Why PE portfolio companies struggle to generate timely & accurate financials

The private equity firms of the world deal with a lot of money – the whole market is worth around 3 trillion dollars according to individual reports.

That kind of wealth entails impeccable accounting and finance functions, but the reality is much different. The truth is that PE firms struggle to get timely and accurate financials from their portfolio companies. Most of these problems exist only because of the people who are supposed to deal with finance and accounting.

With many PE-backed companies, these people are their in-house finance and accounting teams.

Now, we are not trying to diminish what they do, nor say that they are unable to do their job – the problem is that they don’t have the means to do what’s continually put on their plate. Simply put, the work they have – the amount, complexity, and more – is more than what a real in-house team can handle.

But that’s not all; we’ll have to dig deeper to find out all the problems that exist here which are preventing portfolio companies from generating timely and accurate financials.

The finance and accounting problems companies face

There are several, pervasive problems that almost all companies face. Due to these problems, they struggle create timely, accurate, and audit-ready financials.

The accounting and finance departments often don’t have the right personnel. Like we already said, their skill set doesn’t necessarily align with the tasks they are required to do in a continually growing company. It usually results in wasted time, mistakes and low employee morale. The employees are stalling the company growth – they are focusing on transactions and reporting, yet they fail to accomplish either because:

  • Accounting and finance teams have poor processes. Their systems have limitations, and they exhibit undefined processes which only hinder the improvement of finance and accounting.
  • The executives can’t make proper decisions because the information they get is inadequate in giving them the insights they need to make the right choices.
  • The financial data is dispersed and disconnected, which results in questionable numbers and results. It only creates bottlenecks which become an operational barrier to the growth of the company.

Such serious problems necessitate real solutions. The solutions only Finance as a Service can provide.

In addition to these technical and operational issues the portfolio companies face, private equity firms have other problems as well, all of which stem from the fact that PE firms are no longer mere suppliers of capital. The changes in how PE firms are operating in today’s day and age has brought increasing needs for control.

PE firms now need to:

  • Make most of what they do entirely transparent
  • Use tighter accounting controls
  • Have better reporting

Transparency can be fixed in-house, but the other two problems, as well as the rest of the technical issues we have previously discussed, can only be fixed by professionals who possess the expertise to do it.

For these very reasons, many PE firms are turning towards outsourced accounting. Some are even turning to services that go even beyond simple outsourced accounting.

Now, why is this happening? What does outsourced accounting do that can improve the finances and accounting of PE-backed companies so much?

1.    Fixed operational and technical issues

All the problems we talked about that stem from in-house teams and poor operations are corrected when you hire outsourced accounting firms like Consero.

We promise our customers that the common problems we discussed will entirely be fixed in 30-60 days, which is the time it takes us to become fully operational within your company.

  • Disparate data is no longer that. We connect your data and provide a financial console, that has top quality accounting, business, invoicing, and expense software.
  • We implement processes and controls which are known to increase efficiency and speed of operations.
  • Our model saves you time that was previously wasted by your in-house team trying to catch up with all the problems and the growing needs of the company.
  • You will no longer experience poor reporting. With our service, you gain comprehensive reporting that will enable you to make important decisions and effectively continue to grow the company.

All in all, most technical issues can be dealt with quickly by our team, mostly because of the next fact that we’ll now discuss.

2.    Access to top talent in accounting and finances

The main reason for PE firms to turn to outsourced accounting is to gain access to talent. Finance as a Service firms like Consero  have finance experts that have worked with companies like yours for many times over and for a very long time. This has provided us with enough knowledge and expertise to last a lifetime.

What’s more, you don’t have to waste time, effort, and money on finding talent and forming a team of your own. You receive all of that combined when you hire us.

3.    Access to quality finance software

When you hire Consero, you get access to industry’s best cloud software platform called SIMPL.

SIMPL is an all-encompassing solution that acts as:

  • Cloud-based finance and accounting software
  • Cash flow management software
  • Complete help desk software
  • File storage and synchronization service
  • Asset management system

SIMPL allows you to have an easy way of understanding everything that’s happening within your financial operations and will enable you to have all the financial information you need in one place with  24/7 access.

The bottom line

It is apparent that PE portfolio companies have significant issues in their accounting and financial departments that bring about untimely and inaccurate reporting, and many more problems.

However, as you can see, it’s also clear that the solution is straightforward. All you need to do is turn to outsourcing with Consero’s Finance as a Service like many other private equity firms already have.

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