Valuation How the finance & accounting function has hidden risks for investors


Investors rely on valuation, i.e., several metrics and numbers that tell them an investment is worthwhile. These numbers and metrics must paint a good picture. However, when your finance and accounting function is not good, there is basically no way to prove that an investment is sound.

That can become a much bigger problem than many might expect. You need a lot of different things that will determine the value of a company or some other investment, such as:

  • Financial leverage
  • Financial return expectation
  • Cash flow
  • Future performance
  • Exit strategy

These are just some of the metrics and numbers that need to be conclusively proven by the finance and accounting team. However, if that whole function is not operating to its fullest capacity, or is simply not qualified enough for it, then you’re going to have problems and risks.

That’s precisely what we wanted to talk about in today’s piece. Furthermore, we will also show you the solutions you need to avoid these risks.

The hidden risks for investors from the finance and accounting function

A lot of problems can arise in poor finance and accounting functions, and many of those can affect your investment and create unnecessary and potentially devastating risks.

One of the common problems arises when transactions take place. Your finance and accounting team needs to have supporting documentation and several buttoned-up processes. Without these in place, your transactions won’t run smoothly. They usually become a tedious process that can lead to delays and failures. However, that’s not all, as lower valuations are also a very likely outcome of poor transaction processes.

Naturally, this can reflect on the customers as well. When transactions involve them, they expect your growing company to be a professional one that can handle transactions without a hitch. However, with a poor finance and accounting function, you carry the significant risk of this not happening. That’s because the entire transaction process needs to be supported by valid documentation provided by the finance and accounting teams. If that doesn’t happen, the customers lose trust in the business, which can lead to poor valuations.

Another problem can exist with financial reports, which are necessary for every business. These include:

  • Income statements
  • Cash flow projections
  • Balance sheets
  • And more

However, finance and accounting don’t always produce useful financial reports. They often make the mistake of making them overly complicated and riddled with mistakes and errors. It’s not easy to continuously deliver great financial statements. They need to be:

  • Detailed
  • Accurate
  • Timely
  • Future-oriented
  • Easy to digest

Without having all of these attributes, your financial reports could cost you. They can lead to reduced valuation, among many other problems and risks.

Besides technical problems like these, finance and accounting functions carry other risks like member turnover. They can leave the company for a wide variety of reasons, and it’s a common problem in all companies. However, it becomes a more significant issue when the turnover rates are higher than usual, and when the people who are leaving are your top talent. This is an issue for finance and accounting teams as well, where the loss of a key figure can create many other problems.

Key figures like CFOs and controllers enable your finance and accounting function to operate well, but without them, you run the risk of the entire team falling apart. That’s because some members can be replaced, and the interim period won’t affect the function significantly. But the loss of a critical member will affect functionality significantly, and the transitional period can be devastating.

How to avoid the risks

As you can see, the risks are many, and the ones we covered are just some of the most prominent ones. There’s a whole host of others that can cause your valuation to go down, which is why it’s vital to do what you can to avoid them.

More and more, private equity firms are turning to Finance as a Service and find that to be the best way to avoid the risks that are inherent in the finance and accounting function. Outsourcing with Finance as a Service means you plug into a partner that has already built the processes and systems hundreds of times and have the finance talent with the right skill-sets to meet all your F&A needs.

In today’s world, outsourcing is becoming more prevalent than ever before. It’s no wonder as it’s often far better to outsource to a professional team that’s much more capable of doing the job than an in-house team could ever hope to be.

That’s especially true with the finance and accounting departments. As you’ve seen, they carry a whole host of risks and possible issues. In the case of third-party solutions, these problems don’t exist.

The most obvious problem that’s avoided is employee turnover. The third-party business has its own employees who are qualified and will not abandon your business for a better paycheck or some other reason. On top of that, you pay for the service, not the employees, so there’s no worrying about numerous paychecks, vacations, and benefits. That makes the outsourced solution a cost-effective one as well.

When it comes to technical risks, almost all are avoided with a third-party. For example, we at Consero have experienced team members who will improve your financial transactions. They will:

  • Improve the quality
  • Increase efficiency
  • Reduce the costs

Our team will do this for all of your operations, including financial statements, as well. They do them all the time for a whole host of growing companies. Plus, mistakes and errors are avoided because transactions and reports are automated through our high-quality software solution.

All in all, if you decide to hire Consero, you will receive a high-quality service that has your entire finance and accounting functions wholly integrated and streamlined. The problems that in-house teams need to deal with regularly will be eliminated. Most importantly, we will help you avoid all the risks and potential issues that can affect your valuation.

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