-making process. That said, below are some of the biggest challenges that finance teams have to deal with during Covid-19 and beyond.

The Challenges That Lead to Inefficient Processes

The Covid-19 pandemic has had a significant impact on finance and accounting functions that are not entirely centralized and rely heavily on manual processes. Chief Financial Officers (CFOs) have been experiencing challenges when it comes to:

• Limited access to actionable real-time financial data – When dealing with decentralized systems, putting the correct information together often needs to be done by hand. As such, leadership stakeholders often have to work with outdated information, which can generate limited results.
• Inefficient on-premise systems – With more people working remotely, it has become increasingly challenging to access slow on-premise financial management systems that were not originally designed to support today’s business continuity.
• Cash constraints – Accelerating cash is also a priority for all organizations, no matter their size or industry. Leading functions are often focused on high fixed finance operation costs with little money available for capital expenditure. Businesses can face additional challenges if their working capital is further locked into accounts receivable and accounts payable.
• Staff management – Whether or not the current pandemic affected their demand, companies have still faced additional challenges in protecting their employees from infection, facilitating remote work, and more. This was particularly difficult if their existing infrastructure was unable to support these changes.
• Various operational inefficiencies – Legacy enterprise resource planning systems, poor service placement design, and different siloed processes make it increasingly difficult for businesses to improve their productivity and operating efficiency.

That said, how can finance functions outsourced through Finance as a Service help build business resilience and improve business performance?

The Usefulness of Finance as a Service

Through FaaS, CFOs and their finance teams can design fast responses to emerging organizational needs, generating valuable insight to improve their decision-making process. As an agile and future-oriented service, FaaS combines the best existing finance operations management practices with advanced finance and accounting technology in the form of artificial intelligence, machine learning, automation, and cloud-based ERPs, to achieve their desired goals.

In doing so, companies can achieve faster access to working capital, real-time and accurate forecasts, lower operating costs, and more. It can also help companies standardize many of their repetitive and time-consuming manual processes.

FaaS can also help CFOs by:

• Providing real-time financial data – By consolidating data sources with reporting systems, CFOs have access to a single source of truth that increases the speed and quality of insights, improves cash flow, planning, forecasting, and performance management.
• Digital processes & technologies – Unlike on-premise systems, cloud-based tech is far easier to access remotely.
• Minimal cash outlay – FaaS will reduce the fixed finance operating costs. This means that companies have more cash in hand to increase their ROI.

It’s also important to mention that there was increased demand from both CFOs and the accounting department for more strategy and innovation. This was even before the onset of Covid-19. Senior executives no longer need to spend their working hours on grunt work, especially since today’s digital technology can automate most of these processes.

Traditional finance and accounting processes are quickly becoming obsolete. As such, finance leaders who continue using outdated systems will be placing their organizations at risk. The CFOs’ reputation rides on their ability to plan and implement strategies to drive the company forward. They should be driving innovation and safeguarding their organization against future uncertainties. CFOs can’t afford to waste their valuable time on daily repetitive tasks instead of focusing on client relationships, business intelligence, wealth management, strategy implementation, and more.

Therefore, the future of finance and accounting will be dictated largely by outsourcing through FaaS. It helps lower operating costs, get access to top finance talent, state-of-the-art technology and the experience of finance and accounting professionals.

Is Outsourcing With Finance as a Service Right for Everybody

A common misconception is that businesses would lose control of their department by outsourcing their finance and accounting processes. Yet, when implemented correctly, outsourcing means that an organization will gain a strategic partner capable of supporting the existing finance team while also filling any current operational gaps.

As such, the types of companies that can benefit the most from a FaaS model include:

• SMEs – This model perfectly fits companies with precise accounting needs and growing transaction volumes. This includes startups and small and medium-sized enterprises (SMEs) that also want to have the ability to quickly and effectively scale their operations as their business develops.
• Emerging growth organizations – The FaaS model also works for companies with complex accounting needs and high transaction volumes, requiring a more in-depth financial know-how. FaaS providers offer a wide range of transaction processing and controller-level services.
• Companies sponsored by Private Equity or Venture Capital – FaaS are also excellent for providing executive-level access to CFO services for the most comprehensive financial management partnership in financial guidance and financial reporting for corporate and capital transactions.

Signs You Need Finance as a Service

Several telltale signs often indicate the need for modernizing the finance and accounting function and looking to a Finance as a Service partner. Among these, we can include the following:

• Too much overhead – When companies have difficulty managing their in-house team’s overhead, outsourcing finance and accounting services may be beneficial. Outsourced teams can generate timely financial statements to improve financial visibility and reflect the company’s progress. Outsourcing also eliminates the need for in-house management of hiring, training and other similar time-consuming disruptions.
• Outdated technology – As mentioned, FaaS providers will also provide you with a competitive advantage by using their advanced technology. Those who cannot afford to make such an investment will still have access to cloud-based finance and accounting software to provide accurate financials delivered in real-time.
• Work efficiency – When the quality of the work has to suffer, be it in terms of overall performance or the number and frequency of errors, FaaS can be a worthy option to consider. The quality of work can result from unqualified personnel or staff members who have too much on their plate. In either way, finance as a service is there to see it through.

What Are The Challenges of Outsourcing With FaaS?

Before businesses start considering outsourcing their finance and accounting operations, they should be aware of the potential challenges while undergoing this process.

Knowing What Services to Outsource

One of the most common challenges of outsourcing with a FaaS provider is knowing which services should be outsourced in the first place. Business owners should define which of these processes and associated activities need to be outsourced.

It’s essential to keep in mind that finance and accounting operations are often decentralized to the different business units within an organization. For an effective outsourcing operation to take hold, both similarities and differences between these business units must be identified to know which processes to standardize.

Complying With Regulations

One major issue that often prevents companies from outsourcing their finance and accounting processes is their perceived risk related to regulatory compliance of HIPPA, ERISA, or SOX. And while some FaaS providers will charge extra for this type of service, more professional providers will already have it built into their packages as a basic offering.

It should go without saying that there needs to be absolute clarity when it comes to outsourcing governance. It’s also in the service provider’s own best interest to assist their clients in meeting these regulatory requirements as quickly and as effectively as possible.

Soft ROI

Another common challenge encountered when outsourcing finance and accounting processes are seeing all of the benefits of outsourcing. Some finance and accounting managers have difficulty accurately estimating their operating costs. And switching from outdated systems that are over-reliant on paper-based processes and spreadsheets will have a cost, in terms of both time and money.

That said, it isn’t easy to quantify the added value of internal resource redeployment to facilitate timely and accurate business analysis. This is the type of “soft” ROI that can’t be quantified directly but still needs to be considered, nonetheless.

Organizational Readiness

Another challenge that can be encountered when wanting to outsource with FaaS is the lack of cultural readiness in accepting external finance providers. With limited outsourcing experience, organizations have a tough time in accepting a third party having access to their systems or believe their commitment to providing high levels of service.

In a recent interview with Robert Alvarez, CFO of BigCommerce (BIGC) and two-time winner of the CFO of the Year award, he stated “When I suggest Consero’s Finance as a Service model to someone, I stress that they need to treat them as part of their in-house team, and not merely an outsourced provider.” Bringing your FaaS partner into your company culture becomes an important piece for success.

How to Choose an Ideal FaaS Outsourcing Provider

Since every business is unique, there is no one-size-fits-all approach to the situation. There are, however, several factors that need to be considered when it comes to finding the best Finance as a Service partner capable of meeting all of your needs and requirements.

• Determine Your Needs – The first thing that needs to be considered is your own needs as a business. They need to determine if they also need Financial Planning,& Analysis, Controller Services, and/or CFO consulting, aside from their accounting core functions.
• Their Technical Know-how – Professional outsourcing providers need to explain their methodology when it comes to project management, tracking results, resolving issues, and more. This will help you understand the process and how everything will be handled. Additionally, they should have a business continuity plan that will ensure uninterrupted services.
• Vision Alignment – Another factor that needs to be considered is how well the FaaS provider aligns with your core business objectives. The best situation is when the provider is willing to provide a high level of visibility through regular financial reporting.
• Communication – Likewise, businesses need to talk with the finance provider to determine their availability during predetermined times. This is particularly true if they are operating in different time zones and both teams need to determine if and when working hours alone to minimize any communication gaps.
• Their Technology – Outsourced service providers need to have the right technology capable of tackling any financial and accounting responsibilities that may appear. It’s only through advanced software and IT infrastructures such as reliable networks and integrations that they can cover all of your needs and expectations.
• Their Reputation – Last but not least, businesses should check their future provider’s reputation by looking up online client reviews, references, and testimonials. Check out reviews from companies in your industry and which may have similar needs to your own.

How Consero Global Can Help

Consero Global is one such Finance as a Service provider that can strategically outsource your finance and accounting functions while also allowing you to maintain your strategic financial leadership. Our services help cover any gaps between your financial numbers and your goals – which is a common problem that often leads to business failures.

By increasing your financial visibility, you will also be able to measure progress and monitor performance accurately and in real-time. You’ll also be able to assess the risk in all conceivable scenarios, meet challenges head-on, and overcome any obstacles that stand between you and your business growth.

Finance as a Service also removes the hassle and overhead costs associated with technology research and searching for, hiring, onboarding, and training people. Since Consero is already equipped with state-of-the-art technology and has a team of financial experts, there is no need for our customers to go through the trial-and-error grinding process associated with finding the right team and tools needed to get the job done. We’ve done it hundreds of times, so you don’t have to.

Since we provide both the staff and technology, businesses don’t have to design and document their finance and accounting processes from the ground up, which can take up to 12-18+ months in some cases. We can have everything up and running in one or two months, on average.

In addition, you will have access to our aggregation platform – SIMPL – which combines transaction details, real-time data, support documents, and financial dashboards under the same roof. This data can be accessed remotely by anyone authorized with an internet connection.

Business leaders need forward-looking financial reporting capabilities, clear and real-time financial data, and the right perspective into key performance indicators to respond rapidly to any unforeseen situation. Business leaders will also have to stay on top of their invoice processing, cash flow management, and document automation, among other such processes, while adhering to compliance policies.

This is why finance and accounting outsourcing is a cost-effective solution to meeting the specific requirements of every finance department out there. And unlike your typical outsourced accounting, which is only about moving some non-core business processes to a third party, FaaS is a model that provides far more than that. Finance as a Service delivers integrated advanced technology, process automation, strategic CFO guidance, business strategy cadence, data analysis expertise, and business process engineers.

Recently, Chris Hartenstein, Consero’s VP of Customer Success, hosted a conversation about the role the finance function can play in an add-on acquisition strategy and how to develop a readiness plan that paves the way for a successful integration. 

More than ever, buyout groups are investing in industry platform plays with an aggressive acquisition strategy to build value, but that requires a swift and competent integration into the operations of the buyer. So what role does the finance function have in ensuring that happens? Consero Global’s VP of Customer Success, Chris Hartenstein has personally helped integrate 18 companies with their buyers over the last year and knows the real-world challenges of the process.

He hosted a chat with Trey Chambers, the CFO of the B2B software tools provider IDERA, that has been owned by multiple PE firms, and Elizabeth “Scottie” Wardell, the Managing Partner of the middle market PE firm, Integrity Growth Partners. And for the perspective of a target company, they’re joined by Steve Isom, the CFO of donor management software and system provider Bloomerang, who had recently supervised the acquisition of his previous employer, Flywheel. Below is a lightly edited version of their conversation.

Chris Hartenstein (CH): What are some of the key priorities that companies should be looking at as they negotiate closing some of these acquisitions? Trey, you’ve managed 17 acquisitions over there, so tell us what you look for. 

Trey Chambers (TC): We haven’t always been good at it, but we keep learning. The key for all M&A is a good target, and that means knowing what you’re looking for. We have an M&A team in-house, with a pipeline of targets, and we’re always looking at who’s in our space and building those relationships, as a lot of our acquisitions are through our informal chats [with targets]. Most of all, I’d make sure there’s a strategic purpose. Maybe they have a better technology or one that doesn’t do what your [offering] does, or maybe it merely removes a competitive threat. Some are growth acquisitions, some have recurring revenue, maybe they have an older technology, but offer an opportunity for synergy. We think our ideal target has some combination of those qualities.

Once we have a target, we create what we call is a “skinny model” with high level financial information from the target, and then we’ll discuss a purchase price based on revenue or EBITDA multiples and then pressure test that as we begin diligence. You need to make sure you’re ready. We hire Deloitte to do a “quality of earnings report,” which takes the historical financials and does the equivalent of a mini-audit that traces any anomalies, one-time events, etc., so we truly understand the company’s historical performance. Then we assign the various diligence duties. We have a diligence tracker, and after all these years, we have a good one that tracks cash management, who’s doing the GL, and so on. Our goal is to get these deals done in 60 days, although it still tends to be 90 days, so it’s still pretty quick. The goal is to finish, or cut bait quickly.

I used to have a small team focused on diligence, but now I invite a lot of the team on a lot of the calls, because we used to close the deal, only to struggle with integrating the company afterwards. But now everyone is up to speed prior to close, so we can hit the ground running.

Elizabeth “Scottie” Wardell (ESW): I’d like to reiterate Trey’s point about having a sound rationale and thesis for this acquisition. It can be attractive to say, “I can get this at a really cheap multiple,” but if you don’t have great rationale that fits with the overall story of the company, when you go to sell, the buyer will unpack why this was added, and you won’t get credit for simply adding dollars to your P&L. In fact, it may distract from organic growth opportunities. Don’t be too focused on how things look on paper, because it still has to makes sense to the overall business thesis.

I’d add that people should think about these acquisitions structurally. What does it take to finance these acquisitions? If you’re going to incur debt, will that put a burden on the company’s other growth activities? So you should think about where the capital is going to come from, especially as I work with a lot of lower middle market companies that are at key organic growth inflection points, in addition to whatever M&A strategy may be explored.

CH: Steve, you’ve been on the other side of all this, having been recently acquired. What’s your perspective?

Steve Isom (SI): Something to consider with these deals is by the time diligence begins, it’s really confirmatory. There’s already a thesis and a LOI, so the role of finance is to give them confidence. Think about every interaction with a potential buyer as a chance to  further build that confidence in the business. This means erring on the side of transparency, giving the internal roadmap of controls, policies, forecasting and tell the story of where you were, where you are and where you were planning to go. I think you can develop a good relationship with the acquirer, so if you find yourself in a situation where a number you shared was incorrect, or there’s a detail that you pulled, you’ve built that rapport and trust with the acquirer, where you can have an open conversation about it, rather than trying to sneak by any adjustments to the data room.

CH: So much of what you need to make these acquisitions a success come from the finance function, and when the target’s finance department is in disarray, it can stall the deal. So what are some red flags that you’ve seen that would give you pause, and how have you ensured your finance teams don’t wave any such flags too? 

SI: There’s this idea of deal readiness. There’s a difference between an unsolicited inbound offer and going into an exclusivity process, or hiring a banker where you have 60 days to prepare. I’ve made a point to have info available and structured to be ready for that. When you’re on the acquirer’s side, you’re really looking for an efficient process at the target. Is the finance leader inheriting any operational debt? Are there things broken in the processes here?

ESW: If the numbers keep changing, or if different systems are saying very different things, that’s a red flag. This doesn’t imply anything nefarious, just that there may be more “noise” around the earnings. Inconsistency matters. In the presentation of the numbers- how confident are they talking about the numbers? How comfortable are they with them? What are the key drivers? Are they coming off as transparent, or do they bristle when I get to the next layer of questions? Some of that can be discerned by the body language of the different parties, say between the CFO and CEO, and if there is tension. Are they cutting each other off? Maybe there’s a lack of coordination and those are red flags. If you can’t reconcile cash at the end of the day, that’s most certainly a red flag as well.

CH: I like the idea of body language and making sure that people are being transparent. Trey, what are the red flags are you seeing?

TC: Is the data easy to reach? Are questions answered quickly? Is there pushback- some of that pushback is legit, but when it’s not, you need to decide [if it’s worth that trouble.] Acquiring small and unsophisticated is much harder than acquiring large and sophisticated, in terms of integration. A lot of companies in the lower middle market are cash-based by nature, so they’re not as mature on the process and accounting front, which means you’ve got to pick up the pieces post-close. I’ve always told my team, get everything you can pre-close, since if this is a synergy play, you may lose people who know things, and they are far more motivated to give that data before closing.

CH: Smaller deals take as long, if not longer, to close than big ones. In getting ready for deal, what should you have on hand from a finance perspective? 

SI: Most of the time, people underestimate how long it takes to integrate a business. Take any pain point in your business and understand that it will amplified and exacerbated during this process. Get the teams working together as soon as possible- maybe they outsourced or they have a great team. As Trey said, you have their attention before closing.

TC: One of our CEO’s favorite statements is “Get to the future.” The future is always scary but we know we need to get there. 90% of the time we want to use our processes and our playbook and the seller is, like everyone else, convinced their way is the best way. These are difficult conversations that don’t get any easier, so it’s best to have them upfront.

Next, have a staffing plan. I understand which positions are there and which will still there after the deal closes, and be sure to plan on turnover, complete with a back-up plan. The last element I’d suggest is that we do is weekly integration meetings about two to three weeks before the deal closes, if it looks likely. And we start building from there. Three or four weeks after that, we’ll invite staff from the target as well to participate.

CH: Scottie, what’s the value of the finance function of either side of the deal?

EW: [The finance function] can serve as a “quarterback hub” for the integration and analysis work. I’d add, think about the change management opportunity. It’s a lot of people getting together to do things different, and there will be energy from acquirer and target, and the more thoughtful you are there, being methodical about culture and giving opportunities to show shared goals and deal with any “hidden” info. How do you factor in people’s fears and hopes around this process? How do you optimize the best of the both groups? Things can get damaged if you don’t tackle the human element here, no matter how fancy the algorithms are. And the finance function can play a role in this.

SI: That’s especially true if most of the staff will be staying. Over-communication is key. Put yourself in their shoes. There are all these assumptions from the acquirer that there are these key people we want to stay, and well, the acquirer needs to say just that. Tell them that they are those key people. And to Trey’s point, if you try not to rock the boat, and assure them that they can keep most of their processes in place, every little change will seem all the more disruptive.

TC: People getting acquired are by nature scared, and they’ll assume the worst. “I’ll be fired,” or “The new processes will be worse.” So don’t string anyone along. We’ll meet everyone across functions within a week of the deal closing, and update them if we know we need them, or if we know we don’t need them, and even that we’re not sure yet, but promise that as soon as we know, we’ll tell them. People like certainty, and that will engage everyone faster for the Company’s future. People appreciate that, even if it’s bad news.

CH: Exactly. Don’t leave them in limbo. Steve. From a deal readiness standpoint, how did you share data when your prior company was acquired? It was an unsolicited offer, correct?

SI: That’s right. And from the first meeting to close was, I think, roughly 30 days. We had recently been through an equity raise so there were a lot of materials already in hand, and as a recovering investment banker, let me tell you, a professional presentation lends a lot of credibility. And honestly, we benefitted from having Consero. Because of their process, the team completed a full diligence list from Deloitte in 24 hours, and that kept the deal rolling along. That instills a lot of confidence.

CH: What else can a finance function do to help close these deals and scale both finance teams together? 

TC: Consero is great at onboarding new companies, since everyone that moves to their platform is coming from another platform. So Consero moves those companies to the platform efficiently, which allows us to focus on the business. And don’t forget the financial planning and analysis side here. So we refine that skinny model from the LOI stage and have a final model in place, and then we focus on that as we move forward. For all these acquisitions we measure them on a stand-alone basis for the first year so we can measure the P&L off the model and focus on the KPIs, to gauge where we are compared to our plans.

SI: You also need to make sure the CFO understands the thesis and the success criteria for the deal. Explain to the CFO the five or six milestones along with a reporting cadence against those metrics, and there’s no better way to assess success.

ESW: There’s always a lot of moving pieces post-close so I’d stress there needs to be a clear project management function, or at least a systemic approach over who owns what. And  finance can help lead that systemic approach. And losing sight of that can cause plenty of unnecessary value destruction.

TC: To that point, as part of our playbook now, we created a diligence tracker and appointed someone to manage that tracker. It keeps everyone on their toes, and keeps the integration engine humming.

SI: As a seller, make sure there is a project manager before the close, and that QB needs to make sure that the context of the deal is kept in mind. If that head of R&D answers the questions in a vacuum, there can be problems. Someone needs to make sure that the responses are consistent. CH: And that consistency can build a lot of trust. I think we all know that  no acquisition will be successfully integrated without that, and the finance function plays no small role in building trust in the numbers and the process, along the way.

A PE fund makes most of its investment returns by selling portfolio companies at a profit. Most portfolio firms are then sold to sophisticated buyers (strategic buyers like corporations wanting to add a new unit) who could be expected to shun the market if the target firm was destined to fail. That’s why the private equity fund must thoroughly think through every investment decision, which is where there’s no place for mistakes in the finance department.

For several years now, the private equity industry has been flourishing – with growing fundraising, valuations, and transaction volumes. Therefore, leaders of private equity portfolio companies will find this list of common mistakes to avoid quite valuable. Let’s take a look at those common pitfalls and ways to resolve them so your finance function can begin providing more value to your organization. 

Common Finance Mistakes Made by Private Equity Portfolio Companies

1. Finance function processes that cannot scale

Having centralized finance data brings the opportunity to automate and standardize their processes. When your staff spends most of their time manually performing administrative tasks, they cannot contribute more to growing the company. This scenario often inhibits growth, and the PE Operating Partner will see that the portfolio’s team doesn’t have the tools, processes, and people required to meet the established goals. 

Expensive finance and accounting department

The cost of finance and accounting becomes increasingly problematic when inefficiencies in the department continue to grow. Private Equity firms expect that finance and accounting cost 1% of the revenue (or less) as the organization scales up to $100 million in sales. 

Inefficient business processes

There is no room for manual business processes in a high-growth company. As the company gets set to grow, these processes must be automated and all systems connected. Otherwise, growth will be limited. Efficient companies are built on well-defined workflows and standardized practices that drive business processes across functions and departments. Automation must be implemented to reduce human errors and costs wherever possible and achieve standardization of processes. Once that is achieved, Artificial Intelligence and business software can drive many business processes.

2. Reinventing/optimizing the F&A function

Time is the most critical factor for any portfolio company. Once the PE makes an investment, they expect the F&A function to be optimized within approximately 100 days. Optimizing the finance and accounting function may include optimizing processes and upgrading software systems. It often happens that middle-market companies realize their F&A systems present an obstacle to growth. The CFO shouldn’t find it challenging to decipher the KPIs of their business.

For example, if your business is using QuickBooks, there are a few common problems that high-growth companies might experience:

• The absence of certain functions essential for fundraising (e.g., reporting functions)
• Data and user limits
• Bottlenecks within finance and accounting departments that come as a result of lack of automation

These outdated or incomplete systems need to be re-build, and too many firms waste their time on that. When tasked with implementing financial management systems and hiring accountants and controllers, CFOs spend their time building and “reinventing” instead of optimizing current systems. 

Points of failure

When portfolio companies choose to build their F&A foundation, there are many points of failure, such as:

Reporting. Producing accurate reports to verify that all business transactions have been appropriately processed and assure that audit and tax compliance needs are met. 

Finding and implementing the right software solutions. Finding the right software is only the beginning. Implementation, training, and integration of disparate systems take time.

Hiring. Finding the right people, hiring, and training them quickly.

The abundance of F&A software options

When it comes to F&A software, CFOs have so many options to choose from. To make the right decision, he or she must answer some crucial questions, such as:

• What features of an Expense Management tool are vital for my business?
• Which General Ledger for record-keeping is best for a services business vs. a software business? Do all of them integrate with my business’ CRM?

It takes between 9 and 18 months to build the whole F&A foundation, but the question is – will the F&A department be optimized at the end of that period? The teams in an optimized F&A function should be able to scale with digitized and automated processes and systems, deliver forward-looking metrics and standardized KPIs, and close the books in 5-10 business days and be ready for an audit.

3. Hiring a CFO with the wrong skill set

Private Equity portfolio companies often hire a CFO to establish a fundamental financial structure and build an F&A team. However, the CFO must have strategic skills that will ensure the vital factors that drive the company are understood and communicated to the organization’s C-suite.

Hiring the right CFO – builders vs. maintainers

There are two categories in which most CFOs fall into – builders and maintainers.

Builders are known as strategic CFOs. These are financial leaders who can take hold of a chaotic situation and find a way to help their company thrive. They often come from a background of business process design or system implementer, and they like to clean things up. As for the maintainers, these financial leaders thrive at the repeatable functional aspects of F&A management. They don’t excel in high-volatility environments that experience frequent, high-levels of change but are well organized. Maintainers often come to this position from the rank of a controller or accountant.

The common pitfall for many high-growth businesses is hiring an operational CFO (maintainer) and expecting them to bring strategic skills to the table. Maintainers are expected to build the F&A function and provide strategic guidance. Still, without a strategic skillset, maintainers cannot present the financial data that leaders require to identify opportunities and cope with current roadblocks.

On the other hand, a strategic CFO (builder) knows which questions to ask and provide the right insights to leaders, so they know when to say yes and when to speak no (in order to stay focused on the most crucial initiatives). Such CFO is able to envision the finance function and design its processes.  

4. Not having access to timely information

The information that leaders and managers need in order to be able to bring the right decisions must be timely and forward-looking. The CFO shouldn’t be the one who has all the answers and to whom executives go to whenever they have a question. Such a system puts the business at risk.

Decision-makers don’t need their financial information buried in finance and accounting, which is another reason why organizations need centralized finance data. With disparate business management systems, CFOs spend their time formatting, validating, and exporting spreadsheets. They also have to complete and review reports to investors, regulators, auditors, and other external audiences. The reporting process eats up much of their time, so CFOs are left with no time to focus on providing strategic guidance.

Without visibility into financial data and a firm understanding of the company’s financial health, accurately measuring and monitoring performance becomes impossible. For example, the PE fund manager won’t be able to calculate EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which is an essential metric used by private equity fund managers that allows investment evaluations and decisions to be made while excluding the effects of certain F&A decisions.

5. Disparate F&A systems

Having multiple disconnected systems can make F&A operations especially costly, complex, and clumsy. Yet, not many companies define best practices and strategies to unify and harmonize these systems. There are silos of data resulting from the proliferation of specialized point solutions (such as expense, payroll, accounts payable, and billing solutions). Data from all of the disparate systems then needs to be imported into the general ledger, but transactional detail gets lost along the way. 

With all the disconnected data spread across different company departments, accountants have to spend much of their time creating spreadsheets that combine the information required to create reports for the decision-makers. Since this process is manual, it carries a lot of room for omissions and errors. Furthermore, the company cannot process automation or standardize workflows without centralized, connected systems.

Consero Helps Avoid Common Finance Pitfalls

By pairing with a FaaS (Finance as a Service) provider, Private Equity portfolio companies can modernize and optimize their finance function. Consero is a FaaS provider that can help you take advantage of AI to gain efficiencies and integrate all your financial systems to unify your data. The benefits of teaming up with a FaaS provider include:

• Building the foundation for scalability into your financial management systems
• Gaining insight through AI and connected data
• Automating manual processes to drive efficiencies

From the moment a PE fund buys a private company, the game changes. PE investors, financial leaders, PE executives, and their management teams must adapt their processes and be aware of the common finance mistakes made by private equity portfolio companies. It’s time to engage in the right financial modeling and partner up with the right consulting firm that will make sense of each private equity investment you make. The key for PE firms has evolved from the ability to increase the leverage and improve the capital structure to also encompass enhancements in value creation and operational efficiency.

We can help you lead your portfolio companies to a clean balance sheet, better cash flow, and accurate business valuation. With Consero and our FaaS solution, Private Equity firms and their portfolio companies will get a unique, out-of-the-box F&A department and accelerate their acquisitions’ ROI. We provide on-demand finance experts that can help engineer new software and process enhancements to meet a growing portfolio’s requirements. 

For more information on Consero and our FaaS solution, feel free to contact us today.

 

When we look at the typical finance and accounting function within a company, we’ll find a range of accounting activities – payroll administration, customer invoicing, financial reporting, processing of payables, and so on. According to various surveys, about 70% (or more) of all financial management functions deal with the processing of accounting transactions. That means that less than 20% of financial management is spent on strategic planning, risk management, performance measurement, competitive intelligence, investment analysis, and other aspects of real financial management.

As opposed to hedge funds, which are alternative investments that use a variety of tactics and pooled money to earn investment returns, private equity funds invest in their companies directly. They do that by buying a controlling interest in publicly traded organizations or by purchasing them. Furthermore, private equity investors provide equity capital to a company that isn’t quoted on a stock market, turning it into a platform company. That money can be used to expand working capital, develop new technologies and products, strengthen a company’s balance sheet, or make acquisitions. PE can also resolve management and ownership issues.

When private equity portfolio companies get their investment, one of the first steps to redesign their finance function to create value is to move away from traditional accounting management and kickstart the transformation into real financial management. This transformation’s overall objective is to switch to more value-adding activities or things that will help improve company performance.

Portfolio companies need to adopt a set of practices that can help transform their finance function into a significant value driver. These practices include many things, such as:

• Reducing cycle times by processing data only once.
• Organizing around results.
• Leveraging technology and people to improve transaction processing (e.g., electronic data interchange, purchase credit cards for payables, electronic payroll processing, etc.).
• Centralizing and structuring financial data, so it doesn’t just occupy storage space but provides necessary information.

Keep reading to find out more about how the finance function creates value for private equity portfolio companies.

Breaking Away from the Traditional F&A Model

Departing from the traditional finance and accounting model is essential to making the finance function a source of value for your portfolio company. That requires a different way of thinking about how you measure your company performance. The emphasis should be on increasing value. To successfully transition over to value-creation, it’s crucial to understand why the finance function runs contrary to it.

Your company’s financial function can play a role in placing focus on things that are of greater importance to true economic performance. For instance, it is critical to think outside the financial statements because value-creation never actually appears on the Balance Sheet. Things like innovative marketing, information technology (like AI, automation, and financial analytics), human resource capital, and others are paramount to creating value.

Balancing the financial and non-financial forms of measurement is another crucial step. Portfolio companies need to identify their strengths and weaknesses and measure the non-financial aspects contributing to value-creation. Solving disparate systems by moving towards a unified system can help leverage the company’s intellectual capital. Using better analytical and processing tools can improve the CFO’s and CEO’s decision-making process. This is how value gets created, and finance and accounting needs to lead the way.

Key Lessons for Finance Functions

• Adding value. In finance, less than a quarter of the time is spent delivering relevant business insight.
• Investing in skills. Top quartile companies pay their insight to finance professionals about 25% more.
• Focusing effort. In top-quartile companies, analysts spend 40% of their time gathering data (not analyzing).
• Making savings. Leading finance functions cost 35% less than the median finance functions.
• Eliminating inefficiencies in finance as well as other functions. Across many key finance processes, automation, and process improvement can reduce costs by more than 45%.

Realign Your Operating Model to Focus on Value

Since business operating models are changing so fast, finance functions must keep track if they want to support the business and find ways to add value. But when they think about their business operating model, CFOs usually focus on the shared services and location choices for teams, as well as to what extent they can outsource them to third parties. There are many other important questions to consider. What services does finance provide the business? What technology needs to be in place? What skills are required?

One of the ways towards a lower-cost finance function is applying automation, which doesn’t have to be a time-consuming, complex, and expensive project (as many believe so). Much of the time wasted on performing finance and accounting tasks or activities like error correction and rework can be replaced by automation and robotics. Thanks to FaaS providers, web-based data analytics tools, and accessibility of RPA (robotic process automation), portfolio companies can put these solutions quickly and at low cost. That can help transform the way finance function works and the value it adds to the company.

Another way to lower the cost of the finance function is by focusing on more effective human resource management, changing the way teams work and collaborate, and eliminating “waste activities.” Finance leaders are asking themselves whether their teams can do certain tasks more efficiently and whether they need to perform some of them at all. Then, they determine what tasks don’t differentiate the business and add value and eliminate them.

As finance functions grow more efficient, they free up their most operationally savvy and experienced professionals from routine transactional tasks. It saves them from the dullness of gathering, validating, reconciling data, and compiling many financial reports that often aren’t used for bringing business decisions. What PE firms look for in their investments is, most often, a top-notch management team.

Utilizing Technology

Today, technology is vital to almost any finance function (and overall business) transformation. With the emergence of a new generation of tech platforms, resources, and tools (such as RPA, Artificial Intelligence, Big Data, cloud, etc.), transformations have a bigger potential to deliver more generous benefits than before. Robotics, AI, and the Internet of Things are technologies that global organizations see as both the most important for cutting costs and the most disruptive. Private equity portfolio companies can’t fall back on their technology gaps as an excuse to delay implementing other transformation elements. However, some companies have realized that they can’t move forward with their transformation until their tech resources have caught up.

When selected and applied correctly, tech solutions can free up significantly more time for the finance function to deliver value. For example, with effective governance and standardized data definitions, FaaS platforms can serve as a single source of information and make it possible to streamline various processes. Companies with a single enterprise-wide system have much lower accounting costs, while data visualization tools and add-ons enable self-service reporting and make it possible to frame opportunities and challenges in new, productive ways.

The best FaaS providers already have access to the latest technological solutions to help private companies achieve high growth rates. Overall, those tools help with improving and reorganizing outdated systems that are slowing down productivity and growth. They typically come with a higher price tag, which is a solid reason why a PE-backed company will benefit from reaching out to a Finance as a Service provider.

Measuring the Right Metrics and Accurate Reporting

When PE firms invest in a company, the first thing that most of them do is develop and improve the portfolio’s information systems. They do that to make sure two important things are set up to their standards:

• Costs. What are the costs, and where are they? Nothing will change if everything is according to the PE’s standards, but if the costs can be reduced, they will do everything to achieve it.
• What sells and what doesn’t. Whichever product or service the PE portfolio company has that’s creating income will remain as are or be improved. However, the PE firm wants to cut down on costs, and one of the ways of doing it is by eliminating offerings that aren’t producing high-enough income.

Before the private equity company invests in a company, it wants to look at these five metrics..

1. Cash flow

No investor wants to invest in a company that is not making high-enough revenue, so they will want to see the cash flow statement. Cash flow statements show how much cash the organization is generating, while the income statements include non-cash expenses and revenues. The cash flow is a metric that matters a lot to PE firms because they know high incomes sometimes don’t mean that the money is circulating. Investors value portfolio companies based on Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), which is an important indicator of an enterprise’s earnings potential and financial performance.

2. Liquidity

Investors want to see this metric because it shows them how quickly a company can be sold or bought without affecting its price. They typically want to see it after the company is invested in or sold, and they want to see daily, weekly, monthly, or quarterly cash flow models. Since the enterprise needs to ensure that the liquidity metrics change or remain at a desirable level, it increases the need for excellent F&A solutions.

3. Product analysis

Costs need to be controlled because it’s easy to leave out certain areas where profits are generated, which makes cost accounting tricky. When certain areas are left out, PE firms want to conduct a detailed analysis of each product to determine the actual margins that the portfolio company is making.

4. Expense control

Private equity firms always want to have a clear view of the portfolio company’s expenses, so expense control is another important metric that they need. They need it to detect expenses the company has and find ways to reduce them (and increase profits). If the costs are higher than previously planned, they will take actions to decrease them. PE firms will ask about the company’s policies, why some of them are spiking, and how they are controlled.

The last metrics include industry-related metrics, and they are specific to each company (depending on the industry it operates within). Since each industry has its own metrics, every company needs to define them. The PE firm will definitely ask for these metrics because they provide insight into how the portfolio company performs within its industry.

How FaaS Helps PE Portfolio Companies Create Value

To help their portfolio companies thrive, PE firms understand that they must leverage the best financial services and advanced tools. The main reasons why PE firms decide to hire companies such as Consero as their partner include:

• Accurate financial data and reporting

When a private equity firm invests in an enterprise, it sometimes happens that the enterprise doesn’t have a strategic CFO, which is why its reporting isn’t up to the level PE firms need. To drive the growth of the acquired company, PE firms use data, analytics, and metrics. FaaS providers are there to supply all the analytics and metrics the PE firms need, giving them the necessary KPIs and metrics in an understandable and easy-to-read format.

• Scalability

FaaS providers have a business model that allows them to scale to meet any company’s needs quickly. They provide the right level of resources for the right activity. When an organization goes through an acquisition, FaaS providers can help with the process by setting up systems and getting the company streamlined. Companies don’t have such scalability and flexibility with in-house finance teams because in-house teams don’t have the time to get that acquisition integrated. 

• Speed-to-optimization

Immediately after investing in a company, PE firms will want to grow it as quickly as possible. But it often happens that the finance and accounting department hinders that growth because:

• The F&A team members don’t possess the right skillset.
• It is unable to increase company revenue.
• It doesn’t have the right processes or systems to help them achieve the desired growth.

When there is a problem in this department, many organizations try to hire a new team that researches available systems. They choose one that seems to be the best fit, configure, and implement it. After it’s all done, they train their staff to use the system. However, this optimization process requires between 18 and 24 months, and it takes a lot of energy to achieve the point of full integration. On the other hand, the FaaS model will help you optimize your finance function in as little as 30 days. FaaS providers already have the finance processes and systems fully implemented, and they can deploy them more cost-effectively and rapidly than an in-house team could.

• Cost savings

Hiring a FaaS provider is a much more cost-effective solution than building and training an in-house team (for PE firms, time is of great essence). Also, the savings achieved with a FaaS partner can last even as portfolio companies continue to grow. These providers bring a larger pool of experienced staff to the table. They are very efficient and automate activities that an in-house team would perform manually. Besides, they already know which processes will work best for you because they work with similar organizations.

• CFO insurance

The FaaS model is often considered as CFO insurance by many PE firms. Your FaaS partner helps reduce the time needed with financial analysis and administration and takes over the daily mundane tasks, allowing the CFO to focus on strategic leadership and business growth. PE firms don’t want their portfolio’s CFOs to spend time on tactical and routine activities but on figuring out how to turn financial information into competitive intelligence.

Benefits of Teaming Up with Consero

Consero’s services are designed to help companies assess their current financial health and determine which choices will help them thrive. We understand that businesses often need an experienced partner to help them deal with various obstacles on the road ahead of them. We offer a robust financial solution that will help your portfolio company build a strong foundation after the investment or acquisition was made. Our services include:

• CFO consulting. If you have a private equity CFO without the right skill sets, then we provide strategic guidance to help improve their skillset. Or, wel can help to fill that gap with an expert strategic fractional CFO to help you boost profitability and productivity, provide financial data analysis, forecast performance, etc. Our Strategic CFOs will take initiatives that deliver on your portfolio company’s investment thesis, which helps to democratize the creation of value beyond the finance function. 

• Financial planning and analysis. Our finance analysts and experts will help you bring informed decisions based on detailed insights to help you come out of cash flow problems. We use advanced software based on AI and automation to provide detailed analysis and reports that will help you create the best plan for moving forward.
• Controller. Controllers play an integral role in interpreting financial numbers and making data-informed decisions on budgets and expenses. They work to ensure that a company utilizes the right internal controls that keep it profitable and healthy.
• Bookkeeping. PE-backed portfolio companies with issues with their financial management, records, and strategy can benefit from Consero’s bookkeeping services. We are not just an outsourced, third-party bookkeeping provider that helps you maintain your books, but a strategic partner that enables you to save money, save time, and deliver a higher ROI.

Since the private equity industry has increased significantly during the last decade, PE firms have to do more to stay competitive. They need to understand regulations and make the right decisions, but this cannot happen if their finance staff is unskilled and unequipped with the right tools. A fund manager must have comprehensive insight into the company’s financial standing at every moment to be able to make the best decisions.

Consero provides an outsourced finance and accounting solution that will help gain more significant financial insights through advanced analytics, reduce operational risk, eliminate inefficiencies, make savings, and allow CFOs to focus their effort on things of greater importance. We are ready to help you improve your practices in value creation, firm valuation, governance, and capital structure.

 

The standards still apply

COVID-19 might feel like a reason to suspend the usual priorities, but now more than ever, the finance function at portfolio companies needs to maintain its performance. We spoke with Consero’s President Bill Klein to learn the best way to discern if the finance function is delivering. 

In the deluge of pandemic coverage, there are those few voices that have shown up to say, “I told you so,” and refer to their warnings, made years ago, that a catastrophe of this scale was not merely possible, but likely. These contrarians may feel vindicated, although they’d all prefer the attention before it was too late. Cassandras are cursed not for being correct, but for being ignored by the world around them.

No business should be faulted for not planning for a once-in-a-century health crisis, but now that it’s here, they need to pay close attention to its impact and evolution, and heed the Cassandras as best they can. When COVID first hit, private equity firms’ first priority was to ensure that their portfolio could handle the shocks of the lockdown, by cutting costs and projections. But as the pandemic wears on, they’d best pay close attention to its effect going forward, and that means they need numbers they can trust.

So it’s time for GPs to take a second look at the finance function at their portfolio companies, and make sure they’re operating as they should. That means more than closing the books on time, but doing the additional work to make sure that they remain audit ready. But beyond that, there needs to be a view to how the finance function can work more efficiently. If resources are liable to shrink over the next few years, it might be worth the trouble to find ways for the companies to do more with less, even as they grow.

Beware a breakdown in the basics

“It seems obvious, but the books need to be closed within ten days of the end of the month,” says Bill Klein, President of Consero Global . “If not, that usually indicates larger problems with the staff and process.” There may have been some hiccups as the finance team shifted to working remotely, but by now they should be up to speed and delivering as before. But Klein’s definition of the “basics” is a little more expansive than getting the correct numbers on time.

“They may be delivering financials, but not closing out on support schedules and the other underlying data,” says Klein. “Otherwise, when an audit arrives, the company is left paying consultants a hefty fee to catch up and get those financials in order for that audit.” For Klein, if the financials aren’t audit-ready, they aren’t ready. Furthermore, no company will want to fork over those extra fees in the midst of an economic downturn.

Conduct revenue recon

Klein also warns that while the US government offered an extension for companies to become ASC 606 compliant, that doesn’t mean the effort should be shelved for now. “Companies need to know where they stand with this new revenue recognition standard and have a timeline for when they’ll meet it.” It is exactly the kind of issue that can feel safe to ignore until it’s too late, when the eventual scrambling can lead to mistakes.

Commentators argue that while the new standard might be initially cumbersome, it could lead to business improvements in the long run. And while such reforms feel frivolous as headlines report the sky is falling, it can make all the difference in how a company emerges from the current crisis. That’s why Klein continues to gauge the finance function for its long-term health and effectiveness.

Tomorrow is already here

“When we look at providing the finance function for a new client, we’re not just looking at where the company is today, but where it will be in six months or a year, and create a solution that fits where they’re headed,” says Klein. This is all the more important in the case of private equity portfolio companies, as they tend to be undergoing major changes as part of the GP’s investment thesis. “And in times of major upheaval, it’s all the more important to build a finance function for the long term.”

But what does that mean? Klein explains that while cost-cutting makes sense when COVID-19 first hit, it only addresses today’s cost structures. “Ideally, private equity firms should be looking at the scalability of the finance function so that even when growth arrives, they are doing more with less, but that often means investing the time and resources into better processes today.”

And building better processes involves looking closely at every phase of the work from the finance function. “When Toyota introduced its Total Quality Management standard, they didn’t just implement it at the end of the assembly line, but at each step along the way,” says Klein. So at Consero, they look at each piece of a client’s process and hone it for maximum efficiency. “We don’t wait for the audit to be announced to scramble for anything. We want to be ready, even if the call comes today.”

What Klein is actually arguing for is a new, higher standard for the finance function in light of the pressures from COVID-19. “While uncertainty is a given, we can expect that the future will leave less margin for error in every facet of a business,” says Klein. And that hardly seems like a prediction that requires the foresight of a Cassandra, so let’s hope today’s businesses take heed of it.

 

Deliverables include:

• Overall health assessment of your accounting and finance department
• Unbiased suggestions on improvements
• System optimization
• Consero proposal

The economic fallout from COVID-19 has already prompted the closure of one notable FinTech provider, leading some to wonder about the health of the rest of the outsourcing industry.

 There will be casualties from the current economic crisis, no matter how V-shaped the victory may be, and the best-case scenarios for a rebound seem unlikely for now. If anything, the uncertainty will linger, given the unique nature of a slowdown driven by a global health pandemic.

This will no doubt cause companies to err on the side of caution, cutting costs to the bone and avoiding major changes to how they do business until they see a clear path forward for their fortunes. Major initiatives may be put on hold for now, assuming the safest route is the one they’ve been on until now. Recently, an outsourced provider announced it was shutting operations, leaving its clients to scramble for a new solution for their finance function.

“That situation shouldn’t be seen as an indictment on the Finance as a Service (FaaS) industry,” explains Bill Klein, President of Consero Global. “Rather, it should remind clients to conduct the due diligence that so many do already.” Klein stresses the need to take a closer look at how that outsourced provider is funded. Given the relative youth of the space, is it largely from outside investor funding? What do those investors expect from their support?

In some cases, an investor may be looking for home run growth and is willing to risk the long-term health of the business to get there, while others may have lower growth expectations, but care more if an operation can thrive over the long term. “Or, in the best-case scenario, is that service provider relying on funding from new and current investors or are they self-sustaining based on their operational cash flows?” asks Klein. “Because that speaks to the long-term viability of that firm.”

But Klein argues there’s a more pertinent question to ask. “Is there a reason to doubt the market for FaaS providers going forward?” In the short-term, part of the answer comes from the nature of this crisis, which is defined by its uncertainty. How long will shutdowns continue? Even if parts of the world, or parts of the country reopen, what are the chances they’ll close back down, or consumers will stay away. In the long-term, have the underlying drivers toward FaaS really changed to where customers will drift back to an in-house finance function?

FaaS is a solution built for maximum flexibility for whatever comes next. An outsourced finance department can quickly and easily scale up, or down, depending on the needs of the client. “We like to think about where a company is going and build for the long-term, but we also pride ourselves on being nimble during times like this.”

Additionally, more businesses are moving to work remotely on a permanent basis which makes outsourcing a much more natural choice. “We’ve always operated as if we’re merely an extension of the company’s team, so it’s business as usual for us. And that’s a key part of why we feel confident that we’re going to be here for some time to come.”

There is every chance that other providers may shutter or be acquired by their more successful peers in the years to come, but the nature of Finance as a Service suits where the rest of the economy is going, regardless of the nature of the recovery. “COVID-19 has tended to accelerate trends already underway, and we feel that we’re prepared for a future where FaaS is more common than having the finance and accounting function in-house.”

Monthly recurring revenue (MRR) is the part of a business’ total revenue that’s likely to continue on a monthly basis and help companies predict annual recurring revenue. Companies with recurring revenue are generally more valuable and more attractive to both investors and consumers. Recurring revenue generation indicates stability, as the organization expects to receive revenue every month. The recurring revenue model creates tighter relationships between the company and its existing customer base. With such a loyal customer base, those companies spend less time and money on acquiring new customers, which increases their valuation. In the past, businesses increased their valuation by lowering expenses and through continued investment in marketing, strategic planning, and staff and equipment. But what every investor today wants to see is how a company boosts profits and increases sales.

Businesses are Moving to the Subscription Business Model

There are many examples of businesses moving to the subscription model to increase their valuation. For example, online pet supply stores like Chewy offer subscriptions to pet food, medications, litter, and other things pets need on a regular basis. Netflix relies on the subscription model to ensure recurring revenue and affordability, which leads to new customer acquisition. With 167 million subscribers (2019), this type of streaming service has proven more profitable and led to the downfall of Blockbuster. By switching their services and financial modeling to subscription-only, Digital Telepathy (UX firm) managed to increase revenue by 300%.

The switch to the subscription model allows companies to focus on improving customer retention through better customer service and improved customer relationships. Instead of developing project plans and focusing on their products or services, a company operating on a subscription-based business model can get more aligned with their customers’ needs.

Monthly Recurring Revenue Makes Businesses More Appealing to Investors

Introducing a subscription-based business model could increase a company’s valuation by up to 8 times. Successful SaaS businesses that can demonstrate a recurring revenue for their software platforms average a six-fold revenue increase for valuation when compared to companies that sell perpetual licenses. Private equity investors and VCs are more interested in these businesses because they can demonstrate reliable revenue streams.

MRR indicates that a business has achieved a product-market fit. In other words. It has a product or service that customers want and are ready to pay for. In most cases, monthly recurring revenue implies some type of a subscription model, which is well-proven, comes with well-known risks, and allows investors to evaluate the business much easier. Besides MRR, other important metrics that investors pay attention to include monthly customer churn, month-over-month growth, and customer acquisition costs (CAC).

Recurring revenue models are appealing to investors due to their:

1. Predictability. Businesses operating on a monthly subscription-based model rarely miss their monthly forecasts because their financial forecast models are much more accurate. Instead of starting from zero, a company begins with a base to grow upon at the beginning of each period. Company owners and potential buyers are rarely surprised by major fluctuations in business results, and the predictability of monthly subscription comes with a range of downstream benefits.
2. Scalability. Since they produce predictable cash flow to invest in business growth, recurring revenue model businesses are easier to scale. With the deep data insights provided by a subscription model, companies can understand their cash flow and effectively invest in business growth with minimal risk. When a product/service has reached standardized quality and subscription values, you can be sure that you will minimize churn and maximize recurring revenue from existing, satisfied customers.
3. Expense management. With such predictability regarding their revenue, companies are able to manage their expenses more accurately. The challenge of lumpy revenue models is that you can’t know how well you did until the quarter or the year is over. With monthly recurring revenue, it is easier to increase or reduce expenses to match revenues.
4. Flexibility. Monthly recurring revenue brings flexibility that benefits both your consumers and your company because there is no need to rewrite a contract if their needs change. You can increase the subscription to expand or speed it up, or decrease it to slow provision down.
5. Visibility. Unexpected changes in business won’t completely blindside you if you know where you start each month and where you can expect to end up. Thanks to your monthly recurring revenue model, you can make business decisions a year in advance. If unexpected changes occur, there will be plenty of warning and time to adjust.
6. Durability. With monthly recurring revenues, you never start a month with zero. Thanks to accurate forecasting and in-depth insights, you can use the collected information to reduce risk when making important decisions regarding taking on new business or reducing churn rates.

Thanks to the subscription model, tracking and reporting MRR, churn, customer lifetime value (CLV), and sales become more simplified. You will be able to predict monthly revenue minimums and maximums based on the types of subscribers and the number of subscribers.

Why is the Monthly Recurring Revenue Metric Important?

Monthly Recurring Revenue (MRR) is one of the most important metrics for financial growth, and it is just as important for management as it is to individual sales reps. Other important metrics include sales rep productivity, customer retention, average sales price, and growth rate, but at the end of the day, MRR shows the amount of monthly recurring revenue that your customers are willing to pay for your products or services. Investors judge the performance of companies and their teams, divisions, and individuals based on MRR. It is the foundational metric for examining sales rep and team performance.

1. Budgeting

It is challenging to run a successful business if there is no steady income stream. Monthly recurring revenue tells you how much money can be reinvested each month. The revenue you’re bringing in is one of the deciding factors when determining whether you can run a lead generation campaign or hire more business development representatives for the next month. If you’re experiencing cash flow disruptions and struggling to make a profit, you can identify MRR trends over a specific time period that might indicate financial trouble.

On the other hand, if your monthly recurring revenue is going up, the MRR metric can motivate your sales team – as they close high MRR deals and build momentum, they will be much more engaged in their roles.

2. Tracking individual, team, and division performance

With MRR, sales reps can see the size of the deals and accounts they manage. If your company is struggling to hit the MRR quota from month to month, you should take a closer look at the deals with high monthly recurring revenue that you’ve closed. Are there any similarities among the customers? Was there anything specific that you did throughout the sales cycle that impacted the sale positively? By focusing on these details, you could modify your sales approach to start closing higher MRR deals.

Besides the individual performance of sales reps, business leaders, and sales managers can look at the big picture to see how the division is performing as a whole. By calculating MRR, the sales department can make more precise sales projections and forecasts, which helps the sales team plan for short-term and long-term growth. MRR can be calculated in two ways: determining the monthly recurring revenue per customer or using the average revenue per user (ARPU).

Customers Love the Business Model

It is easy to retain customers who love businesses that make things convenient for them; a subscription-based business model offers that. Besides the recurring revenue for your company, this business model offers convenience to your customers, such as:

• No more anxiety about running out of supplies or losing service due to missing payments (thanks to an automated billing system)
• No more need for repeat shopping thanks to automatic delivery of products/services
• Thanks to a predictable monthly fee, budgeting becomes more manageable for customers

To investors, the value of predictable recurring revenue is the primary appeal of the recurring revenue business model (especially in comparison to one-time transactions). For example, a $10 million business with 80% recurring revenue can count on $8 million at the beginning of each year, and that figure is predictable and stable. The company’s management can invest and plan accordingly. On the other hand, we cannot say the same for a $10 million business with no recurring revenue because that company starts each year at zero. It can plan and make predictions based on past financial performance, but there is no contractually obligated revenue stream for it to base its plans around.

Furthermore, a solid subscription-based business has robust customer insight for marketing or cross-selling, as well as excellent customer retention. In terms of pricing, recurring revenue models are often much easier to operate (when compared to other retail models) because they only have to manage a few pricing tiers (instead of an array of individually-priced products).

With in-depth insights and business intelligence, what you need to grow your recurring revenue business is the right accounting services. Depending on what type of accounting services are the most suitable for your needs, you can opt for outsourced, in-house, and back-office solutions. Consero Global can help ensure that your executive team is making the right moves and implementing the best management strategies to keep your business growing. Besides our experienced staff, what we bring to the table are cloud computing technologies and advanced financial management solutions that will help you achieve operational efficiency and financial clarity.

(filmed June 4, 2020)
Consero’s Private Equity Roundtables enable Investors & Portfolio CEO’s/CFO’s the opportunity to gain valuable understanding and share actionable information for the middle-market tech and PE community.

Panel:

The conversation was led by Natalie Townsend, VP of Sales for Consero. Consero is a Finance as a Service provider whose portfolio of clients include over 130 sponsor-backed software and services businesses that range from $10M to $200M. Natalie shares trends, tactics and observations that we are seeing in the small to mid-market space during this economic disruption.

Holly Maloney – Managing Director of General Catalyst
Holly invests in and partners with disruptive, growth-stage software driven businesses. General Catalyst is a venture capital firm that makes early-stage and transformational investments. General Catalyst backs exceptional entrepreneurs who are building innovative technology companies and market leading businesses, including Airbnb, BigCommerce, ClassPass, Datalogix, Datto, Demandware, Gusto (fka ZenPayroll), HubSpot, KAYAK, Snap and Stripe.

Tyler Newton – Partner, Catalyst Investors

Tyler Newton is a growth private equity and growth stage venture capital investor. Tyler is a Partner at Catalyst Investors, a leading growth equity firm focused on investing in high-growth, middle market private companies in technology-enabled services sectors. He currently focuses on investments in the software, food tech and business services sectors.

Thomas Kershisnik – Managing Director, Five Elms Capital

Thomas Kershisnik is a Vice President at Five Elms Capital, a leading growth equity firm that invests in fast-growing, SaaS and internet-enabled businesses. Five Elms partners with growing, founder-owned software and services businesses, providing capital and resources to accelerate growth and further cement their role as industry leaders.

Tanner Cerand – VP of Investment Research, Build Group

BuildGroup is an operator-led investment company that provides permanent capital to entrepreneurs building the next generation of technology businesses. Prior to joining BuildGroup, Tanner was responsible for building and leading research & business development strategies at Vista Equity Partners. Before Vista, I worked at Gerson Lehrman Group (GLG), UBS Investment Bank, and Ferris, Baker Watts, Inc.

Condensed Notes from Panel Discussion:

Raising Capital Amidst Covid-19: What is the current obstacle course for Private Equity? 

• There is still money in the market and ready to be deployed to help brands grow. The biggest change lies in not the money itself, but the appetite for uncertainty.

The changing outlook on valuations:

• The outbreak has turned every investor into an impact investor as they deal with the unfolding human and economic fallout of this market disrupter. A combined humanitarian and financial catastrophe requires a business approach that looks beyond the bottom line.

How are PE/VC firms evaluating market in Covid 19:

• Need for understanding the impact of portfolio companies as they touch every corner of the economy
• Map critical stakeholders and develop a communication plan for each stakeholder group to maintain trust and reputation. Focus on cascading quality communications to portfolio companies
• Business that are exclusively focused on travel, teleconference, finance and enterprise security – basically all ends of the exposure spectrum
• Net new investing activity that are certainly on those which may work significantly like healthcare, telehealth, remote work, enterprise security and other digital consumer service model that have excelled dramatically
• Focus is on area which is well known, and not getting to know new investors/enterprise
• Investments are active as innovation and business cycle don’t stop
• It’s the understanding on how pipeline conversions are taking place for the next two quarters what is the cash collection going to look like, need to make sure the businesses are well capitalized
• Great businesses are still raising money in this environment
• Activities on both Investor side and investing side are pretty strong

How to make investments more virtual

• No more an option for meeting publicly for conference or flying. People are trying to maximize the Zoom option.
• The combination on so much dry powder available more than ever with public equity market
• A big reset in valuation is expected. Big companies are still getting well-funded and healthy valuation.
• Need to work to make those connection in this virtual world

How is the remote conference working to make transaction virtual

•  Depends on the nature of the conference if the conference is one of the industrial balances where larger companies are trying to develop new customers relationship or to know the thematical understanding of the business rather than knowing them individual level
• Companies have put good resources to meet more people, big companies spend time with people and they want to see how its going to work virtually
• The companies have their own agenda that they set to get productive
• Investment banking conference which is typically set up to meet companies back to back through out the day is quite productive because here it is focused discussion without any distraction
• Bank conference where we have on one on one are more efficient
• Concentration of capital is seen and businesses spend lot of time to know who got funded this week
• The more usage of tools is required to create this special experience in long lasting trans

How is the Portfolio company progressing working remote?

• Business have seen success. PE portfolio companies are being efficient. Product and Development teams’ productivity is higher
• Establish a common crisis response structure for portfolio companies — one with clear responsibilities and direct accountability
• Taking reviews and taking foot prints helps, it’s a big eye opener
• Update scenario plans and agree on actions to cover a 3-6 month impact and a 12-18 month impact, as well as a process to update these plans weekly
• Need to bring team together, analysis is on what it is going to happen from a year now if people are continuing to work from home
• What do you to about the counter aspects and that busy culture at the office but it is still working fine
• Need to recreate the environment for the young and new recruits as everything is starting virtually for them and need to induce them to culture of organization
• How you maintain culture, build rapport and inclusion that in the virtual world

How is the Traditional Enterprise Sales Module going to get digitalized?

• Explore the new option, know the new platforms, more usage of Software and tools that allow collaboration and able to crisply articulate the value of proposition of what is sometime a complex sale remotely – especially inside the enterprise security
• Building a strong social media presence is essential for digital sales
• We often find companies that have excellent operational discipline but fail to apply a similar rigor to sales
• Improving the odds, unifying the digital experience, connecting the digital supply

How is the Management getting to know the executives?

• Establish structured daily check-ins
• Provide several different communication technology options
• Everyone knows that this is less than an ideal scenario which demands more time commitment
• Upfront of the understanding having more frequent dialogues, having more connection points on one to one basis across the whole executive team and more frequency of connection is what expected and welcomed
• It is not the management getting to know the team/executives it is time where team getting to know the management. More direct interaction is complemented.
• Need to be creative with respect to references and sort of engagement scores of the company and study the NPS of the culture of the businesses
• Dynamics of the team and the scale ability of the company helps
• Early stage partners say that this is the better time than ever to understand the people
• This is really humanizing element like how world is getting to know each other now. More casual discussion needs to be encouraged.

Advice to the companies who want to raise funds now:

• It’s good idea to start early in building relationship. Less travel is involved. People will have more time to have that 30min to 60min Zoom call before necessarily hit the capital.
• High velocity outbound calls to potential portfolio investments are welcomed. Volumes with respect to travel have gone down from 40% to 30% but the quality of conference calls which is an internal measure of the quality of business have gone up.
• Quality calls are divided into two groups one is the companies that are planning to raise capital other one who are trying to explore their options and just trying to know more investors.
• More than 50 thousand dollars is spent for these market studies and to know any basic facility available that can help
• Deals are getting closed without having met people personally, it is time ad value on how to meet people effectively via Zoom
• The biggest component that is missing is the ability to enter the company and to sense the company’s culture, energy and style. You can absorb a great amount just sitting in the lobby of the office. How to sort through executive dynamics, collaboration and working style is something needs to be figured out.

If any funds fell through during COVID what is the need of reevaluating it now?

• Those long list of committed but not yet closed investments during COVID. Days’ worth meeting when COVID hit to understand that fundamental long-term structural shift in whatever these businesses is specifically dealing with.
• Reassessing helps to keep the promise in terms of funding

What could be done differently if the situation was known two months prior?

• Conserving cash flow in business. Using capital wisely to grow the business and stay on it.
• Gathering good resources in team can change the things to to the good.
• In such downtime companies think of staying stiff on the position rather than getting large share in the market
• Scenario planning in each company is must. Practical conservative plans need to be put in place to know its effect. Analyze the structure, capital efficient growth would last.
• Sales has been trimmer here and there, a plan on how many sales person is required can help

How are you using your Brand/Voice to speak up about the standing?

• We do have a recognition and platform and extensive reach to portfolio companies so it is not only our direct voice it is also about our extended support to empower the voice of the companies we have invested
• We insist companies to make a statement of standing of solidarity and support and acknowledgment of everything which is going right now
• We have been operating for little while but not systematically, we have to try to do better. It’s almost like dancing on the thorns, it’s not what you did yesterday and tomorrow. It is all about day in and day out what you do for the next part of the year to make the world a better place.
• In industry network is huge part of success that everyone enjoys. Be it a investor side or Enterprise side.
• Help someone excel. They may not have the same connections or networks of the ecosystem that you do. How can you make connections for the folks that could be potential life changing and can make changes to the industry over long term.
• What we do as investors is build strong relationship through investments
• CEO’s completely shift in their business model because of COVID and get back on the right track and are seeing the successful of those efforts

What kind of companies are PE/VC targeting?

• From short term thematic perspective view we made some short-term sprints that we worked on to both potential value-oriented investments and momentum investments.
• Certain industries that we have deep roots like for really long period of time, for example travel industries
• For us it is to think how we envision that world of travel is going to change, what are the new business models and experiences
• From the B to B software perspective we are tying to understand the friction of the market cycle
• How do we make sure we invest in the short term, behind the great business that have amazing natural expansion within our customer base
• It may be more challenging to acquire net new customer; how do you make sure you have backing platform so that they can expand in relatively low friction environment
• Ability of the business to survive from good time to bad is something that more investors are keeping eye on
• We believe best business model win, this concept of modern business model around. If SaaS is leading a world just, SaaS is not enough anymore.
• In those places where it has got effected, digital players are the one who are getting share. SMB’s are trying to come up back faster

 

Customer retention is defined as the act of keeping existing customers that your company has already spent money to acquire. Attracting and acquiring new customers costs about 5 times more than keeping a current customer (in some industries, it may cost up to 30 times as much). Many enterprises assume customer retention is the most important performance indicator, so they focus more on customer acquisition, leaving their existing customers unsatisfied. In fact, customer retention is probably the most underutilized strategy in the business world, despite being powerful and leading to many opportunities that newly-acquired customers cannot give you. This is especially true for recurring revenue businesses that operate on a monthly subscription model.

Recurring Revenue Business Model

A company can make a profit in many different ways. It can get money through banking or private equity/venture capital investment, selling goods and services for cash, renting assets for a limited time, etc. For example, selling goods and services is a one-time transaction that can bring you a lot of money, but not as much as it could if you were to sell them over a longer period of time. When you rent an asset, you are responsible for the wear and tear, and you don’t have access to that asset while it’s rented.

With the advancement of technology, a model has grown to become one of the dominant forms of doing business: the subscription economy and recurring revenue businesses. In the past, people used to subscribe to things like magazines or utilities, but today, this business model has become ubiquitous. Just a few years ago, this business model was thought to be impossible, and the opportunities it brings can bring tremendous benefits for everyone involved.

Types of Recurring Revenue

There are three common types of recurring revenue in business:

1. Long-term contracts

When a company sells products or services on a contractual basis, its customers are bound for the previously-agreed-upon length of the contract to pay month-to-month. Typically, contracts don’t renew automatically, so once the contract expires, the parties can decide to revise, extend, or decline the terms of the business.

2. Subscription revenue

Businesses that follow the subscription revenue model charge their customers a recurring fee that’s processed every month, quarter, or year. Subscription revenue is powerful because of how growth compounds over time – revenue accumulates with each new customer instead of remaining flat month to month. The longer customers use your product or service, the more valuable they become. Since customer retention is cheaper than acquisition, businesses focused on retention will save on customer acquisition costs.

3. Supplementary purchases

For example, if you buy a quality shaving razor, you will have to keep buying replacement blades. After a significant initial purchase, regular purchases of supplementary accessories are sold at a discounted price. Despite being an old business model, it is a growing category of recurring revenue.

Why is Customer Retention Critical?

One of the most important metrics for a growing company to evaluate is customer churn because it accurately quantifies its customer retention. Customer churn is the percentage of clients that stopped using your business’ product or service during a specific time frame. Churn rate is calculated by dividing the number of customers lost during a certain period by the number of existing customers at the beginning of that period. The lower the churn rates, the higher the customer retention rate.

The reasons why your customers leave can be many, and they range from personal to preventable. However, the most common reason customers leave is that they don’t believe that a company actually cares about them – 9 out of 10 customers abandon a business due to poor customer experiences. But the good thing is that customer churn is within your control. All you need to do is find out how to improve your customer service and project management practices to make your clients feel valued.

However, customer retention is undervalued, while customer acquisition gets all the attention. The truth is that retaining existing customers is a much easier way to generate recurring revenue and is critical for the long-term success of your business. Customer acquisition does generate the initial sale, but retention brings in additional recurring revenue. The main reasons why customer retention needs to be the foundation of your company growth include:

• Affordability. Money spent on marketing means money spent on attracting new customers to your business. However, marketing changes once you add customer retention to the mix. When you focus on retention, you won’t need to spend as much money on marketing. This doesn’t mean that you should abandon marketing; you should supplement certain marketing methods with ones that cater to retention. It can cost you five times more (in some industries, up to 25 times more) money to acquire new customers than to retain existing ones.
• Better ROI. A mere 5% increase in customer retention can increase your revenue by 25-95%. In other words, even the smallest improvement in customer retention can translate into a substantial positive impact on your ROI.
• More referrals and word-of-mouth marketing. People loyal to a brand often become brand ambassadors and are more likely to refer their contacts to your company. When it comes to acquisition strategies, good word-of-mouth is one of the best strategies out there, and it’s completely free. Customer acquisition can happen naturally when you make retention a priority.
• More sales stemming from customer loyalty. You know that your existing customers already love your product or service, which is why it’s much easier to sell more to them than to newly-acquired customers. According to research by Bain & Company, retained customers spend more money and purchase more often than newer customers because they have learned the value of your product or service. Better customer retention will, therefore, convert more sales with a focus on upselling – offer your current customers upgrades or additional features to make more profitable sales.
• Increased customer lifetime value (CLV). Customer lifetime value is the expected profit that you get from each customer in your business. The better your customer retention, the higher your customer LTV. The aim is to spend as little money as possible on customer acquisition and gain more money through customer lifetime values.
• Getting more valuable feedback. Loyal customers always love to feel like brand collaborators. If given the opportunity, they will provide suggestions and opinions on your products/services or customer service. Having such an influx of ideas can help you see your business from another perspective and determine ways to improve your business. Also, it will have a positive effect on your retention rates because customers are more loyal to businesses that listen to and implement their customers’ feedback.

In the center of every great customer retention strategy is customer satisfaction, and you should measure it through data-driven analysis. If your customer churn rate is going up, the best way to reduce it is to stop gathering new leads and double down on your customer retention efforts. Unfortunately, many companies out there focus on new revenue, which can turn out to be an expensive mistake, once you understand the benefits that customer retention provides.

Some of the best and easy-to-implement customer retention strategies for a subscription business include:

1. Understanding your KPIs. Engagement and usage rates are the best indicators of customer value and satisfaction. Also, customer feedback and support requests are vital metrics. Make sure that you keep accurate reports on such data.
2. Making data available to everyone. Customer data should be available to all your employees so everyone knows where customers are within their journey. That will lead to more proactive engagement, and your customers will be at the center of everything you do (customer-centricity), which is much easier to achieve when everyone has the same understanding of the customer.
3. Building momentum. Keep talking about tomorrow in order to foster excitement within your customer base and inspire interest in your company.
4. Using the right communication platforms. To listen to your customers the right way, you need to use the communication platforms that they prefer. That way, you’ll always be available to help or answer questions.
5. Improve your customer service operations.

Creating a loyal base of customers is the most desirable outcome for any business. Pursuing and acquiring new customers is thrilling, but the real value for recurring revenue businesses is in customer retention. The subscription economy has empowered modern consumers to think short-term – they can opt-in, cancel, and leave freely at any time. But as for your retention strategies, they should be based on long-term thinking.

For a recurring revenue business, customer retention is king, so find ways to focus your business efforts on creating and maintaining a dedicated and loyal fan base. In the long run, you will achieve revenue growth, but you’ll also find that these strategies are more effective and easier than any customer acquisition strategy.

When it comes to improving customer retention rates and developing the right strategies for making it happen, you need to rely on detailed business analysis and know which metrics you need to follow and how to calculate them. Consero offers a financial solution (including expert support and intuitive systems) that can help you better understand your business from every angle.

The coronavirus (COVID-19) outbreak has drastically altered the world as we know it. As a global healthcare crisis, it has swept across all countries. As an economic event, it brings about market downturns, widespread uncertainty, and hardship for consumers, businesses, and communities. As the virus continues to affect the globe, even the largest firms in the world are worried about the magnitude of its economic effects, especially if lockdown measures are drawn out.

Amidst the numerous businesses being affected by the pandemic, private equity firms find themselves in a unique situation where multiple companies, with hundreds of employees, are looking for guidance. While this was always the case for the private equity industry, the fast-moving and unknown variables that COVID-19 brings to global private equity and private markets will require them to re-examine crisis response strategies, products, and processes to survive the downturn. This will mean looking for ways to preserve resources while increasing productivity. One of the best ways to gain a competitive advantage is by outsourcing non-core but important tasks to professionals. We will look at how PE firms can leverage outsourcing to enjoy cost savings in these difficult times.

Outsourcing – Finding Your Footing During a Crisis

Many companies are experiencing significant losses and reduced cash flows during the COVID-19 crisis. Numerous measures are being taken to ensure the critical aspects of the business continue running at maximum capacity.

Among the chaos created in the reorganization, many businesses have to sacrifice quality as they temporarily redirect resources. While this can get you through the initial stages of the crisis, it will not be enough to keep you afloat in the long term. To maintain the quality and efficiency needed to get through the downturn, many private equity firms turn to strategic partnerships with outsourced technology solutions and services providers. This is because of the benefits and effectiveness the “as-a-service” business model has to offer, especially when it comes to financing and accounting – something all businesses need to stay on top of during the crisis.

Importance of Finance and Accounting During a Crisis

Many businesses affected by the crisis are looking to handle the initial impact of events and restructure their business. This means they are looking into crisis management and business continuity measures for the short and long-term. During this critical period, businesses will need to keep a close eye on all of their activities and resources. The goal here is to cut costs and unnecessary expenses as much as possible.

This means that CFOs in charge of PE firms will need up-to-date and accurate insight into the financial situation of companies to make forecasts and create business continuity plans. This brings about the need for a good accounting team. When it comes to accounting and finances, businesses have the option of going the traditional way (In-House) or outsourcing to a third party. In order to determine which of these two options is better during an economic disruption, we are going to look at the two options.

In-House Solution vs. Outsourced Solution – What is Best During a Crisis?

In-house (traditional) and outsourced finance and accounting systems offer different workflows when managing the accounting and bookkeeping of a company. Some businesses are not accustomed to the idea of Finance as a Service, and they prefer to stick to the traditional method. The idea of having on-premise employees dedicated to the task sounds better than having a remote team handling your finance and accounting. However, the current pandemic has shown us that this is not always the case. Businesses that were once wary of outsourcing are seeing the potential benefits of an outsourced solution.

In-house solutions are considered by many to be an outdated and expensive option in the modern world, particularly if you are still using legacy accounting systems. With lockdowns forcing many to work from home, digitally transforming your company not only becomes a competitive advantage but a necessity. And if your teams are working remotely, you should also be leveraging cloud-based technology solutions. Outsourced solutions already leverage digital technology and can help companies during their transition.

Maintaining a traditional finance department carries many expenses and demands numerous resources — everything from the initial hassle of vetting applicants to the management and costs of the team. The worst part is that there is no guarantee you will find the perfect person to handle your financing and accounting. This, in turn, results in changes or additions to the team being made down the line.

What Outsourcing Has to Offer

With technological advancements in recent years, traditional approaches are not always best when it comes to managing your company’s financial standing. Outsourcing your accounting enables a professional team to handle some or all of the accounting processes, relieving you from managing full-time employees, while still enjoying the benefits. What exactly does Finance as a Service have to offer?

• Professionals in the field: Outsourced partners work with a variety of businesses and have a team of professionals who can jump in and assist at any moment. This means that you will not be limited to a few individuals. You will have on-demand access to the expertise and experience of an entire team. In addition to that, you will also be able to customize services to your current needs.
• The Latest Processes: If you are looking to make use of the very best systems and processes while reducing operating costs, then outsourcing is vital. It ensures you will have access to all important information whenever you want, eliminating paper-based processes that can slow things down. Such systems can dramatically improve efficiency, and essential staff members will have more time to focus on the important tasks.
• Accurate and Timely Reporting: Outsourcing your finance department means that you will always have a team on standby to handle financial reports. Combining this with integrated systems that track all metrics means that you will have immediate insight into your financial situation whenever you need it.
• Technology: The world has changed, and companies need to embrace digital technology, advanced analytics, and cloud solutions if they want to stay relevant. What this means for financing and accounting services is that they need modern solutions for problems. This comes in the form of accounting software that eliminates the need for non-integrated software or spreadsheets. Instead, you will have a platform that consolidates everything you need, with numerous dashboards that provide on-demand and easy to understand information.

Financial Benefits of Outsourcing

We have seen some of the things that an outsourced solution has to offer to a private equity leader. Now is the time to see how these services can help PE firms save money during a crisis.

●     More Cost-Effective

One of the biggest reasons people choose outsourcing solutions over traditional ones is the price itself. With outsourcing, you only pay for what you need, making it possible to get work done for a lower cost than if you were to employ an in-house team. When it comes to employing a finance staff, particularly management teams, remember there are regular salaries to be paid, along with health insurance, vacation pay, and other fixed costs.

●     Scalability

When work is outsourced, it removes the need for developing infrastructure. Scalability is another reason why people turn to outsourcing solutions. It provides a business model that meets your needs, regardless of your size or demand. They are not dependent on company scaling. In times of a crisis, this is extremely valuable because it eliminates the problem of having a full team when there is not enough work. This means that you will not have to pay a fixed amount for the services you get. Instead, you will be able to add or subtract services as your company fluctuates.

●     Increased Productivity and Efficiency

When you have a traditional in-house team working in your office, they will likely be handling every aspect of the job. Unfortunately, this means splitting time between big tasks and less critical tasks. Such a system can cause bottlenecks in workflow, resulting in the company having to wait longer for projects to finish. Outsourcing tasks to professional companies not only ensures that the work is done well, but it also frees up time and energy to invest in meaningful projects that will get you through the crisis.

Given the conditions of the global economy and the uncertainty we face within the next few months, PE firms must find ways to adapt and survive in the current economic climate. This will mean getting creative and looking for ways to save money without sacrificing quality. Outsourced solutions are the perfect way to do that. Consero offers services that will give an overview of your financial capabilities, enabling you to plan for the changes you are facing.