How Outsourcing Helps Private Equity Firms Manage Costs During Economic Disruption

The coronavirus (COVID-19) outbreak has drastically altered the world as we know it. As a global healthcare crisis, it has swept across all countries. As an economic event, it brings about market downturns, widespread uncertainty, and hardship for consumers, businesses, and communities. As the virus continues to affect the globe, even the largest firms in the world are worried about the magnitude of its economic effects, especially if lockdown measures are drawn out.

Amidst the numerous businesses being affected by the pandemic, private equity firms find themselves in a unique situation where multiple companies, with hundreds of employees, are looking for guidance. While this was always the case for the private equity industry, the fast-moving and unknown variables that COVID-19 brings to global private equity and private markets will require them to re-examine crisis response strategies, products, and processes to survive the downturn. This will mean looking for ways to preserve resources while increasing productivity. One of the best ways to gain a competitive advantage is by outsourcing non-core but important tasks to professionals. We will look at how PE firms can leverage outsourcing to enjoy cost savings in these difficult times.

Outsourcing – Finding Your Footing During a Crisis

Many companies are experiencing significant losses and reduced cash flows during the COVID-19 crisis. Numerous measures are being taken to ensure the critical aspects of the business continue running at maximum capacity.

Among the chaos created in the reorganization, many businesses have to sacrifice quality as they temporarily redirect resources. While this can get you through the initial stages of the crisis, it will not be enough to keep you afloat in the long term. To maintain the quality and efficiency needed to get through the downturn, many private equity firms turn to strategic partnerships with outsourced technology solutions and services providers. This is because of the benefits and effectiveness the “as-a-service” business model has to offer, especially when it comes to financing and accounting – something all businesses need to stay on top of during the crisis.

Importance of Finance and Accounting During a Crisis

Many businesses affected by the crisis are looking to handle the initial impact of events and restructure their business. This means they are looking into crisis management and business continuity measures for the short and long-term. During this critical period, businesses will need to keep a close eye on all of their activities and resources. The goal here is to cut costs and unnecessary expenses as much as possible.

This means that CFOs in charge of PE firms will need up-to-date and accurate insight into the financial situation of companies to make forecasts and create business continuity plans. This brings about the need for a good accounting team. When it comes to accounting and finances, businesses have the option of going the traditional way (In-House) or outsourcing to a third party. In order to determine which of these two options is better during an economic disruption, we are going to look at the two options.

In-House Solution vs. Outsourced Solution – What is Best During a Crisis?

In-house (traditional) and outsourced finance and accounting systems offer different workflows when managing the accounting and bookkeeping of a company. Some businesses are not accustomed to the idea of Finance as a Service, and they prefer to stick to the traditional method. The idea of having on-premise employees dedicated to the task sounds better than having a remote team handling your finance and accounting. However, the current pandemic has shown us that this is not always the case. Businesses that were once wary of outsourcing are seeing the potential benefits of an outsourced solution.

In-house solutions are considered by many to be an outdated and expensive option in the modern world, particularly if you are still using legacy accounting systems. With lockdowns forcing many to work from home, digitally transforming your company not only becomes a competitive advantage but a necessity. And if your teams are working remotely, you should also be leveraging cloud-based technology solutions. Outsourced solutions already leverage digital technology and can help companies during their transition.

Maintaining a traditional finance department carries many expenses and demands numerous resources — everything from the initial hassle of vetting applicants to the management and costs of the team. The worst part is that there is no guarantee you will find the perfect person to handle your financing and accounting. This, in turn, results in changes or additions to the team being made down the line.

What Outsourcing Has to Offer

With technological advancements in recent years, traditional approaches are not always best when it comes to managing your company’s financial standing. Outsourcing your accounting enables a professional team to handle some or all of the accounting processes, relieving you from managing full-time employees, while still enjoying the benefits. What exactly does Finance as a Service have to offer?

  • Professionals in the field: Outsourced partners work with a variety of businesses and have a team of professionals who can jump in and assist at any moment. This means that you will not be limited to a few individuals. You will have on-demand access to the expertise and experience of an entire team. In addition to that, you will also be able to customize services to your current needs.
  • The Latest Processes: If you are looking to make use of the very best systems and processes while reducing operating costs, then outsourcing is vital. It ensures you will have access to all important information whenever you want, eliminating paper-based processes that can slow things down. Such systems can dramatically improve efficiency, and essential staff members will have more time to focus on the important tasks.
  • Accurate and Timely Reporting: Outsourcing your finance department means that you will always have a team on standby to handle financial reports. Combining this with integrated systems that track all metrics means that you will have immediate insight into your financial situation whenever you need it.
  • Technology: The world has changed, and companies need to embrace digital technology, advanced analytics, and cloud solutions if they want to stay relevant. What this means for financing and accounting services is that they need modern solutions for problems. This comes in the form of accounting software that eliminates the need for non-integrated software or spreadsheets. Instead, you will have a platform that consolidates everything you need, with numerous dashboards that provide on-demand and easy to understand information.

Financial Benefits of Outsourcing

We have seen some of the things that an outsourced solution has to offer to a private equity leader. Now is the time to see how these services can help PE firms save money during a crisis.

●     More Cost-Effective

One of the biggest reasons people choose outsourcing solutions over traditional ones is the price itself. With outsourcing, you only pay for what you need, making it possible to get work done for a lower cost than if you were to employ an in-house team. When it comes to employing a finance staff, particularly management teams, remember there are regular salaries to be paid, along with health insurance, vacation pay, and other fixed costs.

●     Scalability

When work is outsourced, it removes the need for developing infrastructure. Scalability is another reason why people turn to outsourcing solutions. It provides a business model that meets your needs, regardless of your size or demand. They are not dependent on company scaling. In times of a crisis, this is extremely valuable because it eliminates the problem of having a full team when there is not enough work. This means that you will not have to pay a fixed amount for the services you get. Instead, you will be able to add or subtract services as your company fluctuates.

●     Increased Productivity and Efficiency

When you have a traditional in-house team working in your office, they will likely be handling every aspect of the job. Unfortunately, this means splitting time between big tasks and less critical tasks. Such a system can cause bottlenecks in workflow, resulting in the company having to wait longer for projects to finish. Outsourcing tasks to professional companies not only ensures that the work is done well, but it also frees up time and energy to invest in meaningful projects that will get you through the crisis.

Given the conditions of the global economy and the uncertainty we face within the next few months, PE firms must find ways to adapt and survive in the current economic climate. This will mean getting creative and looking for ways to save money without sacrificing quality. Outsourced solutions are the perfect way to do that. Consero offers services that will give an overview of your financial capabilities, enabling you to plan for the changes you are facing.

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