Most CFOs and private equity firms didn’t build COVID-19 into any of their investment cases, but that doesn’t mean they’re powerless to respond. The pandemic is a threat to business continuity, plunging demand and disrupting supply chains, which can eventually lead to liquidity issues, pressure on covenants, re-financing requirements, and increasing third party risk.

Join us for a peer-to-peer discussion with CFOs that have extensive Private Equity expertise. Consero will share observations of our client portfolio as well as hear insights from CFOs about what tools and tactics their finance teams are using to navigate their biggest challenges.

Any CFO and private equity partner will come away with concrete ways to mitigate risks and plan for best and worst-case recovery scenarios at their portfolio companies.

Goal:

Our goal is to share what we are seeing across the companies we are involved with in hopes that it provides a nugget or two to help you navigate your companies or portfolio companies through this crisis.

Panel:

The conversation was be led by Scott Tynes, CEO of Consero. Scott will be sharing trends, tactics and observations that we are seeing in the small to mid-market space during this economic disruption.

Jonathan Holmes, CFO, CCO and Managing Director of BV Investment Partners
BV is a private equity firm that invests in North American companies operating in tech enabled businesses services and IT sectors. BV has invested in 102 platform companies across 10 funds.

Jack McCullough, Founder of the CFO Leadership Council and Senior Contributor to the Forbes CFO Network
Jack has been a CFO for 26 companies. The national membership of the CFO Leadership Council reaches 2,000 finance executives over 27 chapters.

Donald McClure, CFO of PELITAS, backed by Tritium Partners
PELITAS is backed by Tritium Partners. Prior to PELITAS, Donald was VP of Corporate Development / FP&A at Brinks Home Security with responsibilities in capital markets, corporate finance, M&A, strategy and investor relations. While at Brinks, Donald completed a $2.0 billion balance sheet restructuring, $1.9 billion of debt refinancing and $575 million of strategic acquisitions

Michael Abramo, Portfolio CFO for M33 Growth
M33 Growth is a private equity firm that makes minority, growth equity, and venture capital investments in software, healthcare and business services. Mike serves as CFO across multiple M33 Growth portfolio companies (currently AssuriCare and RHI Group) and has 20 years of strategic finance experience.

Drew Powell, EVP & CFO of Defyned Brands
Defyned Brands is an omni-channel, lifestyle-driven health and fitness company with 50+ locations. Prior to Defyned Brands, Drew led various functions at LDR Holding which was acquired by Zimmer Biomet for $1B.

Four Areas of Focus:

• Business Continuity Planning
• Cash Management
• Scenario Modeling
• Going on the Offense

Business Continuity Planning

Virtually overnight, your company must work and service clients remotely. As this unfolded you had to assess whether you could you run your business today and produce consistent service delivery for your clients.

How has lockdown affected company’s ability to maintain customer-level satisfaction?

• Significant shifts in consumer demands and behavior impacting sectors from consumer and retail, to manufacturing, life sciences to automotive
• Organizations that operate with transparency and open communication have inherent advantages when events require quick actions to react and reshape
• Focus is to build positive customer
• Challenge is in transmitting the instore transactions to an online experience

What are the focus points in terms of team management for effective business continuity?

• Prioritize people safety and continuous engagement
• Work location can be decided based on what suits best to the company
• Ask employees for the concerns or challenges on operating remotely
• Reassess if work done by each team can be paused, re-located or continued
• Leverage multiple channels to communicate information that is in line with public health recommendations on the prevention of pandemic infectious disease outbreak to the employees

What are the challenges in operating the finance function working remotely?

• Making the finance process cost efficient through increased automation
• Streamline controls by leveraging technology and reducing manual intervention.
• Change finance focus from back-office “bookkeeper” to “trusted business advisor” to the business
• Develop the approach, architecture, roadmap and business case to support the transformation
• Demand high accountability
• Ensuring security in terms of data storage
• Strong focus on streamlining and simplifying finance function to reduce manual intervention

Cash Management

The panel talks about the one thing that is top of mind: Cash. Let’s share some data points on what you have done to strengthen your cash position.

Successful key’s –

• Maximize the use of government support policies like PPP programs
• Regional community banks look more reliable and quicker in terms of processing loan
• Additional guidelines received from SBA and the treasury in terms of cash management
• SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities
• Documenting the need for cash or the access to credit in terms of cash balance of the company
• Loans greater than 2 Million are going to be audited
• Keeping people fully employed is going to be beneficial
• Ventures to keep their debt burdens at manageable levels
• Businesses that compromise on growth temporarily by keeping indebtedness low are likely to sustain a good momentum of growth over the longer period
• Determine whether the organizations have adequate visibility into their cash positions, determine their cash needs, and address any shortfalls
• Develop a plan to sustain a stable liquidity position over the next 12 to 18 months and beyond

Internal steps to strengthen the cash position –

• Coding the Sick leaves related to Covid-19 separately from that of PTO and documenting it with an anticipation to get some funding
• Clear, transparent and timely communications are necessary when creating a platform to reshape the business and to secure ongoing support from customers, employees, suppliers, creditors, investors and regulatory authorities
• Working smoothly with bank and good communication may help as more affluent bank customers can gain access to better interest rates than what is advertised to the general public

Covid-19: Rent mitigation and negotiations between landlords and tenants

• Requests from tenants to pay less rent for a fixed period of 3 or 4 months, for the period during which the Covid-19 virus affects business
• Remainder/Extension of lease period
• Request to suspend rent payments for a short period
• No free rents, short term affirmation depends on capital structure off the landlord

Scenario Modeling

In the current environment, more than ever CFOs depend on accurate financial data to create scenario models that they can trust.

A lot of public companies are saying they can’t even provide forward looking forecasts right now. Are you planning on a V shape, U shape, L shape?

• Evaluate short-term liquidity. Companies will want to instill short-term cash flow monitoring discipline that allows them to predict cash flow pressures and intervene in a timely manner
• Identifying expenses which are not critical to servicing your clients with no interruption
• Be Patient in securing investments
• Maintaining healthy relationship with contracted parties and banks
• Analyzing cash position for 3 months down line to know the facts
• It is important to stand united and help one another in whatever way we can, stay safe and stay healthy
• Strong emphasis on reducing the overall costs and reshaping the finance function
• Revisiting capital investment plans to postpone investments until the situation improves
• More than survival it is good time to show strength and liquidity
• Time to think on after crises opportunities
• Once the COVID-19 outbreak is controlled, companies will want to review and renew business continuity plans. They will want to assess how existing BCPs are working. If there are deficiencies, companies will want to identify root causes, whether it’s timeliness of action, lack of infrastructure, labor shortages, or external environment issues. Companies will then want to consider putting new internal guidelines in place based on lessons learned, as well as solid contingency plans to build resilience and better respond to future crises.
• Cutting costs not talent – While the hospitality and travel industries have experienced the biggest impact, other industries have been feeling the weight as well. Cost-cutting is the need of the hour, and it does not have to be a precursor of retention.
• Furlough the employees is best option vs. lay-off
• Furloughed employees will have the opportunity to return to a comparable position at comparable pay once

Going on Offensive

Winston Churchill said: “Never let a crisis go to waste”.  Actively reallocating corporate resources is even more important in a downturn than it is in good times.

• Private equity is under less short-term pressure
• Having PE as a partner increases the company’s capability
• Extra capacity that PE shops has helps client get cross those finish lines
• Private Equity firms provide flexible funding solutions and have all-time high levels of available funds (“Dry powder”)
• PE firms are now looking to allocate capital to businesses with a solid plan and robust operations

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

Allocation of resources

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

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

Your clients value transparency

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

Outsourced accounting provides consistent scalability

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

Maximizing profit with minimal capital expenditures

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

Efficiency and accuracy

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

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

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

Conclusion

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

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

Everyone understands that cash management is a top priority when trouble hits, but the scale and intensity of the fallout from COVID-19 leaves little room for a sluggish or lax response. Here are five key principles to managing cash at the moment.

Focus can be the first casualty in times like these. There seems to be so many things to do for our families, companies and communities, that it’s easy to get overwhelmed. The news doesn’t help by providing plenty of doomsday scenarios and contradictory advice. Yet focus is precisely what’s necessary right now, to stay calm, and respond effectively to a situation that changes as rapidly as this one.

Cash is a chief concern for businesses already, but that concern can manifest itself in so many unproductive ways, from avoiding tough conversations to chasing down customers for every last dime, to simply stalling, in hopes of a miraculous turnaround. Instead, cash management needs to be tackled in a systematic and rigorous fashion, according to Mike Dansby, the VP of Client Services for Consero, an outsourced provider of finance-as-a-service solutions.

“Anyone’s initial forecast for 2020 is now irrelevant,” says Dansby. “It’s time to scrap that and take a good hard look at this new reality.” Cash is oxygen in this economy, and while that can be daunting, it’s no argument for doom or gloom. It merely requires an accurate view of what’s in the company’s tank.

Law #1: Vet the Numbers, Weekly

He suggests using a tool called the 13 Week Cash Forecast, which is a rolling forecast updated on a weekly basis. “This is a very granular approach, without the assumptions that are typically baked into a monthly forecast,” says Dansby. “Instead, the company looks at what a customer is actually paying, what a vendor is actually billing, and what expenses are coming due.”

This allows a company to better assess when it might need to negotiate a payment plan with vendors and creditors, or when it might need to offer such a plan to customers. Every input and output is examined and verified, essentially becoming a weekly reality check. This now becomes the basis for every cash management decision from this point forward.

Law #2: Delegate Authority

Those in-depth weekly forecasts involve a lot of work, so companies should divvy up the work to various staff members, so they can have a sense of ownership over their contribution. “Maybe someone is charge of receivables, another is in charge of recurring vendors, and so forth. This can be someone in finance, or sales, but it should be someone with an executive title,” says Dansby. They do need to feel genuinely empowered, so that they take full responsibility for the accuracy of their work.

That added responsibility might be a chance for staff to grow, as they build closer relationships with that vendor or a customer along the way, by verifying payments or negotiating a new payment schedule. “I wouldn’t be surprised if  a lot of companies end up with a stronger bench as they come out of this,” says Dansby.

Law #3: Conduct Diplomacy

The value of those weekly forecasts is they help predict problems as soon as possible. It allows the company to stay proactive in addressing cash shortfalls, which boils down to conducting a diplomatic effort with creditors, vendors, customers and employees. “This means never postponing a tough conversation,” says Dansby. “If the company looks like it might break a covenant, it should contact the bank immediately. In most cases, they’ll be happy to work out a new schedule, but only if they aren’t surprised.”

If a company waits until they actually miss a payment, that vendor or creditor is likely to assume the worst. In times like this, trust is an asset no company can squander. “That bank may start to wonder what else the company is hiding,” says Dansby. The vendor might cut service soon after that missed payment, or inundate the company with calls and emails, trying to collect, which distracts staff and erodes the chance of negotiating a favorable payment schedule.

“However, if a company realizes there will be a shortfall in the next 60 days or so, and reaches out to that bank or vendor early, the entire tone of the conversation shifts. That other party becomes a partner in solving this.” And the company should offer customers the same kind of partnership. “Even if that customer can’t make the full payment on time, an engaged and compassionate conversation can recoup some of those monies when every dollar counts.”

This level of candor should be extended to employees as well. If one of those weekly reality checks indicates layoffs are required, it’s vital to move quickly. “Finance staffs are privy to a lot of information early, so to maintain morale, transparency matters,” says Dansby. Layoffs should be conducted as quickly and humanely as possible, which again, requires the early detection that comes with those weekly updates.

Law #4: Play Offense

During downturns, it’s only natural to assume a defensive stance, by looking to do more with less staff, cut expenses to the bone, and find ways to keep as many customers as possible. However, there are some ways to play offense, and companies that do will only up their chances of making it through this gauntlet. Still, just like with any diplomatic effort, it needs to be conducted early.

“If a company has any access to credit line, they should activate it now,” says Dansby. “There’s no telling how quickly a situation can change for a company or their bank, and that extra cash can be a lifeline as the economy worsens.” Sometimes playing offense involved tapping resources before they’re necessities.

That extends to any government assistance a company may qualify to receive. “The recently passed CARES Act offers a lot of assistance, including PPP (Payroll Protection Plan) that allows companies with under 500 employees to borrow up to 2 ½ times their payroll, with some limits,” says Dansby. “Given the demand for such support, it’ll be best to get in line early and begin processing all the relevant paperwork.”

Although Dansby still suggests keeping an eye out for more classic opportunities to play offense, such as acquiring market share by scooping up weaker competitors. “If a company finds itself with the cash reserves to do so, it’s a great time to grow.”

Law #5: Make No Assumptions

“In a matter of two days, most American sports leagues shut down in response to the pandemic,” says Dansby. “That’s how quickly things can change now.” It’s why those weekly reality checks are so vital, and why a single forecast isn’t sufficient.

“Most companies should be maintaining three different plans, one for a worst-case scenario, one for a likely one, and one for a best case,” says Dansby. “Then as the weekly data comes in, the company knows what move to make next.”  And naturally, if that worst-case scenario becomes more likely, they’ll need to devise a plan should the situation deteriorate further.

However it’s worth noting that companies should make no assumptions, good or bad. Assuming only the worst can also blind companies to vital opportunities. Instead, the real golden rule of cash management is to keep one’s eyes open to the reality of what’s coming in and what’s going out and acting on that evidence without delay.

Like so many things, it’s simple but not easy to do, even in the best of times. But as we grapple with what comes next, it’s important to realize how often such troubled times can be a time of grace and satisfaction. Or as Laurence Gonzalez puts it in Deep Survival,  his stellar account of how people survive extraordinary circumstances, “Days stolen are sweeter than days given.”

If you’re interested in more best practices for navigating the current crisis, Consero offers a webinar that can be found here:

COVID-19: CFO Leadership – Navigating Uncharted Waters

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Business process outsourcing (BPO) has seen a considerable increase in market demand during the last few years. According to research, the BPO industry is expected to reach USD 405.6 billion by 2027. This should come as no surprise since BPO has found a place in almost every industry, and private equity portfolio companies are no exception. 

Finance and accounting are easier to manage with Finance-as-a-Service, and this is one of many reasons why PE firms decide to introduce it to their portfolio. To fully understand how outsourced accounting works with business process outsourcing, we must take a closer look at BPO and try to explain how such services could benefit your PE firm.

What does BPO accounting mean?

Private equity has many obligations and falls under a lot of financial regulations. This creates immense pressure on the finance and accounting staff in your portfolio. They must have a firm grip on all cash flows within the company, but they also need to stay informed about regulations and market conditions. With the advancement of information technology, staying up to date with relevant information shouldn’t be an issue. Still, if your portfolio company doesn’t have enough human resources allocated to the financial department, things can slowly become outdated.

The need for relevancy in the market has never been higher, and with poor financial reporting from the accounting staff, a private equity firm could see lower ROI over time. Miscommunication, wrong information, or the lack of staff could lead to bad decision making by the managing director. 

With outsourcing (BPO), the whole process is simplified and tightly regulated. Every company that offers Finance-as-a-Service is always looking for top-notch global talent in the area of finance. This is possible because they don’t have to be physically located in an office. Remote work has become a standard for these companies. This global business may have different business models, but it will strive to bring the best customer experiences at the lowest costs.

How does BPO accounting handle your portfolio’s finances?

Whether you choose to work with an offshore BPO company or a local one, the quality of the services may vary, but the business process is almost always the same. Rather than hiring and managing an in-house financial staff, your BPO partners will handle your accounting. Usually, such companies offer financial accounting services, bookkeeping, payroll processing, tax planning and returns, payable and receivables accounts management, bank reconciliation, and financial reporting. Having such services at your disposal on-demand can bring considerable benefits to your PE portfolio but also remove the need to manage and hire financial management teams. Consider it as a form of process automation.

What are the benefits of BPO accounting?

The first noticeable benefit is minimizing the need for additional human resources within your portfolio company. Scaling is no issue with outsourced solutions because resource allocation is tailored to fit the current needs of the company. By having your finances professionally managed wealth management becomes a lot easier. Outsourced finance simplifies asset management by providing on-demand and around the clock support. This means more time and room for scaling and growth for both your PE firm and your portfolio company.

Regulators require timely reports and transparency. With an in-house team, you have limited possibilities regarding staff hires. Time and automated financial management aren’t the only pros that come with BPO. Cost reduction is a significant factor as well due to increased productivity and workload management.

Accuracy and efficiency

By looking at the legal side of things, it is hard not to notice how having access to accurate financial statements, and legal information can help with tax compliance and other legal issues you may encounter. If you made the right choice when picking your outsourcing partner, you could always count on professional help from the company. This is very important when you need to deal with regulations since it removes the need for hiring additional support. BPO provides you with skilled and well-informed talent that will stay on top of things at all times.

BPO gives you access to valuable tools and information

Companies that offer Finance-as-a-Service need to provide the very best to their potential customers to stay competitive. The ever-growing market requires constant improvements and innovation, and this can only result in better customer services. Advancements in information technology have enabled them to have access to sophisticated software solutions like cloud-based finance that can completely reorganize and reshape your business structure. On top of that, these companies update their knowledge base regularly, which enables them to combine the technology they are using with the information they have. This can have a massive impact on portfolio companies since it improves productivity and enables managers to focus on their core competencies.

Conclusion

It is more than evident that the current “build it in-house” solution isn’t very usable for finance and accounting. An in-house team can’t compete with outsourcing for various reasons. Fixed income could be mentioned as one of them because outsourced solutions will always stay competitive in that sense. By having access to global talent, BPO has combined quality with low-cost, allowing them to hire remote experts who can bring more value for less cost. ROI is the primary concern of every private equity firm, so cutting costs within their portfolio is an entirely reasonable need. By unloading the responsibility of handling their finance and accounting to a BPO partner, portfolio companies can focus on productivity and profit while leaving the complicated and repetitive tasks of accounting to BPO altogether.

Knowing all of this removes the mystery behind BPO growth. The demand for such services in the finance industry continues to rise because it is hard to compete with reliable, relevant, and timely data delivery. By knowing all of this, an 8% yearly growth of the BPO market should be self-explanatory. The pros simply outway the cons.

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In the wake of COVID-19, businesses must remain agile and disciplined, which requires making finance teams fully operational out of the office. Consero’s President Bill Klein offers a few key tips on how to do just that.

As much as “black swans” have become a business cliché, by their very definition, they can’t be predicted. COVID-19 certainly fits the bill, and it’ll be some time before we understand its true impact. But businesses don’t have the luxury of standing still, as they have to manage multiple contingency plans to cope with whatever comes next.

Those plans rely on an accurate view of the company’s health, which means finance and accounting teams have to be fully functional, even from home. “At a time like this, decisions have to be made quickly and that means updated, accurate information is vital,” says Bill Klein, President of Consero, a provider of outsourced Finance-as-a-Service solutions.

Klein believes that finance teams need more than remote access to the numbers; they have to be able to perform key operations from wherever they are. Weekly check-ins with the finance team will help make sure the numbers have been verified in real time. When these teams are working as they should, senior management will have time to focus on various models and contingency plans for cash management, which is the core priority now. And any readiness plan needs to be tested, ideally by several people over a week or so. Even if a business has to build that remote capability on the fly, there are some key guidelines to keep in mind.

Obtain a digital finance function with remote access

Klein names two core priorities in building a remote finance team:

• access to systems and underlying information
• the ability to complete accounting tasks from that remote location

“Now when people think of remote access here, they’re usually thinking of access to a web-based accounting system, but I’d argue they need to go one step farther and make sure there’s access to supplemental information,” says Klein. “If a vendor bill comes in the office, where does it go? Can the team access that remotely?”

Any relevant information, from vendor bills to customer contracts, needs to be accessible, and that involves thinking through the entire activity cycle of the finance function, to make sure there are no blind spots, no answers that are only available in a hard copy, in a file drawer, somewhere on the twelfth floor. But access to information alone isn’t sufficient.

“Let’s say that vendor bill arrives in the mail. Is there a way it gets loaded to a digital platform? Can the finance team read it, code it and send it to the relevant parties? Can that party sign off on it, and can the CFO or other designated person process the payment for it? That’s what a remote system needs to be able to do,” says Klein. “If someone still needs to show up to the office and sign a check, that could be a problem.” It’s a matter of making sure the team has all the required information also has the capabilities to act on it.

“With that remote finance capability in place, the CFO and the rest of senior management can stay focused on developing better forecasts and more creative contingency plans for the company as a whole,” says Klein.

To help with that effort, Klein argues that the business should review its KPIs, and ensure the finance team can download the relevant data to calculate them. “If a company tracks the cost of customer acquisition, can the finance team deliver the numbers to calculate that? Is the data on Salesforce easy to pull out and apply to these metrics? Making that process efficient can speed strategic decisions,” says Klein.

Cash management with weekly check-ins

In crisis situations, conditions are always in flux. Customers that reliably pay on time may struggle to do so or even go under, suppliers can be late with delivery and billing, and a conservative revenue estimate suddenly seems like wishful thinking. This demands weekly meetings with that remote team so last week’s assumptions are vetted by this week’s reality. Did that client pay as planned? Is that vendor following up on an invoice earlier than usual?

“It’s all about cash management right now,” says Klein. “That requires a range of forecasts and contingency plans from best to worse case scenarios, with weekly updates to determine which forecast is coming true.”  He points out that these updates can help the company stay proactive, so any cuts, layoffs or furloughs are done early enough that they can be minimized. “Nobody wants to wait too long and discover the only solution is a drastic one.”

Stress test the plan

Given that the crisis is already underway, most businesses won’t get a chance to test the readiness of their remote finance solutions substantially. But if possible, it would be good to vet the current mix of technology and processes, even if a company has to adapt along the way. “It’s not enough to have a single employee log on to their laptop, and test their access to that accounting system,” warns Klein. “At the very least, the company should have a small team work remotely to help troubleshoot any issues.”

For example, in testing their remote capabilities, Consero found that certain employees who lived in more rural areas lacked the broadband internet capabilities that their systems needed, and addressed that. They also found that employees worked better with their dual monitors, so they allow staff to take those monitors home when they work remotely.

“We want our team to be more than functional; we want them to be efficient,” says Klein. That robust testing allowed Consero to seamlessly shift to a fully remote capability as the current crisis began, so clients haven’t experienced a single hiccup in service so far. Going forward, Klein suggests that businesses vet their remote work plans annually, with small teams working that way for a week.

Even with the best planning and testing, there will still be challenges. Who could imagine a situation where everyone was working from home, and schools were closed, so an entire family would be draining a home’s broadband capacity? No one knows how this particular situation will evolve, but it’s never too early, or too late, to develop a rigorous plan to address the arrival of this very big black swan.

About Consero:

Consero provides a comprehensive Finance as a Service (FaaS) solution to private equity portfolio companies. We deliver experienced finance professionals, optimized accounting processes and scalable cloud-based systems to support your daily financial operations and strategic decision making. More than 80% of our clients are lower-middle market investor-backed private companies.

During COVID-19, Consero has transitioned over 700 employees to a fully remote environment. Currently, we are serving as the mission critical financial operations backbone for over 150 companies.

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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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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.

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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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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