How Private Equity Firms Maximize Portfolio Value by Outsourcing Finance & Accounting

To strengthen and continuously improve their private equity portfolio, private equity firms need to go beyond the traditional role of being a mere provider of capital. With ROI always in mind, due diligence is a must. Unfortunately, the whole process can be time-consuming. Entire management teams need to work tirelessly to come up with a business plan that would secure a stable portfolio growth.

With more regulations coming in every year, this can prove to be a considerable challenge. Laws and regulations, like the Alternative Investment Fund Managers Directive (AIFMD) & the Foreign Account Tax Compliance Act (FATCA), require private equity firms to deliver timely and accurate financial reporting. All of this can have a significant impact on efficiency and portfolio value. Here’s how your private equity firm can maximize portfolio value by outsourcing finance and accounting.

Outsourcing finance enhances growth

To reduce the costs of their whole operation, PE firms are always on the lookout for new solutions and new partnerships for their portfolio companies. Sometimes even a simple management consulting session can bring massive value to your firm.

Great outsourced solutions have financial experts that are fully aware of the market conditions. This means that they know what you need to do and when you need to do it with your private equity portfolio in mind at all times. This doesn’t only cut costs but also helps you focus on performance management. In turn, finance and accounting are entirely managed by a third party company that offers innovative technological solutions and skilled staff for your portfolio companies. This removes the necessity for an in-house accounting staff but also opens a new value creation path for the PE firm and their portfolio.

Efficiency as a high priority

With the regulations mentioned above in place, a portfolio company must have instant access to the insightful financial information that is accurate and delivered in a timely matter. This creates a few possible problems private equity portfolio companies might face:

  • Lack of high quality and skilled staff
  • Outdated systems that won’t allow in-depth analysis
  • Lack of internal control which may result in bad reporting

In a time where regulations require complete transparency, outsourced finance and accounting can be the solution to all of these problems. Financial institutions can benefit immensely from this shared service model. By outsourcing repetitive tasks to a service provider that will likely use their advanced solutions to automate them, a CFO can focus on core issues and better align with the overall goals of the business. It is worth mentioning some key benefits before we move forward:

  • On-demand financial reporting and accounting
  • Full insight into your firm’s investment strategy and planning
  • Access to advanced software and technological solutions

The role of technology and software

Top finance service providers have access to the very best software solutions that help your portfolio to achieve top line growth. These tools help with a better organization within the company but also bring access to new information. In short, these tools help with reorganizing and improving outdated systems that are slowing down growth and productivity. These software solutions usually come with a high cost, and that is another reason why a portfolio company would instead reach out to a third party then handle the total expenditure on their own.

Access to trends and information

With an in-house accounting team, it could be hard to keep up with technology and regulations. Outsourced teams have a huge advantage because their staff isn’t necessarily working in one office. Thanks to outsourcing, they can hire the best talent worldwide and be sure that they are up to date with their information. Access to such staff would unlock value that wasn’t there before. They can continuously provide valuable info about upcoming trends and how they can affect your business plan. With risk management always in mind, they will have the best intentions towards your portfolio and your company’s growth.

Repeatable results

When hiring a third party solution to manage your finance and accounting, it is essential to know that their reputation can mean a lot. If they had a lot of satisfied customers in the past and a strong history of helping private equity firms grow their portfolio companies by increasing efficiency, this should mean that they can repeat the same results. In an industry that is continually evolving, it is vital to stay on top of things. Institutional investors, private equity firms and their portfolio companies are learning that outsourced accounting comes with significant benefits, so it is no wonder that finance as a service is growing in popularity.

Regulations require efficiency and transparency

Accounting can be a real hassle if you can’t keep up with regulations. They are continually changing and improving, giving your accounting staff less time to focus on the numbers. Finance as a Service helps portfolio companies to deliver timely reports with full accuracy and transparency. They are there to make sure everything regarding the company’s finance is in perfect order. This ensures quality reporting with lower operational costs. Private equity portfolio companies need to keep their finances in check, and financing as a service gets the job done efficiently and cost-effectively.

Conclusion

By looking at the market conditions in the investment space, it is evident that PE firms need to stay competitive now more than ever. To do that, they must understand regulations and plan their ROI accordingly. If the accounting staff within their portfolio companies isn’t skilled enough, the whole process could be slowed down. To make the right decisions, a fund manager needs full insight into the company’s financial health at all times. It is now clear that outsourced accounting saves time and helps set a clear path toward portfolio growth. It has become common knowledge that all private equity firms are aiming for this. Doing your due diligence before making the final pick is highly advised.

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How Could Outsourcing Finance & Accounting Help Your Private Equity Firm?

To achieve the level of productivity and efficiency that allows a private equity firm to maintain financial stability and ability to scale, many PE firms have decided to outsource accounting for their portfolio companies. Using the ‘as-a-Service’ model has become a standard in almost any industry, and it should be no surprise that Finance-as-a-Service has become a popular option in private equity.

 

While a good accounting team is essential to your portfolio’s financial operations, maintaining an in-house finance department can take its toll on any organization. It burdens human resources and recruitment because it requires them to find skilled experts for their accounting departments. With outsourcing, an outsourced professional team handles some or all of the accounting processes, relieving you from managing full-time employees. Here are the top ways outsourcing finance and accounting can help your portfolio companies.

Outsourcing saves money. This is not just a statement; it is a fact. Hiring and maintaining a finance department in your portfolio companies is time-consuming, and doesn’t always guarantee the desired results. This requires several full-time employees and internal controls, which in turn slows down the whole business process. Outsourced accounting is quite the opposite. The fractional use of finance lets you spend more time scaling without the high costs of maintaining an accounting staff. The outsourced team takes care of your financial reports and managing while you only pay for the services provided.

Another big factor is efficiency. Having a third party handle your finance means more time for your staff members to focus on essential tasks rather than handling repetitive accounting processes. Companies that need flexibility and scaling can benefit from being freed from tedious manual activities. Tasks are distributed more efficiently, and all of your resources are allocated depending on your goals and needs.

Outsourced bookkeeping usually comes with advanced technology and systems. Small and mid-market companies in your portfolio may find it hard to keep up to date with finance in general. There are constant changes in the system, making it challenging to keep up will all new information. Accounting service providers offer complex software solutions that closely monitor your cash flow and accounting activities. A cloud-based accounting solution could be one of them. You don’t have to worry about the costs of acquiring specialized accounting software, which can be expensive. Outsourcing to the right service provider means that you gain not only access to their expertise but also their technology.

Outsourcing financing and accounting allow better process and accuracy. Manual accounting is replaced with streamlined workflows that will help you scale. Rather than handling everything on your own, a team of professionals will work on the best scaling strategy for you. They will also handle time-consuming tasks like analytics calculations, risk assessment, and many more. This means less room for errors and better workflow within the organization. The CFO will only need to focus on core business growth in this scenario.

Having an in-house accounting team limits your talent choices. Hiring staff members will require them to come and work in the office, which means that your options become limited. This is not the case with outsourced financial teams. They have access to global talents and are only willing to work with the best because they want to stay competitive in the market. Thanks to the advancements in information technology, their team members can work remotely and provide support to their clients around the clock.

Traditional solutions vs outsourced solutions

Updating outdated finance and accounting systems is a time-consuming process that requires a lot of work. Usually, a recruiter would onboard new talent and test with a few different candidates. This results in a long process of reforms that may or may not bring the desired results. This gives no guarantee that at the end of the day, you will have a staff that is capable of managing your finance and accounting.

If you outsource your accounting, you may opt for Finance as a Service (FaaS), and this comes with a lot of benefits. On-demand financial reports, transactional processing, efficient financial management, and a professional management team are just a few that are worth mentioning right now. But what exactly does your portfolio get from such an approach?

New and updated systems – the very best systems and processes are mapped to your portfolio company in one to three months, in turn, reducing their operating costs significantly. Apart from the financial aspect, these new systems can dramatically improve efficiency within their staff that will have more time to focus on the important stuff.

Accurate reporting – When you outsource your finance department, you can count on timely and very accurate financial reports that are standardized with SIMPL©. With timely and accurate reports, your portco executives have a clear view of the financial situation within the business, which can lead to better decision making.

Scalable teams and repeatable results – By outsourcing, you take a big step toward scalability. The team doesn’t depend on company scaling, so if your portfolio companies continue to scale, they can be supported with enough resources. An outsourced team has a working management plan already in place, so if they had great results with previous clients, you could expect the same.

Conclusion

Outsourcing finance and accounting for your portfolio companies can be an excellent boost for your private equity firm. It provides more time for scaling and growth while at the same time giving the CFO peace of mind. Management reporting becomes completely autonomous, and your requests are handled promptly. With a clear overview of your financial capabilities, you will be able to make better decisions and scale accordingly.

The Guide To Outsourcing Finance & Accounting For Investor-Backed Businesses

If you want to grow your business as a private equity firm, lowering operational costs and maximizing ROI across all portfolio companies should be your starting points. However, as your PE portfolio grows, so will your finance and accounting needs within your portfolio. To keep up with the demands of expansion and continue to meet accounting regulations, many portfolio companies have turned to outsourcing their finance department.

When it comes time to scale your business, maintaining an in-house staff means needing more office space and equipment. It also requires full-time employment wages and benefits and constant employee training. By outsourcing accounting, portfolio companies can reduce costs, free up office space, and lessen the financial burden that comes with an in-house accounting team.

Outsourcing to the right Finance as a Service provider that has the latest tools and software also means removing the repetitive tasks involved in accounting, which creates more time for fund managers to perform high-value work efficiently. The CFO can ensure their strategic position in the company which means more time for team management and focusing on core business issues.

Outsourcing financial operations in your portfolio could be the key to ensuring growth for your PE firm. However, there are still some common misconceptions and unknown benefits of outsourcing. In this complete guide, we will discuss how outsourcing can help your private equity firm. We will also provide tips on how to find the right outsourced finance and accounting service for your portfolio company.

What is outsourcing and how it can help your private equity firm

In this day and age, outsourcing has become an industry standard, and outsourced accounting is no exception. The BPO market has seen significant growth in net worth and efficiency. Their access to global talent has removed the need for local recruiting and opened a lot of new opportunities for private equity. Your portfolio’s HR staff could take months to find the right person to handle their accounting functions, and the physical location of the office makes the options very limited. Having a hiring manager handle the whole process can be costly and time-consuming, as a result.

By handing your accounting tasks to a remote team, you gain access to the full benefits of outsourcing. Timely and accurate reports are just one of the reasons you should consider using Finance as a Service. Overall, business operations are made easier, and the accounting process is automated thanks to your outsourced team. Apart from simple accounting tasks, an outsourced partner can provide you with a thorough financial analysis of your operations and, in turn, help you make better business decisions.

Outsourcing vs. Offshoring

Outsourcing is often confused with offshoring; however, these are two different concepts.

When a company outsources a part of their operations, they hire remote teams to perform the tasks for that department. IT support, sales support, customer service, and manufacturing are just a few tasks that can be outsourced, but financial operations fall under that category as well.

Offshoring, on the other hand, requires a business to move certain internal operations to other countries. Offshore staffing is just as hard as local staffing and also has limited possibilities when it comes to talent and expertise.

Why should you consider outsourcing?

There are many reasons to outsource parts of your internal operations, but when it comes to accounting, there are three main reasons to consider outsourcing tasks.

  • Scaling
  • Reduced operational costs
  • Access to skilled experts without busting your budget

Scaling a portfolio company isn’t easy with a sizable back-office. Expanding your operations requires more office space, more tech support, and investments in equipment such as desktop computers, laptops, phones, and so on. By setting up an outsourced team, your portfolio company won’t need to spend more funds on these improvements and additions. In most cases, outsource finance comes at lower rates, which means that more funds and resources can be allocated towards scaling.

Having access to financial experts also allows for better financial planning. Outsourced solutions hire freelancers that are the best in the business. These experts can provide valuable information that can help you conduct a thorough internal audit. Outsourced financial experts help private equity firms evaluate the exact state of financial health within their portfolio and help discover new avenues of income for those companies.

Pros and cons of outsourcing company accounting

The pros

Outsourced solutions help you monitor cash flow and implement accounting rules. Financial regulations are constantly changing, and keeping up with these changes is no easy task. When you start with outsourcing, a remote team will keep track of these updates and implement them when they are needed.

The distribution of in-house tasks is simplified and focuses on efficiency. Hiring an in-house financial manager or accountant can be a costly investment but a reasonable one as well if you outsource your financial management, accounting, and bookkeeping. This leaves room for promoting your financial manager to CFO, leaving one person to overlook internal finances while other staff members focus on core competencies.

Outsourcing provides access to advanced technology and resources. Accounting software development has seen huge advancements in the past few years. These software solutions can simplify your business planning, but they also require a certain level of knowledge in information technology. Outsourced solutions often provide access to advanced software that can come at a high cost if you want to purchase it for your company exclusively. Accounting outsourcing not only comes with no added cost to access these advanced software solutions but also a talent pool that is capable of utilizing the software in the best possible way.

Outsourcing helps your organization reduce operational costs and focus on core business activities. Increasing staff numbers requires more staff managers, and this can lead to bad internal organizing. By moving your staff members around to find the best position for their skills, it is easy to lose sight of your core organizational skills. By outsourcing specific tasks, you free up more human resources. They can then be allocated to positions that best fit their level of expertise and free up a big part of your budget in the process.

The cons

Choosing to outsource may mean facing some cultural differences and language barriers. The outsourced partner you choose may have finance experts that are outside of the US, as this is a common practice. This is not always the case, as some service providers focus on local talent only.

Another downside to outsourcing is that day-to-day control is limited. While this is not necessarily a con, it is worth mentioning that your portfolio company won’t have complete day-to-day control over the remote team. Since they aren’t physically located in their office space, they will have less influence on them. However, this isn’t an issue when you choose an experienced service provider that you can trust to be reliable.

You might end up in a locked contract. Some outsourced solutions require you to sign a long-term contract with them. As a result, you may end up paying unplanned fees if you decide to change your service provider. It is very important to pay attention to the contract details and find a reputable partner. This way, you are minimizing the risk of locking yourself into a contract.

What finance roles are most commonly outsourced?

It is estimated that financial management is the biggest sector for outsourcing globally. With constant market growth, it should come as no surprise that the demand for outsourcing is constantly on the rise. The most outsourced financial functions include claims processing, financial data management, financial analysis, payroll processing, tax auditing, financial report preparation, regulatory and reporting compliance, risk assessment and risk management, and budgeting. There are many others, but the two most commonly outsourced financial roles – bookkeepers and accountants.

Having a virtual assistant in bookkeeping can do wonders for your overall business process. Bookkeepers make sure your financial transactions are in check, they work on preparing financial reports but also take care of completing payroll and balancing ledgers. This can be exhausting for an in-house staff member and is best handled by outsourced professionals.

Accountants take care of expenses that have already taken place but aren’t recorded by bookkeeping. It is virtually impossible to complete income-tax returns without them. Accountants are also responsible for valuable consultation with business owners, helping them understand the impact their financial decisions may have and how they should be handled. Having an expert in this field can be a big bonus for a portfolio company for obvious reasons, and it should come as no surprise that this is one of the most outsourced financial positions globally.

How to pick the right financial outsourcing partner

The Finance as a Service provider’s track record reveals a lot. If their reputation doesn’t spark confidence, it is probably best to look elsewhere. Your selection process should be thorough because outsourced accounting works both ways. It can help you scale rapidly, but bad choices can lead to some serious financial problems in the future.

How much are you willing to spend? Calculating the cost of running in-house accounting should help you understand how much you can spend on outsourced accounting as well. It will almost always come with substantially lower costs, but finding the right price can be tricky. Striking a balance between affordability and the level of expertise isn’t always easy, but looking at different pricing models should give you a good sense of the outsourcing market. The ones with the lowest prices aren’t always the best service providers, but that doesn’t mean that you should dismiss them completely. Spend time on research and ask questions when you need answers. This should help you in finding the best pricing model for your portfolio companies.

Learn to value experience. As we already mentioned, a bad outsourced partner can have a negative impact on your financial situation. When looking to utilize Finance as a Service, you should have experience in mind at all times. If the company is in business for years and has a proven track record of satisfied clients, they are probably worth checking out.

Communicate and ask questions. This should go without saying, but it is worth mentioning. Communicating your needs to your potential partners can be very helpful. Define your goals as clearly as possible and evaluate their capability of handling your accounting.

Look for companies with great communication. During your Q&A sessions with potential service providers, you will be able to determine who is a good communicator. If they have the level of expertise to match their level of communication, you should consider hiring them because you want clarity and efficiency in your business operations. Getting clear and timely answers from your partners can sometimes determine the very outcome of your next investment.

How to get started with finance outsourcing

Once you have made a decision to outsource your finance & accounting tasks, it is very important to understand why you are doing it and what benefits it would bring to your company. Start by evaluating your in-house staff and calculate the cost of growing the business. Are there any additional roles that would bring benefit to your business? By making a list of skills that are needed for scaling, you will make your search for the right outsourced partner a lot easier.

When making calculations don’t overlook some very important factors:

  • Calculate how much you could potentially save by outsourcing
  • Calculate how much time outsourcing would save
  • Set clear goals and expectations
  • Outline a detailed outsourcing schedule and figure out when and how you want to outsource these roles

Once you have determined your goals and needs, it is time to start speaking to different service providers and figuring out the best solution for your portfolio’s financial management.

Understanding the benefits

It is now clear that a portfolio company can have considerable benefits from Finance as a Service, but it is important to understand them fully. Outsourcing has a big emphasis on flexibility since staffing solutions are as flexible as they can be. Depending on your scaling needs, staff members can be added or deducted by your outsourcing partner. This gives a portfolio company more time to focus on core business development rather than spending valuable resources on in-house staffing.

Software solutions allow for a streamlined process of accounting. A fully automated system causes fewer distractions for fund managers and CFOs, meaning that they can shift their attention to more important matters. As regulations advance and change, there is no need for additional spending to train your back-office team. Experienced outsourcing solution providers are always up to date with the recent changes and will provide timely updates.

It is important to know that outsourcing partners want to understand your business policy and goals. They will provide the best resources to advance your scaling more efficiently but also take away as much responsibility as possible. By hiring only the best worldwide and local talent, you can rest assured that your outsourced partner will have your best interest in mind. A highly-skilled financial staff provided by an outsourcing solution completely removes the need for further investments in office space, training, and staffing.

Conclusion

Constant regulatory changes and increased demand for transparency can slow your portfolio growth down significantly. Keeping up with financial reports and accurate accounting can become a real hassle for in-house teams. It is more than clear that the need for Finance as a Service is on the rise, and your private portfolio companies can reap huge benefits from it. Depending on your goals and needs, outsourcing can help with scaling and overstaffing by greatly reducing the costs of back-office operations. Investments in equipment in training are minimized so you can focus on more important matters such as ROI.

It is worth mentioning that Finance as a Service doesn’t only help portfolio companies; it helps PE firms as well. By spending less time on financial reports and having a clear overview of your financial health, you can make better and more predictable decisions. Fund management is made easy by automated solutions that allow for more interaction with clients.

Whatever your needs may be, it is hard to overlook the numerous benefits financial outsourcing brings. When a company outsources accounting and finance, it creates more room for ROI and scaling. By spending less on salaries and staff training, more funds can be allocated for further investments. With the help of an experienced outsourcing partner, you will have access to the very best information that concerns your business. Skilled staff members can provide valuable consulting and help your company understand how your business decisions have an impact on the financial situation.

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Fail-safe finance for roll-ups

Private equity firms embarking on buy and build strategies should have a plan to effectively scale the finance function, says Consero Global’s President, Bill Klein.

Imagine the ideal roll-up scenario. A GP acquires a platform company at a discount, then guided it through an acquisition spree, eventually consolidating a huge swath of the market into a single industry leader. Sellers are now lining up to make their bid, only to discover inconsistencies with how the revenue was recognized at some of the underlying entities.

That’s hardly a deal breaker, but it changes the tenor of the negotiations, and might shave some points off the price. Now before we judge this imaginary GP too harshly, it’s crucial to appreciate the challenges in managing the finance function during a roll-up process. Bill Klein, the President of Consero Global, identifies three core issues that PE firms need to address in scaling the finance function in these situations.

“First, there’s a question of personnel,” says Klein. He explains that these smaller entities often will have staff that isn’t the right fit for larger institutions with their more rigorous processes, and there’s always a matter of turnover, especially among junior staff. “Second, there’s often inefficient processes, that were adequate for a smaller enterprise, but can hinder the consistency and quality of the financial reporting.” And finally, Klein notes that the very nature of buy and build strategies involves merging siloed and disparate data and systems.

“But if they can develop a process to quickly align the right people, processes, and systems, as soon as they complete an acquisition, GPs can move quickly to making the most of that latest acquisition,” says Klein. Naturally, that’s a tall order as a platform company onboards one entity after another. Klein advises focusing on four key building blocks* to prioritize when looking to tackle the finance function.

The right software stack

Small businesses can cobble together what they need from various desktop accounting applications, but as the platform company grows in size and complexity, that won’t be sufficient. “We’ve seen some platform companies struggle as they try to use Excel, but that can get complicated and even dangerous when it comes to stating revenue,” says Klein. He suggests making sure all the software solutions are integrated and extensible, so it can synch with CRM systems and grow as the Company does.

F&A staff with a range of skillsets

Klein explains that upgrading staff involves appreciating that finance and accounting talent varies. These roll-up strategies require a mix of skills, including “maintainers,” who focus more on transactions, and “builders” who can dive deeper into accounting matters, manage integration issues with the new entities, and implement additional software capabilities. “Without the full range of skill sets, a CFO can be distracted with the core functions of the finance unit, and not be able to think strategically about that next acquisition or making the most of what’s just been acquired,” says Klein.

The right kind of reporting

It’s obvious that any business needs consistent and timely reported data, but with roll-ups, they need both GAAP-compliant financials, and another set of books that exclude expenses related to the acquisition, so that the business leaders and the GP can examine the actual performance of a given entity or a product line.

So much of a private equity firm’s investment case is built on finding synergies, getting rid of inefficiencies and knowing what deserves more resources, which are all driven by the financial data. “So there needs to be a financial system that can manage those two sets of books, and if it’s just spreadsheets, that could lead to trouble,” says Klein.

“Say you have a business of urgent care centers, spread across the country,” says Klein. “The GP will want to review the financials not just by each center, but by each service, say a particular kind of blood test, and view the performance across all locations. And for that, they’ll need reporting that can do that.”

Centralize, standardize, automate

Synergies are baked into the investment case of every buy-and-build strategy, but they need to be earned with discipline and a deliberate process. In the case of the finance function, Klein highlights three key phases: centralization, standardization and automation.

First, processes need to be centralized, as trying to standardize tasks over a distributed org structure can be difficult. “We had a chain of yoga centers and they were relatively close geographically, but were still decentralized, so that every change in process, even as small as how an expense was coded, had to be introduced to each location separately,” says Klein. “So we first had to centralize certain tasks to remove that burden.”

Once processes are centralized, they can be standardized, so that as new entities are brought aboard, those processes remain consistent across the platform. And once there are standard practices, then the enterprise can find what tasks can be automated. “AI-enabled software can be powerful, but they have to be directed at the right repeatable tasks to deliver a healthy ROI,” says Klein.

A checklist is just the beginning

Klein knows that just because a process can be distilled to four easy steps, doesn’t mean it’s easy. Each step requires time, attention and judgement. “Private equity firms will often tap a more experienced CFO to run that platform business, but what good is that high-level strategic talent if they spend all their time just trying to get basic financial reporting right?” asks Klein. He stresses that Consero can step into a new company and accomplish all four steps in one to two months. “But that’s only because we’ve done this countless times before, across a range of industries,” says Klein.

It’s true, that over time, as roll-up strategies become more common in private equity, there will be in-house experience to guide the process, but even here, GPs might prefer to expend their intellectual capital finding the best ways to identify and integrate potential targets in a roll-up strategy, rather than how best to scale the finance function. Either way, the scaling of the finance function will have to be addressed or that ideal roll-up strategy can turn into something that no LP or GP wants to dream about.

(* White Paper – How to Build a Scalable Finance & Accounting Platform for Successful Rollups)

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Why BV Investment Partners leveraged Finance as a Service to grow and improve the finance function of their portfolio companies

The middle-market private equity firm BV Investment Partners felt the finance teams at their portfolio companies were slow to scale and report data reliably. We spoke with Justin Kustka of the firm about what happened when they turned to Consero Global for help.

Industry observers like to stress that private equity firms can focus on long-term value creation at their portfolio companies, instead of facing the quarterly pressures that publicly-listed companies do. However, time is still of the essence. Their investment thesis often requires a radical transformation of the Company, or at least a radical uptick in growth and performance, all within the five to seven years that firms typically own
these companies.

So for private equity, the time frame is longer, but the stakes are just as high. The industry has enjoyed a long fundraising boom largely because portfolio companies so often accomplish more in less time than their public peers, even if they don’t face a quarterly verdict. Therefore, anything that slows or hinders a strategic initiative can jeopardize the outsized returns that LPs have come to expect.

BV Investment Partners subscribes to this “move fast and build things” motto, and it’s what allowed this middle market firm to thrive since 1983, with a recent close on a $750 million fund. So we sat down with Justin Kustka, a Principal with the firm, and asked what role Consero plays in the firm’s success.

Q: What caught your firm’s attention about the finance function at the companies within
your portfolio?

JM: One of the big pain points when we make an investment is the building and scaling of our finance teams. This includes the reporting of financial data, so that its streamlined and reliable. And our portfolio company CFOs can often get buried under a load of repetitive and less value-added tasks, so they don’t have a chance to address larger strategic issues.

Q: How did you address these problems in the past?

JM: Historically, if we wanted to improve the finance function from a talent perspective, we would look to recruit and to add to the team, most often through a recruiter, which would be a slow and prolonged process, adding a staff member one at a time.

The other piece of upgrading the finance function is technology. A lot of our portfolio companies don’t have particularly sophisticated systems, so right out of the gate, we think through the potential solutions, and scope out the different products we could implement. Then we select one option and go about implementing them, which can take almost a year.

The hardest part of this approach is we’d have to wait so long to discover if that system or new hire would work. Nine or ten months later, we might realize that this solution isn’t effective and have to start over, which is time we’d rather not waste.

Q: What made Consero intriguing to your firm?

JM: The Consero model was really interesting because it’s a solution that’s been fine-tuned over years and years. It’s purpose-built for addressing the pain points that I identified. They can come in and implement a system in months, and we can eliminate the sourcing of a given system and all the time needed get it up and running. And on the talent side, their team and resources can scale as quickly as we can grow. We’re not managing recruiters or wondering if the perfect candidate is even available.

Q: What’s Consero done for BV’s portfolio so far?

JM: So we’re using Consero at five or six of our companies at this point, which range from pure play technology or SaaS companies to tech-enabled services, of various sizes. These are often growing business that simply haven’t had the luxury of taking a close look at the finance function. Frequently, we’ll tap Consero right after the deal closes, but there are occasions where later in the life of an investment, we know the finance functions needs to grow and improve, so we bring in the Consero team then.

The fact is that Consero has allowed us to offload a lot of the back office and administrative workflows so the portfolio company isn’t burdened with the tactical elements of the finance function any longer. Now our CFOs are able to focus on more strategic decision making, and analysis, things like add-on acquisitions, enhancing growth strategies and providing better services for our customers. They get to collaborate with functional leaders to maximize value across the business. Everything from scaling the sales team, to developing the right marketing metrics, they can focus on the best ways to drive top-line growth.

For the portfolio companies using Consero, the biggest impact has been more timely and reliable reporting, which allows us to get info faster, and that translates into swifter and more consequential insights into the value creation at those businesses.

Q: How does Consero’s “Finance as a Service” approach differ from traditional
outsourcing of the accounting function?

JM: For us, “Finance as a Service” is a full solution as opposed to the traditional models that are more periodic or lumpier for the delivery of the solution. “Finance as a service” is repeatable, predictable and scalable and that’s a big differentiator in our mind.

We view Consero as a full finance factory for our portfolio company, from a people, processes and technology perspective. Here on the investment side, we don’t have to worry about it as we scale a portfolio company.

Q: What would you want a potential client of Consero to know?

JM: What stood out to us has been Consero’s user-friendly approach that starts at the implementation and the scoping of the project, but continues through the ongoing relationship management and day-to-day operations. It’s a big reason we’ve used them at so many of our portfolio investments, and why we refer them to our peers as well.

Beer with a CFO: What finance & accounting mistakes can lead to a lower valuation?

Have you heard about outsourcing a company’s finance and accounting with a Finance as a Service model? It is by far the best way to plug into a well-tested finance and accounting function with the right processes, technology and skilled finance team to help you stay focused and add value to strategy. 

Consero provides Finance as a Service, and we have devised a way to help anyone with the advice they need, remotely, through various forms of media. One of our more well-known mediums is the series called Beer With a CFO, where we take on an individual guest each week to discuss pressing financial topics with our Director of Marketing, Bridget Howard.

In today’s episode, we delved deeper into private equity, investing in the future, and finance and accounting mistakes. Our revered guest, the CFO of ActiveProspect, Jessica Hamilton, derives from an Austin-based marketing SaaS company that offers lead optimization and compliant solutions for companies that dabble in online lead generation. This bootstrapped company has experienced rather rapid growth since it was founded. Their CFO joins us to talk about their growth story and confidence that is essential to achieve a 50% year-over-year development. 

ActiveProspect’s CFO has also had some experience in raising capital, as well as exiting a company and selling a business. Having been a finance lead at the time, we asked her to talk about some finance and accounting mistakes that can be made to lower the valuation of a business. 

Emphasize the Growth Story

Jessica emphasized the importance of one’s confidence in their growth story. She stated that it’s essential that your pro formas and the story is truly believable before even approaching a potential investor. You have to be able to back them up with facts and truly believe in them yourself. If you don’t, it’s unlikely that anyone else will.

Back it up with Data

In addition to that belief and your genuine interest, you will need to further back it up with data. This makes it essential to have your data in order, not just in the sense of financial aid, but also product data, customer retention data, all of the KPIs, your financial data, information about your customers, what verticals they are in, etc. Across the board, having your data house in order is critical to protecting that valuation and supporting the confidence in your own growth story. 

Unique Product – Stickiness

Thirdly, one of the vital details is the stickiness of the products with customers that have been supporting you and your business since the very beginning. Customer lifetime value is critical for companies that characterize themselves as high-growth mid-market companies. 

So what is being done today to protect the valuation of ActiveProspect? They are contemplating bringing in their first round of financing, and they are hyper-focused on getting started early. Ultimately, investors are not investing in the past; they are investing in the future. And they want to understand your data today. Most importantly, they want to know about the data you’re expecting tomorrow, which is why you must not let the data go stale. Only refreshing it, digesting it, and gathering insights from it is enough to be able to have the most relevant conversations with investors. 

The Bottom Line

The bottom line is  – get started early, invest in software and people to get all your data available across the organization and be prepared for a lot of tough questions. 

 

 

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Carveouts Culture counts

Carveouts: Enhancing the culture of the finance & accounting group

When PE firms carve out a business unit to create a standalone entity, they shouldn’t neglect the culture surrounding the finance group, according to Mike Dansby, VP of CFO Services with Consero.

The lasting popularity of carveouts isn’t a mystery. Private equity groups can snag attractive assets that might have been neglected under a conglomerate’s stewardship. The parent company can shed subsidiaries to please noisy shareholder activists or reflect their own shifting priorities.  The market for carveouts remains vibrant as the wave of mega-mergers in recent years creates plenty of opportunities and PE firms have advanced their skills in this style of investing over the last thirty years.

This doesn’t mean that carveouts are ever simple. Their complexity is precisely why their prices are lower when compared to straight forward auctions. PE groups are offering their own sweat equity to create a subsidiary that can thrive all on its own. And no small part of that effort involves building various functions at the company that were once the responsibility of the parent.

The finance function is frequently centralized with the parent, leaving private equity firms to create their own solution for those tasks. But it’s not just a question of how a GP staffs or designs the process, although that’s important. “It’s also about building a culture around that finance group that gives them a voice beyond reporting the numbers,” says Mike Dansby, VP of CFO Services for Consero Global, a provider of outsourced Finance as a Service solutions.

Terms like “building a culture” can quickly devolve into a meaningless phrase nestled in an annual report or touted at this year’s LP Meeting, one that has no impact on how the business is managed. Everyone agrees that culture matters, but there are plenty of people who can’t articulate how that culture manifests itself in the org structure or strategic priorities.

Parental support

Dansby argues that carveouts often require that the new standalone business view the finance function in an entirely new light. Consero recently worked on a company that was being carved out of a parent that was less than 10% of the parent’s revenue. “The finance group was centralized in that larger company, so it had very little visibility to that subsidiary’s managers,” says Dansby. In fact, the subsidiary didn’t have a single devoted finance manager; they were merely a portion of that manager’s work portfolio.

“And within a company of that size, the unit doesn’t usually worry about money in a sense,” says Dansby. “They know that the parent would give them a budget and manage them in the context of being a smaller part of the overall business. The stakes of financial decisions were in some ways, lower.” However, as soon as a private equity firm acquires that unit, all of that changes.

“Those numbers that didn’t matter when there was a parent handling their finances, suddenly matter a lot,” says Dansby. “Performance may have always been top of mind, but now cashflow becomes a priority as well, since there’s no parent to step in and solve it. There’s a whole new level of accountability. A number that may have just been a number inside that conglomerate, that number becomes a central concern.”

And with PE ownership, that unit has a brand-new priority: enterprise value. “Private equity firms are there to increase the enterprise value of the business, so every decision is made with an eye on that, since it will determine how well that investment performs,’ says Dansby.

Beyond “bookkeeping”

So now, the finance group is tasked with a lot more than bookkeeping and reporting the numbers. The financial data has to be gathered and deployed in order to manage and grow the business. And the original managers of the unit may not appreciate that at first. Dansby explains: “In the case of that small subsidiary, they nodded when we said they’d need to build the finance function, and assumed they needed to add one financial manager and a clerk.” This told Dansby that they were only thinking of finance in the sense of the most basic accounting functions.

During due diligence for a new assignment, Consero will always take a holistic approach to serving that finance function. They’ll discern what, if anything can be brought over from the parent company, from staff to systems. “That ERP solution for the large company doesn’t make sense for the unit all by itself, and even if there are dedicated systems to that unit within the conglomerate, can it do what the independent unit needs it to do?” asks Dansby. Again, the technology needs to match the finance group’s new level of accountability and importance to the business.

Of course, the x factor in any conversation about culture building is the actual people. Is their staff willing to stay with the Company? Are they willing to learn new processes and meet the new demands of a stand-alone entity? “We find from time to time that folks will be resistant to change. After all, they may have twenty years’ experience with two or three companies to back up their choices,” says Dansby.

Consero will often argue that given their work with hundreds of companies within a client’s own industry, their processes have worked in practice. “More often than not, we can prove that our simpler, streamlined processes are an improvement, and they’re happy with the new process.”

Private equity firms can also play a role in building this culture by arguing for the resources and new processes to meet the new demands of the finance group. Dansby explains that when staff has been especially resistant to their approach, they’ve been able to convince the PE owners to step in and vouch for the reforms.

There’s a reason that carved out units are so often referred to as “corporate orphans.” They can be neglected, as they no longer fit with the parent’s strategic priorities, and they’ve not yet proven they can stand on their own. But an empowered and properly resourced finance function can do plenty to help that orphan grow into a thriving business, one that delivers on the promise of its investment case. And that’s a culture that certainly counts to the bottom line.

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The complete guide to outsourcing finance and accounting

The complete guide to outsourcing finance and accounting

Because an organization’s financial operations are a core function and crucial to sustaining its long-term success, it’s easy to assume that its finance and accounting structure should remain in-house where the business owners can maintain control. However, it’s because finance and accounting are so vital to an organization’s financial stability and health that decision makers should be compelled to turn to outsourcing finance and accounting.

In this comprehensive guide, we will discuss how finance and accounting affect the valuation of your company, why you should consider outsourcing your finance and accounting, areas of finance and accounting to outsource, and how to find an outsourced accounting service provider.

How Finance and Accounting Affect the Valuation of Your Company

If at some point, you need to seek funding or intend to sell your business, you need accounting valuation to value your company’s assets and liabilities. From cash flow to future performance and financial leverage, many factors determine the value of a company.

Factors like growth prospects and earnings history play crucial roles in the valuation of your business. The person appraising the value of your business will want to take a historical look at your income trends that may or may not devalue your business. They will want to examine your financial records to identify potential for future growth, which will increase valuation. Therefore, outdated and inefficient transactional processing and a lack of formal documentation policies or financial controls can hurt your business and impact the valuation of your company.

Consistent maintenance of accurate financial records is crucial to a company. It tells your financial story, showcasing your success while exposing your weaknesses. However, this transparency is crucial in making informed decisions. With accurate finance and accounting records, you can decide how to reinvest in your company, evaluating cash on hand and anticipated costs that may impact cash flow.

Because the structure of your finance and accounting function is vital to the success and growth of your company, you need accurate documentation and records, processing, proper support, formal policies, and financial controls. Unfortunately, not all companies, particularly fast growing  businesses, have the time, expertise, or leadership to ensure their finance and accounting department keeps them competitive.

Turnover, outdated systems, lack of talented in-house finance staff and inadequate budget to hire a strategic CFO can put the companies valuation at risk. For these reasons, companies outsource their finance and accounting. Outsourced accounting service providers can customize their services, providing companies with only the financial services they need to fill their gaps.

Businesses without an in-house CFO can benefit from C-level expertise and experience through fractional CFO leadership. Alternatively, a company that has an in-house CFO can become empowered when outsourcing to a Finance as a Service provider that provides reliable back-office services and customizable best-practice based processes.

Reasons Why Organizations Decide to Outsource Finance and Accounting

The finance department encompasses bookkeeping, controller services, financial planning, and analysis. It involves a myriad of tasks to ensure the upkeep and maintenance of the books and compliance with regulations and policies.

If an organization wants to scale, it will need to ensure its current employees can keep up with the demands of expansion. However, if they are bogged down with tedious, manual tasks, there is little time and energy to train and develop their skills for growth. Beyond ensuring their staff is equipped for expansion, management also must explore cost-effective strategies that minimize their overhead while remaining competitive.

Outsourcing has become a solution that offers many benefits, helping many companies maintain financial stability and scalability to achieve success. Here are the top reasons why companies decide to outsource their finance and accounting operations.

Salaried Staff vs. Fractional Professionals – Outsourcing your finance and accounting means reduced costs for your company. You would only need to pay the outsourced provider for the work they provide. The fractional use of finance and accounting professionals allows organizations to scale their operations without the high costs of maintaining a salaried accounting staff. When you don’t have to maintain full-time employees, you don’t have to factor in the additional costs of workers’ benefits like payroll taxes, medical insurance, vacation and sick days, and retirement plans.

Outsourcing also alleviates your human resource and hiring department of the burden of recruitment. Hiring new talent can be a long process. It involves placing job ads to attract talent, reviewing applications, screening, and shortlisting potential candidates. And once the right person has been hired, more resources will be needed to onboard and train them. It costs time and money to train new employees effectively. There’s also the cost of productivity loss if training means getting your workforce involved.

Help the CFO Focus on Core Business Growth Activities – Progressive CFOs know that they are of little value when they spend the majority of their days performing in-house transactional work instead of leading their finance team and focusing on high-value work. As modern leaders, they know that their competitive differentiator relies on their proactive decision-making, creativity, and analytical insight.

By outsourcing redundant and repetitive tasks, CFOs can use their valuable time and energy to lead the organization towards growth. With outsourced services, the CFO is supported by a team that manages all the daily financial needs. This team will also establish the financial controls that safeguard and monitor revenue and expenditures and implement enterprise accounting software.

Efficient Distribution of Tasks – Outsourcing frees your staff from the mundane and repetitive finance and accounting tasks so that they can focus on high-value work. An outsourced accounting service provider is ideal for companies that need to focus on their flexibility and scalability. Instead of leaving your staff to handle time-consuming and cumbersome tasks, they can add more value to your organization by getting further training to take on supervisory and other decision-making roles.

Access to Global Talent – Hiring an in-house finance and accounting team can limit your talent choices. You can only hire those who are either local or willing to relocate to work at your office. When you outsource, you gain access to a vast talent pool that may exist anywhere in the world. Advanced tools and technology allow top accounting talent to work remotely and efficiently from virtually anywhere and give you real-time visibility into your business finances.

Advanced Technologies and Systems – Small-to-medium enterprises may not always be updated on the latest finance and accounting applications. They may not have the expertise and knowledge on how to leverage them. And for many smaller organizations, these tools may be too expensive. External finance and accounting service providers invest in these technologies.

Therefore, when you outsource your accounting to experienced accounting service providers, you benefit from the advanced tools, technologies, and applications they use, transforming your outdated operations into modernized systems that are agile and strategic. This allows you to upgrade your operations without the high costs of buying and maintaining expensive accounting software and tools.

Better Processes and Accuracy – Finance and accounting service providers can support your daily financial operations thanks to their team of highly experienced professionals whose only focus is to deliver streamlined systems and processes that will help you scale. Armed with the right skill set and technology, they ensure that your finance and accounting operations run efficiently and effectively.

When you outsource, you can eliminate old-school manual accounting methods and replace them with automated and more streamlined workflows. Automating tasks like expense claim audits, analytics calculations, risk assessment, bank reconciliations, and analyzing and matching payments to invoices not only relieves your staff of the drudgery of time-consuming tasks, but it also significantly reduces the risk of errors.

Areas of Finance and Accounting to Outsource

Outsourcing finance and accounting to an accounting service provider doesn’t mean giving up your entire in-house team. The beauty of outsourcing is that you can choose the areas to be outsourced. For some companies, this means keeping their entry-level bookkeepers and outsourcing a fractional CFO. For others, outsourcing finance and accounting means maintaining an in-house CFO but outsourcing all the transactional financial processes. Here are the logical places to begin when it comes to outsourcing financing and accounting.

Bookkeeping and Back-Office Support – Outsourcing your bookkeeping can help your company address common issues most bookkeeping and accounting departments face without increasing staff costs. With outsourced bookkeeping, your in-house team is freed of burdensome back-end office tasks that can result in high employee turnover rates. With the right outsourced services provider, you can expect expert advice. You will also receive comprehensive reports that increase financial data visibility, which will lead to improved and informed decision-making. These include:

  • Account Reconciliations
  • Customer Billing and Payments
  • Deferred Revenue
  • Employee Expense Processing
  • General Ledger
  • Financial Reporting, Tax Reporting, and Reporting Automation
  • Foreign Currency
  • Month Close
  • Multi-Entity & Multi-Currency Consolidation
  • Order to Cash
  • Payroll Administration/Services
  • Procure to Pay / E-Payments
  • Subscription/Maintenance Renewals Management
  • Time and Expense Management / Expense Services
  • Vendor Invoice Processing and Payments

Controller Services – Outsourcing your controller services can help grow your business to the next level with controllers that provide accurate and timely reporting, financial analysis, and strategic guidance and management. Controller services typically involve:

  • Audit Report
  • Compliance Management
  • Employee and Vendor Communication
  • Management Reporting
  • Policy Adherence
  • Policy & Procedures Guidance and Adherence
  • Transactional Processing Oversight

Financial Planning and Analysis (FP&A) – Outsourcing your financial planning and analysis can help your business if your in-house finance and accounting team lack the expertise, time, and resources to drive financial performance and put you on the right track for growth. By outsourcing FP&A services, financial experts can give you an in-depth evaluation of your organization’s financial position, supporting you in the following ways:

  • Acquisition Integration Support
  • Audit Support
  • Board & Bank Reporting
  • Business Decision Making
  • Company Financial Data Analysis
  • Financial Leadership
  • Investor Communication and Reporting
  • Management Reporting and Narrative
  • Planning, Budgeting, and Forecasting

How to Find a Great Finance as a Service Provider

Not all Finance as a Service or outsourced finance and accounting  providers are created equal. So when it comes to hiring an outsourced partner, you need to find a third-party solution that has the industry experience, certified staff, and service architecture that can elevate your business operations and performance. The following are conditions you should look for when deciding on the right accounting service provider:

High-Quality AI-Powered Technology – The whole purpose of finance and accounting outsourcing is to have a third-party service provider that will relieve your staff of mundane, manual tasks that cost you time and money. Therefore, the accounting service provider you outsource should be equipped with advanced tools and software that automate these tasks.

Cloud-Based Software Solutions – To benefit the most from artificial intelligence, you need a solution provider that can help you centralize your system, standardize it, and automate it. With all your financial data stored in the same place, you increase efficiency, share data effectively, and lower the risk of accounting errors significantly. When you outsource a team that leverages cloud solutions, you not only benefit from streamlined accounting processes but lower IT costs as it relieves you of the high costs of infrastructure and maintenance. Working from the cloud also results in the flexibility to scale your services to fit your unique needs because it is highly customizable.

Proven, Streamlined Processes and Controls – Great providers create value and give you a competitive advantage through business process excellence. The right outsourced service provider has a proven track record in designing and managing finance and accounting processes that save time and automate manual tasks that would otherwise waste employee talent and reduce morale and productivity.

The implementation of best-in-class systems and processes fast-tracks your organization towards growth and innovation. Only the best systems, processes, and controls can gain insight into your financial performance and health to eliminate silos, fill gaps, and improve productivity. They should also be able to guarantee internal controls for risk mitigation and data security.

Experienced Team – From entry-level bookkeepers to interim CFOs, the best outsourced finance providers can meet a variety of finance and accounting staffing needs, which include consulting services, finance services, and bookkeeping services. Because centralizing and automating your systems is a huge undertaking, you need to rely on an outsourced provider composed of experienced finance professionals who have fully developed and tested the technology.

However, the gauge for experience shouldn’t only be based on years of experience. Also, look into quality and industry knowledge, business intelligence, and their ability to leverage and manage technology-based solutions effectively.

Methods and Metrics for Measuring Success – As previously mentioned, accurate and proper transactional processing and reporting are crucial to your company’s valuation. The accounting solution provider you hire should make it a priority to not only implement the software but also provide the service of improving financial reporting. Therefore, the ideal finance and accounting provider should have developed methods and established metrics and KPIs that measure success and identify errors.

Ability to Provide Detailed Financial Reports – Investors and stakeholders will need to see performance reports to assess the financial health of the company. A great Finance as a Service provider is ready to provide detailed cash flow statements, income statements, balance sheets, financial statements of shareholders’ equity, and other relevant financial reports. The Finance as a Service provider must be able to achieve all this while maintaining compliance, particularly when it comes to taxes, audits, SEC reporting, and so on.

Collaborative and a Good Culture Fit – Cloud-based accounting software allows you the ability to view real-time data and access your financial data from virtually anywhere. This makes working with the service provider easier and more efficient. The right finance and accounting service provider should be keen on providing financial visibility through comprehensive financial reporting. You will work best with a Finance as a Service provider that has a service culture and value proposition that is willing to align with your company’s vision and mission for growth.

Conclusion

The right outsourced accounting firm and Finance as a Service provider should not only understand the financial side of your business but also have the knowledge and insight into your industry. They should be able to fill your finance and accounting gaps with modern software solutions and best practices. They should also be prepared to learn the complexities and uniqueness of your business, along with its specific financial goals.

Consero is a fully managed solution that implements the software and provides the service. Our cloud-based, AI-powered software is unique. It incorporates Simon, a voice-activated AI technology that functions similarly to SIRI and Alexa, but for accounting and finance.

With Consero, we customize your solution based on your in-house team structure and company goals. All of our teams are led by a high-level VP of Finance that manages a dedicated team experienced in handling transactional accounting. Depending on what model you choose, you may be more actively involved in managing the team, or you may be purchasing our growth model where we would play more of a management role. To discuss outsourcing your finance and accounting outsourcing and our customizable solutions, request a demo today.

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Back Office Holding Back 3

Graceful exits: Why Private Equity firms embrace Finance as a Service to ensure a swift and smooth due diligence

Private equity firms shouldn’t discount the role that sound financial operations and processes can play in selling a portfolio company, says Chris Hartenstein of Consero Global.

If fundraising was the sole metric of success, private equity could take regular victory laps these days. But investor enthusiasm for the asset class only speaks to their faith in future performance. Exits remain the sole arbiter of a firm’s track record, and GPs have been keeping assets longer these days, holding out for the best possible opportunity to sell. So when the right buyer arrives, it’s even more important that the due diligence process is swift and smooth.

Which is why we’re talking with Chris Hartenstein, Managing Director of Consero Global, to discuss the role that financial operations can play in creating the best impression for a potential buyer. Consero provides a Finance as a Service solution to a growing number of private equity-owned companies and has assisted GPs during every step of the investment cycle from initial due diligence to exit.

“One of the biggest factors in completing a sale is trust in the financial statements,” says Hartenstein. “If the buyer can trust that those numbers are reliable, they can trust their valuations that determine the offer are solid.” Most times when Consero begins working with a portfolio company, it is discovered that the financials are in disarray. “Sometimes we find that a Company hasn’t reconciled some accounts for six months or even a year,” says Hartenstein.

That means that a Company has to spend the time preparing the numbers for any buyer to review, and that can erode the enthusiasm for a given asset. But Hartenstein argues that once Consero has stepped in and deployed their processes and procedures, the books are quickly buttoned up and numbers are easily accessed. “When a buyer asks us for a bunch of schedules and we’re able to deliver them within the day, that makes quite the impression,” says Hartenstein. In one instance, Hartenstein saw a deal close thirty days after the LOI.

For a lot of companies in the lower middle market, it can be difficult to run the finance operations with best in class processes. They might have grown too quickly for their current financial staff resources, or simply not needed the rigor to process vendor bills or client invoices any faster. It’s one of the reasons that buyout firms will often tap Consero to step in and tackle the financial operations of a portfolio company they’ve just acquired.

One of the tools that Consero uses to “button up” the books, is ControlDock™, Consero’s proprietary system that works to calendar every task within the finance function and place it in a workflow. Nothing is considered closed until it gets the appropriate approvals from Consero, or the client’s Controller or CFO.  There are hard closes every month, with reviewed support schedules to match.

“This way, nothing falls through the cracks,” says Hartenstein. “And when a buyer needs a certain data point during due diligence, it’s right at our fingertips. SIMPL® is Consero’s financial management console that gives clients 24/7 access to everything from financial dashboards with real-time information at a glance to transactional level details and support documents all in one place.

Consero makes financial data accessible so the team isn’t drowning in requests for information. Working with Consero means that during a sale process, the portco’s finance staff doesn’t have to create anything from scratch.

Successful Exits: A case in point

A recent example of this is when PayPal, Inc. acquired Consero’s client, a payment processor named Hyperwallet.

  • Client Name: Hyperwallet
  • Size: $65M revenue with 325 employees
  • Industry: Online Mobile Platform
  • PE-backed by: Primus Capital
  • Acquirer: PayPal, Inc.
  • Exit Transaction: $400 Million
  • Pain Points before Consero:
    • Frequent turnover in finance function, CFO too consumed with daily financial operations and not on strategy,
      financial reports  were created in Excel and needed more analytics
  • Consero Solution: Finance as a Service
    • Consero handles all back-office finance & accounting  (transaction processing, closing, reporting) and FP&A
    • Benefits: Greater business continuity, time back to focus on the business, confidence that financials are timely
      and accurate, faster and more informed business decision making, optimized accounting
      policies/procedures/process flows
  • Savings compared to In-House: 30%
  • Client Highlight: CFO, Hyperwallet
    • “With Consero, I was able to focus on the transaction and not worry about getting the financials in order. Their
      professional finance team and processes inspired confidence for everyone involved in the due diligence
      process.”

Consero’s Finance as a Service solution can be kept in place even after an exit transaction. “In many cases, the acquiring firm sees how efficiently and accurately we handled the finance function for our client, so it isn’t a pain point for them,” says Hartenstein.

Frequently, even when smaller companies are acquired by larger strategic buyers, Consero remains on board. “Often, the buyers simply have more urgent priorities,” says Hartenstein. When another private equity firm is a potential buyer and they have an accounting firm like PwC look at the financials, they soon realize there’s no need to restructure the financial operations. “Even if the PE firm ends up replacing the CFO, we have a training process to get them up to speed on how best to employ us,” says Hartenstein.

Successful exits are never merely about how buttoned up the books are, but one way to look at the value of sound financials is that the numbers tell the story of all the value a private equity firm created during its ownership. If that story is confusing or poorly told, or not substantiated quickly and adequately, the buyer may not always wait around for the seller to get their story straight. And that’s certainly a threat to a happy ending for that investment, or that firm.

Learn more about how Consero helps investors and their portfolios today.

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Valuation How the finance & accounting function has hidden risks for investors

Investors rely on valuation, i.e., several metrics and numbers that tell them an investment is worthwhile. These numbers and metrics must paint a good picture. However, when your finance and accounting function is not good, there is basically no way to prove that an investment is sound.

That can become a much bigger problem than many might expect. You need a lot of different things that will determine the value of a company or some other investment, such as:

  • Financial leverage
  • Financial return expectation
  • Cash flow
  • Future performance
  • Exit strategy

These are just some of the metrics and numbers that need to be conclusively proven by the finance and accounting team. However, if that whole function is not operating to its fullest capacity, or is simply not qualified enough for it, then you’re going to have problems and risks.

That’s precisely what we wanted to talk about in today’s piece. Furthermore, we will also show you the solutions you need to avoid these risks.

The hidden risks for investors from the finance and accounting function

A lot of problems can arise in poor finance and accounting functions, and many of those can affect your investment and create unnecessary and potentially devastating risks.

One of the common problems arises when transactions take place. Your finance and accounting team needs to have supporting documentation and several buttoned-up processes. Without these in place, your transactions won’t run smoothly. They usually become a tedious process that can lead to delays and failures. However, that’s not all, as lower valuations are also a very likely outcome of poor transaction processes.

Naturally, this can reflect on the customers as well. When transactions involve them, they expect your growing company to be a professional one that can handle transactions without a hitch. However, with a poor finance and accounting function, you carry the significant risk of this not happening. That’s because the entire transaction process needs to be supported by valid documentation provided by the finance and accounting teams. If that doesn’t happen, the customers lose trust in the business, which can lead to poor valuations.

Another problem can exist with financial reports, which are necessary for every business. These include:

  • Income statements
  • Cash flow projections
  • Balance sheets
  • And more

However, finance and accounting don’t always produce useful financial reports. They often make the mistake of making them overly complicated and riddled with mistakes and errors. It’s not easy to continuously deliver great financial statements. They need to be:

  • Detailed
  • Accurate
  • Timely
  • Future-oriented
  • Easy to digest

Without having all of these attributes, your financial reports could cost you. They can lead to reduced valuation, among many other problems and risks.

Besides technical problems like these, finance and accounting functions carry other risks like member turnover. They can leave the company for a wide variety of reasons, and it’s a common problem in all companies. However, it becomes a more significant issue when the turnover rates are higher than usual, and when the people who are leaving are your top talent. This is an issue for finance and accounting teams as well, where the loss of a key figure can create many other problems.

Key figures like CFOs and controllers enable your finance and accounting function to operate well, but without them, you run the risk of the entire team falling apart. That’s because some members can be replaced, and the interim period won’t affect the function significantly. But the loss of a critical member will affect functionality significantly, and the transitional period can be devastating.

How to avoid the risks

As you can see, the risks are many, and the ones we covered are just some of the most prominent ones. There’s a whole host of others that can cause your valuation to go down, which is why it’s vital to do what you can to avoid them.

More and more, private equity firms are turning to Finance as a Service and find that to be the best way to avoid the risks that are inherent in the finance and accounting function. Outsourcing with Finance as a Service means you plug into a partner that has already built the processes and systems hundreds of times and have the finance talent with the right skill-sets to meet all your F&A needs.

In today’s world, outsourcing is becoming more prevalent than ever before. It’s no wonder as it’s often far better to outsource to a professional team that’s much more capable of doing the job than an in-house team could ever hope to be.

That’s especially true with the finance and accounting departments. As you’ve seen, they carry a whole host of risks and possible issues. In the case of third-party solutions, these problems don’t exist.

The most obvious problem that’s avoided is employee turnover. The third-party business has its own employees who are qualified and will not abandon your business for a better paycheck or some other reason. On top of that, you pay for the service, not the employees, so there’s no worrying about numerous paychecks, vacations, and benefits. That makes the outsourced solution a cost-effective one as well.

When it comes to technical risks, almost all are avoided with a third-party. For example, we at Consero have experienced team members who will improve your financial transactions. They will:

  • Improve the quality
  • Increase efficiency
  • Reduce the costs

Our team will do this for all of your operations, including financial statements, as well. They do them all the time for a whole host of growing companies. Plus, mistakes and errors are avoided because transactions and reports are automated through our high-quality software solution.

All in all, if you decide to hire Consero, you will receive a high-quality service that has your entire finance and accounting functions wholly integrated and streamlined. The problems that in-house teams need to deal with regularly will be eliminated. Most importantly, we will help you avoid all the risks and potential issues that can affect your valuation.

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