You have probably heard by now about the new revenue recognition standard that goes by the acronym ASC 606. If you have, you know its importance.

The importance stems from two things:

1. It is a crucial accounting regulation
2. It mostly affects public companies

2018 was the first year the ASC 606 was in effect, and its results are still not entirely clear to many, especially private equities who haven’t paid enough attention to it.

The primary goal of the regulation is to standardize revenue recognition for all industries. In essence, it aims to eliminate industry-specific accounting for revenues and introduce a specific five-step principle approach.

The core principle here is that companies need to identify revenue after the customer gains the goods or services, and do it in the amount the company expects to get in exchange for the products it provides. To make it more clear, this significantly changes when and to what extent companies identify revenue.

When it comes to private equity though, the implications of the regulation are much different and way more serious. We at Consero wanted to make sure that the private equity firms working with us, as well as those still not familiar with our services, to understand the vast implications the new standard has on their business.

Implementation of ASC 606 among private companies

Private companies are still showing slow progress with the implementation of the new regulation.

The problem with this lies in two things:

1. Even though private companies had an extra year for the implementation, they had a more difficult task ahead. They are left out of many of the disclosure requirements the new standard poses, but they still have other disclosures, and then other compliance challenges afterward.
2. Private companies are usually less prepared to deal with these types of compliance regulations than public companies.

It’s worth mentioning that the private companies that are nearing their initial public offerings can also cause problems for themselves without proper compliance with the new standard.

The software as a service model

When it comes to SaaS model, there are other problems as well. The pure-play cloud-subscription services can’t feel the full impact of the ASC 606, but term and perpetual licenses can. And as for hybrid subscriptions, they have the worst of it.

With 606, revenue in hybrid subscription models that base on term licenses needs to identify at once. That doesn’t mean that the whole business model needs to change, but it makes it a lot more complicated and filled with nuances which must share with investors. One of the solutions here is to fine-tune customer agreements.

In the end, the PE firms that have portfolios filled with such models, the lack of ASC 606 compliance can affect their exit strategies as there’s no way to point to reported recurring revenues clearly.

The impacts on the industry

Even the PE firms not dealing with technology firms need to care for the new standard as they too are affected. The tech sector is the most affected one, but the following areas are also affected:

• Aerospace and defense
• Manufacturing
• Media and entertainment
• Life sciences and pharmaceuticals
• Transportation
• Automotive
• Telecommunications
• Retail
• And many more

All in all, industries that rely on customer contracts are vastly affected. However, other impacts are still not evident and cannot, as of yet, be anticipated.

When you take a look at the more broader effects, any organization that uses contracts with customers to transfer services or goods is affected.

The impact comes in the form of:

• Revenue-recognition timing
• Processes and internal controls that capture data in financial reporting
• Required disclosures and necessary modifications to IT systems

Technology needs to enable implementation

It’s worth mentioning that the best way to approach the application of the new standard is through technology. However, the technology solution needs to be chosen after you have identified the right path for the strategic implementation of the new revenue recognition model.

Consero can help you here as we aim to step in and take the lead when the existing accounting leadership is not prepared or is not present in the company.

Our technology support and enable proper revenue recognition with three different options:

1. Order entry
2. Deferred revenue model
3. Contracts module

Order entry

This option is used when there is a low volume of contracts, and it includes:

• Amortization of revenue over the life of a contract
• Separation of invoicing and revenue (quarterly invoicing with monthly revenue recognition for example)
• Different delivery options for items with default settings within item setup
• Links with projects

Deferred revenue model

This model is used when you have a relatively high number of contracts (that number should be below 150) and when you need to reallocate revenue across different products which can also have discounts.

The model:

• Has a fully automated revenue allocation process
• Can create a systematic approach to revenue reallocation
• Provides a complete audit trail

Contracts module

The last option is the most complex one as it’s made for a much higher contract volume.

It can automate the most critical process you have – turning orders into cash. The module does that by:

• Maximizing billing and collections
• Automating revenue deferral and revenue recognition
• Optimizing contract renewals

Its key features are:

• The ability to automate revenue recognition and deferral. You can set up revenue recognition rules for different types of products and services to post revenue automatically.
• It can automatically generate billing schedules from contractual billing rules and can consolidate multiple billing types into single bills.
• It connects project accounting with revenue recognition, by using timesheets and completed milestones to automatically recognize revenue, while maintaining a separate billing schedule.
• It has a pre-configured cloud connector that manages orders and transactions while automating revenue recognition based on bookings data.

It’s up to you to choose the technology option that suits your needs. Consero can make sure that you make the right choice, but the key for you is first to understand the impacts of the ASC 606 which we have previously discussed and then adopt the right technology.

Gimmal’s private equity backers saw the potential for the records management company to transition from services to software, but first, Gimmal had to ensure the finance function could handle the reporting and other tasks required of a portfolio company.

Private equity’s biggest successes are often rooted in substantial transformations of a portfolio company, not just improving operations, but moving into new sectors and products. In the case of Gimmal, its private equity investor realized it could move this successful records management company from services into software.

First, the private equity firm appointed a new CEO, Mark Johnson. Johnson understood the time, resources and focus required to orchestrate the shift into software, but there were more pressing issues. Gimmal needed to upgrade their finance function to handle the new reporting requirements for their private equity investors. The current staff simply didn’t have the training or tools to meet the new standards.

Gimmal’s CEO Mark Johnson considered re-staffing the finance team with folks with the correct skills and capabilities, but that could take 18 months, which is a lifetime during the span of a private equity ownership period. Furthermore, it could distract the finance team from the more strategic tasks that would ensure that transformation was a success.

Johnson looked for another route and discovered what Consero could do. He was impressed with Consero’s Finance-as-a-Service model that offered the necessary tools and teams to manage their financial solution in only 30 to 90 days. Better yet, Johnson could vet the quality of Consero’s software and talent as they began to support the current in-house controller and CFO.

Consero allowed Gimmal to plug into their top tier software solutions. These included Sage Intacct for general ledger purposes, Nexonia for time-keeping, Bill.com for AP automation, and finally Consero’s SIMPL console which consolidated all this software into a single elegant interface with integrated reporting. That console also allows senior executives at Gimmal to get real time reporting.

“Consero quickly built the reports and systems we were lacking, allowing me to focus my efforts where they need to be,” said Johnson. As the CEO of any private equity portfolio company will know, most PE firms have ambitious plans for the first 100 days of the investment, and they rarely include getting the basics of financial reporting in order.

Gimmal’s books were so buttoned up already that Consero was able to swiftly leverage its software and in-house talent to get the Company up to speed, and in a place where Johnson could focus on meeting his PE investor’s expectations on bigger strategic initiatives.

Johnson found that Consero also added value well beyond those basics. “It’s not just a back-office relationship; it reaches across the entire business,” says Johnson. And that means Consero can play a key role in Gimmal’s shift from services to software.

Gimmal’s project managers interact with Consero to launch new projects on a regular basis, with time tracking and bill approvals, and Consero’s Financial Planning & Services (FP&A) team work with Gimmal’s Sales & Marketing people to gather budget and forecast reports.

This contribution allowed Gimmal to scale up its quality and capacity quickly to meet the new demands of the private equity owner. PE shops aren’t always patient with smaller, less mature enterprises, so this can help fortify the relationship between the private equity firm and portfolio company.

For example, after implementing Consero’s transparent SIMPL console, Johnson explains, “There’s no month-to-month fluctuation in terms of accruals or accrual reversals. Everything is reliable.” And this allows him to keep investors in the loop with a consistency that private equity firms appreciate.

Consero’s contribution also made the finance function far more predictable, with books closed on the tenth day of every month, and bills paid every Friday. And by meeting the standardized reporting requirements of private equity, a change in ownership doesn’t mean starting from scratch with regards to these processes all over again. The system in place can now work for the new owners and Consero’s variable pricing model allows them to grow right alongside Gimmal.

And all this was done for a price 25% lower than if Johnson had staffed up internally. Furthermore, like the best outsourcing solutions, the staff at Consero really works as an extension of Gimmal’s in-house team, working closely with them on a regular basis. It becomes a collaboration, with room for growth and improvement for the teams at both Gimmal and Consero. As Gimmal’s finance team gets more sophisticated in processes, Consero learns how to better serve the company.

Nowadays, LPs have outsized expectations for their private equity investments and that means that portfolio companies like Gimmal need to do more than upgrade operations, they have to radically improve the enterprise and deliver growth.

And a service provider like Consero can play a role in revitalizing the finance function with both speed and rigor, so companies like Gimmal can focus on reinventing themselves for an exit that exceeds expectations.

In our cooperation with many private equity firms, we’ve realized one thing – they all have very similar problems with their portfolio companies.

It is especially true when it comes to the finances and accounting of these portfolio companies. Most of the problems facing these companies lie precisely in the F&A departments.

Private equity firms usually struggle to get finance and accounting in most of their new portfolio companies to a specific point when they can produce:

• Accurate,
• Timely, and
• Audit-ready financial information

What’s more, all of this needs to be done cost-effectively.

So, if your company is a private equity firm that has similar issues, how do you get your portfolio companies to provide timely financials?

Before we explain our solution, we need to take a better look at the challenges and problems that companies face, all of which are preventing them from providing proper financials.

The common challenges and adverse results in portfolio companies

Many problems exist for portfolio companies, but they all boil down to three main ones:

1. The wrong personnel – it implies that the staff you have in the F&A departments of the portfolio company do not have the required skill set. Their abilities and knowledge don’t usually align with the tasks that are required of them. The companies thus have to make do with what they have, as they typically don’t have a better solution.
2. Poorly performed processes – these usually stem from the fact that the accounting and finance systems of the portfolio company have many limitations, and the procedures themselves are undefined. That leads to any effort of improving the finance and accounting of the firm to be unsuccessful.
3. Disconnected data – financial data and the systems dealing with it are dispersed and siloed in the company, which provides questionable numbers.

These common problems lead to equally common and quite unfavorable results for the portfolio company, and in turn, for the private equity firm as well:

• Less visibility – all the information that’s not integrated well enough is inadequate, and executives cannot make proper and confident decisions.

• Wasted time – all the problems we explained, lead to time wasted, because the personnel needs to focus more on the everyday operational matters like transactions and reporting, and not have enough time left to focus on the more critical areas like customers and growth of the company.

• Lack of scalability – the problems in the finance and accounting departments result in one of the most significant challenges a private equity firm can have within a portfolio company – the existence of bottlenecks that hinder overall growth.

As you can see, these seemingly small inadequacies and problems that commonly occur in F&A departments of portfolio companies often result in some very negative metrics.

Poor metrics can only show that the portfolio company is not growing and improving in the way the private equity firm wants, which can only mean that their investment is going to waste.

So, what is the solution here?

Top quality finance services meant for investors – the Finance as a Service solution

A Finance as a Service firm is a company that offers financial services to private equity firms and many other types of companies.

The solution they offer is a unique and fast way to improve the operational profitability of the portfolio companies PE firms have. Also, they can also enhance the decision making of the CEOs, CFOs, and other executives by increasing their visibility into the financial performance of the portfolio company.

That all sounds well, but how does it work in practice?

The Consero solution

We at Consero offer a unique solution that in practice works like a well-oiled machine and can provide unprecedented levels of improvement in the financial aspect of a portfolio company.

We do this through a combination of:

• Modern and innovative software automation tools
• Improved workflow
• Experienced and highly trained F&A professionals

All of this can transform your portfolio company and its finance functions into machines that work to support your company’s daily financial operations effectively but also your strategic decision-making process, all the while significantly reducing many expenses you usually have when doing these things yourself or having in-house teams to do them for you.

Consero’s solution is a mutually supportive system of:

• Efficient processes
• Technological innovations
• Highly trained finance experts

We use the best methods and controls in the industry, all of which have been improved and refined over the years and through our cooperation with more than 250 clients that have faced the same problems you do.

Our technological innovations include well-designed software solutions made by veterans in the industry. Our software solution is:

• Integrated into your company
• Highly modifiable and configurable
• Enables rapid deployment and consistent execution

The people we have in our teams boast a highly comprehensive skill set and can perform all the necessary F&A functions in your portfolio company.

Our solution provides efficiently delivered results, transparent reporting, scalable architecture, and most importantly – timely financials.

In the end, the Consero solution is more cost-effective than in-house teams.

• Instead of hiring each member of your in-house F&A team, your hire Consero.
• Instead of paying them to do the research and architect systems, or refining purchased networks, you get our highly configurable ones.
• Instead of integrating people and training them to use the systems, you get us to do it for you. We present it all in a way that can be of assistance to the company’s CEO, CFO, and executives.
• Instead of having an in-house team that takes nine to 18 months to optimize finance and accounting of the portfolio company, you get the Consero solution that integrates with your company within one to two months.

Mainly, when you compare the Consero solution to in-house teams, you realize that Consero does everything more effectively, in a dramatically shorter timeline and for half of the cost.

The results of this are executives, CEOs, and CFOs who make better-informed decisions, the portfolio company becomes more streamlined and more scalable, and the expenses are lowered – not to mention the portfolio company now provides timely financials.

First of all, we have to start by saying that this is a very hot topic right now. Many people want to be Chief Financial Officers or CFOs in companies, but the role is indeed not an easy one, nor are many people suited for it.

The CFO role is also entering an era of significant changes for this title, making the job even harder than it already is.

Consero has met and worked with many private equity firms, and many of them have told us that hiring a CFO is one of the most problematic tasks a company can have. They also believe that the role of CFO is one of the toughest ones to fill within any organization.

Unfortunately, private equity firms aren’t the only companies that feel this way, even CEOs of many  companies believe this to be the case. A lot of that has to do with the fact that within a CFOs job there’s a myriad of tasks that have to exist and eventually be completed. Many of these tasks can be quite operational in their nature, like the following ones:

• Making sure that an accounting department is a well-oiled machine,
• Ensuring that the company passes every audit,
• Finding out if the firm has the right systems in place to scale,
• Taking a good look at the entire team and determining if every team member is right for the job they have,
• Ensuring that the business has the proper AP process,
• Making sure that the finance and accounting teams are closing all the books on time.

As you can see, these are already quite daunting tasks, and there are many more like them. They are all, naturally, mandatory, but that’s not the end of it all. The aspect that follows is more vital for the role than this one.

The strategic aspect of the job

The operational tasks that have to be done are already tricky and time-consuming, but then there’s also the vital aspect of the CFO role that also has to be accomplished. The strategic part is much more critical because the main thing here is that the CFO has to be the right hand to the CEO.

Many private equity firms are afraid of what would ensue if something were to happen to the CEO. Their main plan there is for the CFO to step in and temporarily do the CEOs job. For that, they are expecting the CFO to be ready to jump in and successfully do that job as well.

Private equity firms want CFOs to:

• Understand how to grow the company
• Look for strategic M&A
• Use all the metrics to drive the growth of their company

To achieve all of that, the CFO has to know how to take over the job of the CEO which is why they need to be utterly effective at being the CEO’s right hand.

What do others think?

Scott Donaldson with CIC Partners (and former Partner at Austin Ventures) has told us that when he looks at his career; he doesn’t have a high batting average on hiring CFOs. Now that he’s had a chance to take a step back, some of the things that he says is that there are either one or two things that can happen when hiring a CFO:

• The CFO you hire really isn’t a strategic person and doesn’t have that strategic awareness that’s needed for the job.
• The CFO is so invested in the details that they can’t be strategic even if they know how to.

From what can be seen here, in many cases, strategy lacks in the role of the CFO. As we’ve already determined and as most of you already know, the strategic aspect of the CFO’s job is the most crucial aspect of this job, or at least it’s starting to be.

How can Consero help here?

Within Consero’s Finance as a Service model, what we do for you is the following:

• We take over the basic blocking and tackling that the CFOs usually have to do themselves.
• We enable you to hire a CFO who can oversee the accounting department.
• The CFO doesn’t have to go into the little details anymore, which often go as far as knowing what the best AP workflow is, or how to implement the best GL tool for the company.

Consero offers a completely managed financial solution. We will take care of all of those operational tasks that the CFO usually does and they will thus be able to entirely focus on all of those more strategic aspects of the business that is now far more critical than anything else in the role.

What we do gives companies a greater level of financial control and insight which benefits the CFO significantly. What’s more, by enabling the CFO to focus on what matters, we will allow him or her to be more successful because the strategic traits are what truly excite most private equity firms today.

The ability of strategic thinking is what makes private equity firms feel that once they sell the company, they should still hire the same CFO for the same role in another company they acquire. That’s how much importance they place on strategic thinking within the CFO role.

Most private equity firms believe that such CFOs:

• Are able to find great M&A opportunities
• Can understand the business model of the company at a deeper level
• Know where to invest and where not to spend

These are the abilities and traits that truly impress private equity firms, and we can enable the CFO to have them because with our model your CFO doesn’t have to do anything other than general oversight of the finance function and crucial strategic tasks.

You can seek for a person who can do both the tactical and strategic tasks. But it is very rare to find that unicorn. You will end up with a CFO who is comfortable with the tactical but isn’t truly strategic. Or, you will end up with a strategic CFO who is too mired in the day-to-day finance and accounting activities that they don’t have time to be strategic. When those less crucial tasks hinder growth, you can rest assured that Consero will do them for you.

Finance as a service (FaaS) brings many benefits to all types of companies. Private equity firms know that they need to leverage the best tools and services to help their portfolios excel, which is why they often recommend Consero.

We at Consero have found out from our numerous dealings with private equity firms that there are a few key characteristics that we possess which make clients stay with us, or others to hire us.

There are several reasons that our private equity partners continue to collaborate with us and include us in their playbook, the most notable are:

• Speed to optimization
• Improved reporting and data
• Many private equity firms consider us to be CFO insurance
• Better scalability
• 30% to 40% overall cost savings

Let’s get into more details on each of the reasons to adequately show you why private equity firms tend to use FaaS.

1.    Speed to optimization

When private equity firms invest in a company, the first and most crucial thing they try to do is grow that company as fast as possible.

After these acquisitions occur, it’s often the case that the accounting and finance department starts to hinder that growth. But why does that happen?

There can be many reasons for this. For example:

• The departments don’t have the right systems in place or processes that will help them achieve this growth for the company.
• They are unable to increase the revenues of the company.
• The finance team members don’t have the right skill set.

The same problems can occur in all industries, including: software, professional services and eCommerce, the healthcare industry and more. When there is a problem in the finance department, we’ve found that what most companies tend to do usually follow the same steps:

1. They hire a team.
2. The team researches systems and they select one that fits best.
3. Then they configure that same system and perform its complete implementation.
4. After all of that is done, they have to train all the users for that system.

It’s fairly apparent that this can take very long to achieve. Most companies need from 18 to 24 months to optimize the finance and accounting function. Another problem here is that all their energy is spent on trying to optimize everything and get to that point of full implementation, while they still have to keep up with the management of the day to day operations.

With the Finance as a Service model, you get optimized in only 30 to 60 days. That means that we’ll have all the accounting systems and processes fully implemented and we can deploy them more rapidly and cost-effectively than an in-house team ever could.

When you’re in private equity, time is money, so the faster you can get this up and running and optimized, the faster the company can grow, and the quicker you can acquire other companies as well.

2.    Improved reporting and data

Enhanced reporting and data are critical for private equity firms. In many cases when they invest in a company, it happens that the company has an accounting manager or controller but does not have a strategic CFO. As a result, their reporting is rarely up to the sophisticated level the private equity firms want.

Private equity firms use data, metrics, and analytics to drive the growth of the company they acquire. They also understand what’s really going on with companies and what motivates them. For those reasons, they can adequately build and improve the company. If they don’t have all the requirements necessary to achieve this, they are unable to view the data they need to make the best decisions that will move the company towards growth.

With Consero, you avoid the lack of these metrics and analytics that private equity firms need because our model already allows for better reporting and data, giving you the necessary metrics and KPIs in an easy-to-read format.

3.    CFO insurance

We’ve found through time that many private equity firms consider Consero’s Finance as a Service model as CFO insurance. That’s the case because we:

• Take over the day to day mundane tasks.
• Reduce the time needed with administration and financial analysis.

With all of that and much more taken care of, the CFO can focus on the more important things like the strategic aspects of the job and the growth of the business.

All in all, we enable the CFO to be the right hand to the CEO and not spend time on routine and tactical things but rather on investigating things like how to turn management information into real competitive intelligence. For all of that, we truly are CFO insurance for private equity firms.

4.    Better scalability

Our model allows companies to be scalable. We can give a company the right level of resource for the right task, and we can grow in increments of half of a person, for example.

Precisely because we are appropriately structured, when a company goes through an acquisition, we have enough resources that can quickly jump in and help with acquisition integration by:

• Setting up the right systems,
• Getting that company streamlined and on the same process,
• All the while we’re not distracting the day to day accounting team.

That allows us to be far more scalable than in-house teams. After you go through with an acquisition, your existing accounting teams have to work to get that acquisition integrated. What we’ve seen is that in many cases, that just doesn’t happen because they don’t have the time to get that done.

5.    30% to 40% overall cost savings

Another reason private equity firms work with Consero is that we are more cost effective than having an in-house team.

Besides that, we’ve also seen that these savings can last indefinitely, even as companies continue to grow. That has to do a lot with:

• Our bigger labor pool of finance experts.
• The fact that we work with companies that are the same as yours, so we’ve already figured out the best process for you.
• We are very efficient at what we do.
• We automate a lot more manual activities.

All in all, these are the five main reasons why we firmly believe private equity firms continue to partner with us and why our service is much better than what any in-house team can offer.

Investment is a serious business that requires a lot of money. Private equity firms are ready to invest vast amounts of money in a company, but they also expect to pay for something that’s going to bring higher revenues in the future and eventually enable them to sell the company.

That’s precisely why their decisions are driven by the numbers, which is why they have a few key metrics they want to see:

1. Liquidity
2. Cash flow
3. Expense control
4. Analysis of each product
5. Industry related metrics

Before we go into greater detail on each one, there are few other important things you should be aware of.

The first thing that most investment companies do when they invest in or purchase a company is to improve further and develop the company’s information systems. They do that to ensure that two key things are up to their standards:

• The costs – what they are and where they are. If everything is according to their set of rules, nothing changes. However, if the costs can reduce, you can be sure that they will do everything they can to achieve this. Private equities only want their investments to pan out, which is inherently suitable for both the private equity investor and the company in which they invested.
• Which products and services are selling – this again is tied to the revenues of the company. Whatever product or service the company has that is creating incomes for them, will remain the same or improved. However, this is not always the case. The private equity firm will want to cut down on costs like we already mentioned, and one of the ways to do that will be to eliminate the products or services that are not producing high-enough revenues.

All of this will enable the investor to increase the worth of their investment and eventually sell the company to another, larger buyer and make a profit.

Before the investor buys a company, they want to find out about the five main metrics we previously mentioned, so let’s dig into each one and explain in more detail.

1. Liquidity

The company’s liquidity measures to how quickly it can be bought or sold without affecting its price are the reason why liquidity matters to an investor are clear.

A controller, CFO, or a bookkeeper, would typically be responsible for this metric, although it is not looked into with such a degree the investor would want. That’s why liquidity usually becomes an issue after the company is sold or invested in. When that happens, the private equity firm wants regular cash flow models for specific time periods:

• Daily – if there is a crisis at the moment,
• Weekly,
• Monthly,
• Or quarterly.

It further necessitates the need for top-notch accounting solutions because the company needs to make sure that the liquidity metrics remain at the desirable levels or change to something the investor wants.

2. Cash flow

Income matters and the investors know that. No one wants to invest in or own a company that’s not making enough money. However, even though the investors care for it, they care more about the cash flow.

The reason behind this is apparent. Income statements include non-cash revenues and expenses, while the cash flow statements clearly show how much cash the company is generating. This single metric matters a lot to investors as high incomes sometimes do not necessarily mean that the money is flowing.

Now, investors value companies on EBITDA, which is the leading indicator of a company’s financial performance and their earnings potential. It’s an acronym, and it includes:

• Earnings Before Interest,
• Taxes,
• Depreciation, and
• Amortization.

All in all, not all values are equal to investors, and increased EBITDA is what’s going to enable the investor to sell the company later for a lot more than the amount they invested.

3. Expense control

Investors always pore over expenses, which is why spending controls are another crucial metric they want to know about.

This metric is used to identify and reduce the expenses a company has, which in turn increases profits. It starts with the budgeting process where real results compare against the budgeted expectations. If it happens that the costs are higher than they were previously planned to be, action has to be taken to lower them.

That’s why investors always ask about:

• The company’s policies
• Why specific expenses are spiking
• How these expenses are controlled

4. Analysis of each product

Cost accounting is often tricky, even for larger companies, as sometimes it’s easy to omit certain areas where profits are made, and cash is generated. That’s why costs need to be controlled in the best way possible.

When things are omitted, investors always want to do a thorough analysis of each product, to see the actual margins for each specific product their target company is making.

When it comes to businesses offering services instead of products, the private equity investors look into how contracts are bid, and they want to avoid deals that aren’t profitable enough, even though they increase revenues.

5. Industry related metrics

The fifth and last metric is hard to explain as it’s different for each company, depending on what business they are in. Every industry has its key metrics, which is why each company needs to define them and research into the parameters used by other companies in their industry.

The private equity firm will undoubtedly want to check these metrics as they help them gain insight into how the company is performing within its industry, not just how it’s fairing overall.

These five metrics are the backbone of the way private equity firms see investment targets. That means that every company looking to attract investors’ needs to worry about them and work on improving them and eventually presenting them in the best possible light to the investors.

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Private equity firms do not invest in companies blindly, nor do they spend with simple criteria in mind. They look for concrete things to decide if the company is worth the investment.

If you consider that more than 50% of these investment deals are between $50 million and $1 billion in value, it becomes clear why extensive research and careful deliberation on the company’s value matters. Besides; private equity firms

• Increase the value of their investments
• Help fuel growth of these companies
• Achieve high returns on their investment

That points to the importance of these investments for both sides.

There are numerous things that every good private equity company looks for in growth companies, but only a handful are considered vital. After careful research, we’ve found that there are only five essential things that each private equity firm looks for in a company they want to buy into.

Whether you represent a private equity firm or a growth company that is trying to increase its value and to obtains a sizable investment, this article will benefit you. It will inform on several important things in the investment business that you may not already know.

Good management teams

One of the first and most important things every great private equity firm looks for in the companies they want to invest in is a good management team. Unless they want to change the managers, top quality managers are a decisive factor. The investment company is not going to run day-to-day business for every one of their investments, which is why they want them to have high-quality management teams.

Private equity firms need the company they are investing in to have management teams that can flawlessly perform the following things:

• Know how to and succeed in transforming their company’s business model to correctly reflect the consumer and business wants and needs from their service.
• Change the company’s structure if necessary to create efficiency and cut down on costs.
• Continue to grow through sales motion, which includes alliances, new joint ventures, and customers.

What all of this means is that private equity investors need the management teams to be among the best, completely agile, and able to execute changes whenever necessary and yet further the company’s growth.

1. An ambitious yet realistic business plan

The main idea behind the need for investment is further growth. There is no point in buying a company that’s not planning to do whatever it can to grow. In turn, it necessitates a sound business plan that has to be both ambitious yet bound in the realities of the current market and the company’s abilities.

Naturally, this business plan has to:

• Properly envision sales growth
• Predict profit growth with a reasonable margin of error
• Back everything up with hard facts
• Be coherent

Besides this, for the business plan to be successful, it has to:

• Be as unique as the company itself
• Have a strong value statement
• Place equal importance on the short and long-term plans
• Take into account the allies and opponents on the market
• Plan for uncertain and hardly predictable things

2. Potential for growth

One might think that the potential for growth is the first and the only thing an investment firm would look for in the companies they want to invest in, but in fact, it’s only one of the few main things.

Yes, private equity firms do look for the potential that includes several things, but they also rely on their gut feeling, or they do not measure the risk of their investment. It was thought to have been reserved only for venture capitalists who usually invest in new companies and startups where everything is a risk, while regular private equity firms look for more security. Unfortunately, they too often act like venture capitalists who are a risk that might be worthwhile but is also unnecessary.

We believe in growth, which is why our advice is to look for several key factors that indicate the potential for growth:

• The positive state of industry the target company is in
• Positive state of industry the target company is in
• Sufficient size of the market
• The openness of the leadership
• Past successes
• Stable customer base

It’s also worth mentioning that none of this indicates the certainty of growth, but it does show the high probability of growth, which is more than enough.

It’s also worth mentioning that none of this indicates the certainty of growth, but it does show the high probability of growth, which is more than enough.

It’s also worth mentioning that none of this indicates the certainty of growth, but it does show the high probability of growth, which is more than enough.

3. Quality of research and development

Every company’s success depends on their willingness and ability to conduct research and further their development. That’s why private equities always check if the company effectively communicates their research and development plan and whether or not it shows potential.

In today’s market, out of the companies in all industries; healthcare and technology companies are the ones who need to have a sound research and development plan, as these are the critical indicators of success for their respective industries.

Private equity firms consider the following things when it comes to research and development:

• How the target company’s research and development plan compares to other companies on the market and whether or not it can compete effectively.
• The target company is expected to know the right amount of money that needs investment in development and research that will drive revenues and further growth.

4. Security

Last but not least, security is another main criteria for private equities. As they are not banks, they cannot know their whole return on investment, nor that there will be one at all. That’s why private equity firms look for several things that will bring them security:

• Seats on the board of the company to have a say in many vital matters
• A sound contingency plan as every business has its ups and downs
• Financial visibility with transparent and accurate reportingA prepared and clear exit strategy to implement after a few years when it’s time to sell

All in all, we believe that this sufficiently explains why these are the central criteria for private equities before they invest in companies. It’s crucial for both sides for these five things to exist as they indicate more growth and revenues for both.

Have you ever approached an investor for funding? If you did, then you know how challenging it can be to provide the relevant, insightful, and timely information to your investors.

The challenges of providing financial information

Failing to provide accurate and timely financial information can happen due to a variety of reasons:

• An underperforming finance team
• High turnover in the finance department
• Shortage of high-quality finance staff
• Lack of proper internal controls or process scalability
• Lack of sound financial data
• Limiting and disparate systems
• Difficulties measuring and analyzing the gathered data

The diversity of financial reporting

No, financial statements can’t fit into a single mold as there is no one-size-fits-all approach. Every business is unique, and the variety of activities always results in different financial statement presentations. On the other hand, less-experienced investors expect to encounter a presentation that fits inside the mold of a “typical company.” The cash flow statement, income statement, and balance sheet are less susceptible to this phenomenon.

CEOs and CFOs need an experienced “right hand” and thought partner who knows the needs and requirements of their company as well as what kind of financial reports they need to approach investors.

Financial reports

A company’s financial statements (income statement and balance sheet) are essential components of any financial report. They present your company’s performance results, and you are required to file financial reports with the SEC (Securities and Exchange Commission.) The reports can be quarterly and annual.

A lot can be learned from your annual financial report. For example, what products or services do you sell and how does your company see itself. It also describes recent regulatory changes, leadership changes, accomplishments, risk factors, and other changes that affect the company. Potential investors also want to know if there are any risks or threats to your earning a profit, and financial reports also describe a company’s weaknesses and downsides.

Income statement

A financial statement that describes your company’s financial performance over a given accounting period is called an income statement. Financial performance is analyzed and assessed through the summary of how the company incurs revenues and expenses through operating and non-operating activities.

The income statement provides information about monthly, quarterly, and yearly performance, beginning with sales and breaking down the earnings per share and net income.

Income statement has two parts, operating and non-operating. The operating section of the income statement presents information about incomes and expenses that result from your business operations (the sales of products or services.) The non-operating part presents income and expense data that are indirectly tied to your company’s operations.

Balance sheet

The second part of a financial report is the balance sheet. It reports your company’s liabilities, assets, and shareholders’ equity at a given point in time. When evaluating your company’s capital structure and computing rates of return, your balance sheet provides a basis. What does your company own and owe? Your balance sheet will give a snapshot.

In the balance sheet, there are assets on one side and liabilities with shareholders’ equity on the other side of the equation. Shareholders’ equity, liabilities, and assets are each comprised of a few smaller accounts that explain the details of your company’s finances. Due to the industry and the nature of the business, these accounts can vary widely.

What is behind the numbers?

A CEO of a company uses financial reports to improve decision-making and strategic planning. When approaching investors, the financial report reflects your company’s business.

The financial indicators and numbers derived from these numbers must be understood before crunching numbers. So, it’s imperative to understand what the company does, the industry in which it operates, and its products or services.

One of the main reasons you should know how to read your financial statements is that you can calculate your financial ratios. Financial ratios show the state of your company – how it is doing, whether it’s profitable, and whether it is taking on too much debt.

Consero Global can help

For over ten years, we have been blending the best technology, processes, and professional staff to provide our clients the enterprise level financial controls and visibility they need. And all that at a fraction of both the time and cost required to set up and manage an entire internal finance infrastructure and team.

By combining bookkeeping, controller, and CFO services with SIMPL (an integrated managed platform) and proven processes, we can provide world-class finance and accounting capabilities. What we bring to the table are proven systems and methods that can apply to all companies. However, with an understanding that every company is unique, we can customize our solution according to your needs and around your existing department structure.

Our SIMPL platform functions as a cloud-based financial command center, and it delivers financial clarity through an easy-to-use, intuitive interface. As a client, you get a dashboard view of your company performance as well as the ability to approve bills and invoice your customers. With everything in one place. SIMPL also scales with you, whether you’re a CEO or a CFO, to meet the increasing needs of your growing company.

With Consero Global as your “right hand,” you will get:

• Timely and more robust information for better financial visibility
• Increased efficiency & scalability
• Significant time & cost savings
• Genuine comfort & confidence

Also, we will help you formulate the right financial reports for your investors as well as to understand the numbers behind them before you crunch them.

Whether you’re a CEO, a CFO, or an investor – you need to know how to read, analyze, interpret, or create your financial reports. The three primary financial statements (prepared with the accounting data collected over time) are income statement, cash flow statement, and balance sheet. Each one of these statements shows your company’s financial pulse but in different areas. If you are not savvy with the finance or need to focus on other critical aspects of your growing company, you should consider outsourcing for finance and accounting assistance from Consero Global. We will help you to make the most of your recent funding.

The CFO (Chief Financial Officer) is a financial expert responsible for managing the money dealings of a company. For a private equity investor, a CFO is someone with the right capabilities to support strategic decisions and help drive operating excellence as the company grows.

The private equity investor needs a CFO that will be a thought partner over different aspects of the business, to be strategic and operational, and to help the company scale up while implementing the necessary processes and systems. The operational CFO oversees finance, but also human resources, supply chain, real estate, legal, and information technology. The strategic CFO looks forward and is growth-oriented.

The CFO communicates financial results, builds financial infrastructures that can support scalability, works on M&A opportunities, and speaks the dialect of finance. When selecting their CFO, the trade-offs can be quite complex even if the underlying reasons are straightforward.

1. CFO is the CEO’s right hand

Strategic plans of midsize companies are developed according to market risks and opportunities in different product segments. These companies are in a state of perpetual growth with their CFOs looking forward through the windshield. What obstacles lie ahead? What could be their potential impact? CFO leverages predictive analytics to find that out, and advise the CEO about the ways to manage through the “bumps” or suggest alternative routes to avoid them.

As assertive and self-assured people (some might say overconfident,) CEOs may often think they have everything covered. But, a CFO is there to be the CEO’s “right hand,” bringing different observations out in the open. Trained in the social science of finance, CFO brings forwards those issues that might not otherwise be considered relevant. It, of course, requires a constant and open dialogue between the CEO and the CFO.

A private equity investor wants a CFO whom they will be comfortable sharing everything (from personal-professional struggles to strategic ideas.) CFOs are their enthusiastic champions and confidants, people who share certain ideals and values but think differently to provide an alternative perspective.

2. CFO can build a scalable department

Businesses change fast due to the unpredictable and disruptive global business environment. Is the company going towards a pitfall? A CEO must know when to move the capital closer to promising opportunities and away from failing businesses. Is there a need for new technology or equipment? What about making significant allocations of capital to open a new factory? CEOs need their CFOs to identify cost-reduction opportunities and revenue drivers, do cost and benefit analyses, and project the expected ROI.

First, a strategic CFO analyzes business data to apprise the CEO on where the capital will have the best ROI. It gives the CEO enhanced agility on where to allocate company resources. Thanks to finance and accounting applications and cloud-based predictive analytic tools, CFOs have greater options these days when it comes to determining when to pull back resources and from which areas. The new technology provides visibility into real-time data across the entire organization, which provides detailed views of business and reduces operating costs.

CFOs can work to improve resource allocation in specific departments, help marketing executives in evaluating ROI on various campaigns, and help the operations team analyze whether they should insource or outsource finance services. They work to build a scalable infrastructure.

3. Be an M&A strategist

If a company wants to reduce expenses and gain scale, acquire key capabilities, or enter a promising marketing opportunity, one way to do it is through M&A – merger, and acquisition. Having a strategic CFO by their side, private equity investors can manage to see their M&A transactions live up to their expectations. A CFO’s job is to find and evaluate opportunities to make sure that the company they wish to merge or acquire is aligned with the company’s strategy and is “healthy” regarding performance.

A CFO’s responsibility is to grow the revenue both organically (through product development) and inorganically (through M&A.) However, CFOs must pay attention to the value of acquisition – it should be about reduced expenses as much as it is about strategic growth. The CEO wants to know whether the acquired company will become part of the brand to influence talent recruitment and sales positively.

4. Stay on top of the newest technology

A strategic CFO is responsible for investments in new technology (hardware and software) to enhance process efficiency or worker productivity and reduce labor costs. They can invest in cloud-based software for streamlining accounting processes, such as new RPA solutions. RPA (Robotic Process Automation) can be used for the manual and repetitive work handled by the accountants. Next, predictive data analytics is also widely used in growth companies because it provides CFOs with transparency into the business. It helps them advise their CEOs on how to adjust the company tactics and strategy. The technologies are categorized by maturity:

• Bleeding edge
• Coming of age
• Mixed results
• Proven winner

5. Be rigorous

Experienced private equity CFOs have developed a very analytical and highly detailed approach to finance because working in a PE environment includes working with an increased level of diligence and rigor. That rigor reflects the path of a PE investor as well as what they’ll expect from a CFO. The precision is one of the principal values of accomplished CFOs from the private equity sector.

Private equity CFOs are focused on both daily and incremental business and long-term goals. They are not just able to crunch and monitor the numbers but to create the most innovative and productive outcomes. They will know when to do things in-house and when to outsource. They will be both strategic and operational, often wearing multiple hats and taking care of other functions beyond finance and accounting. They will be their CEOs’ right hands and thought partners. They are not owners but will need to think like them, because they know what the company’s objectives are and how to deliver value to reach them.

When private equity (PE) firms look for companies to invest in or buy, they have a set of criteria in mind. For starters, these companies need to show strong growth potential regarding both sales and profits. A PE firm will usually buy a majority position in that company and will leverage their resources and networks to help that company achieve its potential. After a period of somewhere between three to seven years, on average, they will resell it or take it public for a profit.
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