Driving Change Through Finance & Accounting What Issues Are CFOs Grappling with Today?

A company’s need for an optimized and rigorous finance and accounting (F&A) function becomes critical after it closes an investment from private equity and venture capital institutional investors. 

Institutional investors immediately expect finance and accounting to serve as a value driver for the business by providing clean data and KPIs, along with strategic direction to the CEO, board and investors. Functional and technical skillsets and the ability to deliver timely and accurate financials are just table stakes.

Consero recently surveyed 100 CFOs of institutionally backed companies in the technology and business services industries to find out what issues CFOs are currently grappling with. More specifically, we wanted to learn what the optimal state, size and organizational structure are for the finance and accounting function as a business scales.

The survey also explored whether CFOs should consider investing at different inflection points as a business scales, as well as hidden costs and spending time on value-driving activities. In addition, the survey inquired about the expectations of CFOs in working with institutional investors and the board of directors and how partners with ready-made solutions can offer support at the most critical time in a company’s growth.

Following is a recap of the survey results broken down by the three main survey categories.

The Ideal State

With a short hold period, institutional investors have little time or patience to build an optimized F&A function from scratch or to curate a collection of talent. PE-backed companies need to know if they’re going in the right direction and be able to quickly change course if they’re not. Therefore, we asked the CFOs in our survey what are the most important F&A functions for optimal performance and growth. Here are their replies:

Functional skillsets of the team 20%

Ability to deliver timely and accurate financials 20%

Ability to deliver KPIs 17%

While CFOs stated that the emphasis on F&A hires should be on functional skillsets, they believe the emphasis on the CFO role should be on strategic planning. The survey respondents said that 53% of their time should be spent on strategic planning activities while 47% of their time should be spent on day-to-day operations.

The major consequences of a poorly run F&A function are an inability to make strategic investments and accounts payable/accounts receivable delays. Both were listed by 44% of the respondents.

Benchmarking the Back Office

One of the first things investors evaluate as part of their due diligence process is the cost and effectiveness of a company’s back office. Those CFOs that have previously run the investor gantlet warn of relentless pressure to optimize costs to free up dollars that can be allocated to top-line revenue generating efforts across sales and marketing.

Investors first look to overhead and fixed costs — this makes getting their own house in order critical for CFOs. Most survey respondents said that F&A spend should be less than 10% of company revenue. And three-quarters advise having fewer than 10 F&A FTEs at companies with $10 million or less in annual revenue. Even that finding belies the ideal efficiency that investors demand, given that recent data from Robert Half’s “Benchmarking Accounting & Finance Functions” report indicates businesses with less than $25M in revenue need only 3 F&A employees. 

The need to wring more functionality out of fewer employees necessitates an alternative approach. One solution is Finance-as-a-Service (FaaS), which can help reduce costs, increase efficiency and mitigate the risks to business continuity of the finance function. FaaS prepares businesses to scale and can be especially beneficial when you consider that 67% of the survey respondents said that as a company’s revenue grows, the percentage of revenue ration should decrease or stay the same. 

Hidden Costs and Risks

PE-backed CFOs need to watch out for hidden costs in terms of both expenses and time. It’s often assumed that companies on a growth trajectory will either be operating on an enterprise-grade solution or have the funds to upgrade as they grow beyond the small or mid-sized F&A software they were accustomed to. But this process is costly and time-consuming.

Nearly nine out of 10 (88%) survey respondents said they underestimated the time it would take for a full financial transformation that includes fully implementing an enterprise-grade ERP and the necessary software stack. This includes 62% who significantly underestimated the overall effort or underestimated by more than a little.

The true impact of this isn’t just late nights and a timeline far longer than many CFOs anticipated. The time and effort spent focusing on basic components like documenting workflows and processes is time not spent on the company’s most important strategic growth initiatives. This represents a worst-of-both-worlds scenario — incurring the risks of a suboptimal F&A organization while also spending an unrecoverable currency: the CFO’s time.

The CFOs in the survey agreed that most of their time should be spent on strategic planning. However, they estimated that they spend an average of 13 hours per week recruiting, assessing and hiring talent. This adds up to one-third of a standard workweek, or six full days every month.

The CFO as a Strategic Partner

Receiving an infusion of capital from private equity backing puts the F&A team squarely in the spotlight since it is tasked with meeting elevated expectations at an accelerated pace. The CFO is expected to deliver timely and accurate financials and produce clear KPIs while developing a forward-looking growth plan. This places a greater emphasis on the CFO’s role as a strategic partner to the CEO and board.

Fortunately, there are solutions to empower CFOs during this high-wire act. For example, FaaS will set up the F&A team for success while positioning CFOs to be the strategic leaders investors and CEOs expect them to be.

Consero can help you build an optimized F&A team using FaaS so you stay focused on strategic planning and other growth initiatives. Contact us by requesting a complimentary consultation to discuss your situation in more detail.

Consero FaaS: Disrupting the Outdated Traditional F&A Model

  • Cash to GAAP conversion
  • Clean-up work
  • Interim oversight & support
  • Accounting software Implementation

Build it Yourself Solution

  • CFO / Interim CFO
  • Consultants / VARs

Consero FaaS Solution

  • CFO / Interim CFO
  • or Consero Interim CFO
  • Consero Setup/Transformation
Ongoing F&A
  • Monthly financials
  • Daily accounting support
  • Management reporting
  • Integrate add-on acquisitions

Build it Yourself Solution

  • CFO
  • Controllers & Accounting Team
  • Enterprise Accounting Applications

Consero FaaS Solution

  • CFO
  • or Consero Fractional CFO
  • Consero FaaS Enterprise F&A Software and Services

New PE Platform Investment F&A Challenges

Founder Owned Company Accounting:
  • Existing accounting done on a cash/hybrid basis
  • Run on SMB accounting software and other disparate applications
  • Inability to produce auditable financials
  • Lack of know-how to develop projections & KPIs
  • No consistency/structure to customer contracts
  • Underqualified staff
  • Non-scalable manual processes
Carve-Out Accounting:
  • Required to move off parent company accounting applications in a timely fashion
  • Have to build an entire F&A team
  • No documented operational policies and procedures
To Optimized Finance & Accounting:
  • Monthly financials available in 5-10 business days
  • Audit and diligence ready support details
  • Integrated enterprise grade accounting software
  • Budget and forecast reporting
  • Business KPIs
  • Efficient & scalable processes for rolling in add-ons