COVID-19 might feel like a reason to suspend the usual priorities, but the finance function at portfolio companies needs to maintain its performance. We spoke with Consero’s President Bill Klein to learn the best way to discern if the finance function is delivering.
No business should be faulted for not planning for a once-in-a-century health crisis, but now that it’s here, they need to pay close attention to its impact and evolution. When COVID first hit, private equity firms’ first priority was to ensure that their portfolio could handle the shocks of the lockdown by cutting costs and projections. But as the pandemic wears on, they’d best pay close attention to its effect going forward, and that means they need numbers they can trust.
The standards still apply
It’s time for GPs to take a second look at the finance function at their portfolio companies, and make sure they’re operating as they should. That means more than closing the books on time, but doing the additional work to make sure that they remain audit ready.
Beyond that, there needs to be a view to how the finance function can work more efficiently. If resources are liable to shrink over the next few years, it might be worth the trouble to find ways for the companies to do more with less, even as they grow.
Beware a breakdown in the basics
“It seems obvious, but the books need to be closed within ten days of the end of the month,” says Bill Klein, President of Consero Global . “If not, that usually indicates larger problems with the staff and process.”
There may have been some hiccups as the finance team shifted to working remotely, but by now they should be up to speed and delivering as before. But Klein’s definition of the “basics” is a little more expansive than getting the correct numbers on time.
“They may be delivering financials, but not closing out on support schedules and the other underlying data,” says Klein. “Otherwise, when an audit arrives, the company is left paying consultants a hefty fee to catch up and get those financials in order for that audit.”
For Klein, if the financials aren’t audit-ready, they aren’t ready. Furthermore, no company will want to fork over those extra fees in the midst of an economic downturn.
Conduct revenue recon
Klein also warns that while the US government offered an extension for companies to become ASC 606 compliant, that doesn’t mean the effort should be shelved for now. “Companies need to know where they stand with this new revenue recognition standard and have a timeline for when they’ll meet it.” It is exactly the kind of issue that can feel safe to ignore until it’s too late, when the eventual scrambling can lead to mistakes.
The new standard might be initially cumbersome, but it could lead to business improvements in the long run and can make all the difference in how a company emerges from the current crisis. That’s why Klein continues to gauge the finance function for its long-term health and effectiveness.
Obtain a digital finance function with remote access
“At a time like this, decisions have to be made quickly and that means updated, accurate information is vital,” says Klein. He 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.
“When people think of remote access, 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. 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.
“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.
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.”
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.
“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 companies 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.”
Tomorrow is already here
“When we look at providing the finance function for a new client, we’re not just looking at where the company is today, but where it will be in six months or a year, and create a solution that fits where they’re headed,” says Klein.
This is all the more important in the case of private equity portfolio companies, as they tend to be undergoing major changes as part of the GP’s investment thesis. “And in times of major upheaval, it’s all the more important to build a finance function for the long term.”
Klein explains that while cost-cutting made sense when COVID-19 first hit, it doesn’t address tomorrow’s cost structures. “Ideally, private equity firms should be looking at the scalability of the finance function so that even when growth arrives, they are doing more with less, but that often means investing the time and resources into better processes today.”
Proactive financial preparedness
Building better processes involves looking closely at every phase of the work from the finance function. “When Toyota introduced its Total Quality Management standard, they didn’t just implement it at the end of the assembly line, but at each step along the way,” says Klein.
Consero looks at each piece of a client’s process and hone it for maximum efficiency. “We don’t wait for the audit to be announced to scramble for anything. We want to be ready, even if the call comes today.”
Klein makes the case for a new, higher standard for the finance function in light of the pressures from COVID-19. “While uncertainty is a given, we can expect that the future will leave less margin for error in every facet of a business,” says Klein.
When a crisis upends “business as usual,” the speed and clarity of your financial decisions can determine how well your organization weathers the storm. Consero’s Finance as a Service equips you with the insight, structure, and extra hands you need when you need them most. Connect with us, and we’ll deliver:
- 🩺 Comprehensive Health Check: A fast, diagnostic view of your accounting & finance function
- 🧭 Unbiased Improvement Roadmap: Clear, prioritized actions to stabilize cash flow and strengthen controls
- ⚙️ System Optimization: Rapid tuning of your tech stack for remote, real-time reporting
- 📄 Tailored Consero Proposal: A step-by-step plan to deploy our team and tools so you can focus on leading through the crisis
In moments of uncertainty, decisive data and a battle-tested finance partner make all the difference. Let’s reinforce your back office together. Reach out to Consero today.
