Why private equity firms are turning to professional finance and accounting providers

It’s relatively well known today that private equity firms always turn to ROI when they are contemplating making specific buying decisions.

PE firms do this because this metric is the only one that will determine if the decision is the right one in financial terms.

Now, there are still several criteria that will influence the decision of investing in a company:

  • Recurring cash flows
  • Favorable market trends
  • Strong and talented management teams
  • Low capital expenditures
  • They tend to increase expenditures that are limiting the profitability of their portfolio, which steers the private equity firm to feel limited when it comes to effectively making cost-prohibitive investments.
  • The private equity firm needs to make more effort in ensuring that the strategic objectives are met and that the desired returns are made in whatever way they can.
  • The Alternative Investment Fund Managers Directive, or the AIFMD
  • The Dodd-Frank Act
  • The Foreign Account Tax Compliance Act, or FATCA
  • Improved reporting
  • Tighter controls
  • Greater transparency
  • Quality and timeliness of information
  • Finance
  • Accounting
  • Bookkeeping
  • Payroll
  • Controller services
  • Automation of routine processes
  • Improvement of management reporting through the mastering of data
  • Systems that don’t allow for critical analysis and drill-down
  • Process inefficiencies across organizations
  • Lack of affordable and high-quality finance experts
  • Lack of proper and effective internal controls
  • Improves decision making,
  • Lowers operating costs,
  • And increases revenues for all portfolio companies

Even though these factors will reassure the firm that the investment is a good one, they still don’t guarantee a favorable return on investment.

So, if that isn’t enough – is there a way to maximize returns from an investment?

How can you make sure that the acquisition will bring back favorable returns as time passes?

The common practice most private equity firms undertake is usually to choose from one of two top choices:

  1. Separating strategic assets from non-strategic assets for the entire portfolio
  2. Reaching out to other partners or third-party service providers, both of which tend to be experts in the industry and are thus well equipped to find the non-strategic assets across the portfolio

However, the problem with these two choices is that they come with their own sets of challenges:

So, with all of these challenges, what can private equity firms do?

The solution private equity firms turn to

As a result of changes in regulations and in the market itself, private equity firms are essentially forced into making changes they previously haven’t considered and which are changing the landscape for them dramatically.

Regulations like:

These are just some of the many regulations that force private equity firms to focus on things like:

All of these things are turning deals private equity firms want to make into more expensive ones, which results in them having to find other ways to improve their ROI.

The solution many PE firms are turning to is to reach out to specialized finance and accounting service providers like Consero. PE firms leverage Consero’s Finance-as a-Service model to provide assistance with services including:

Specialized services like the ones we provide can support the operations of portfolio companies the private equity firms have, which is one of the main reasons why they are turning to us.

However, there are other reasons, as well.

What the research suggests

Recent research has shown that private equity firms, as well as institutional investors, are more and more finding that outsourcing key elements like administration and operations, is the only way to succeed in their market.

Outsourcing has already become one of the three main imperatives for private equity firms, while the other two are:

Both of these imperatives are something third-party specialized service providers can deal with.

Other research also shows that it’s becoming very difficult to find adequate accountants who are experts in finance and accounting, and who can thus offer their expertise in financials of portfolio companies.

It’s not always their fault. It’s already known that obtaining financials from portfolio companies is often more challenging than it should be for several reasons:

When such problems exist, it’s better to work with specialized Finance as a Service that can help you implement a system across all portfolio companies – a system that can resolve these problems within the first 100 days. This is true as the model has shown to be the best strategy for obtaining vast amounts of information which:

What do specialized Finance as a Service organizations provide?

Companies like Consero have worked towards building a solution for private equity firms to quickly resolve the problems in managing the financials of portfolio companies.

The solution is well optimized, and it helps private equity firms implement it across the board in less than 60 days. This becomes critical if a rollup is in your strategy. An in-house team in your portco will take a lot more to achieve this while companies like Consero have done the process for many firms and have thus developed ways of doing it quickly and efficiently.

Additionally, we focus on dealing with all the metrics private equity firms need, and we can thus provide you with improved reporting and data sharing.

If that’s not enough, you can also be sure that your CFO will also get the help he or she needs. Our team and automated software solutions take over the repeating, day-to-day tasks and thus enable the CFO to focus on making critical strategic decisions.

In the end, the model we use enables us to scale together with you, as we have worked with companies of all sizes and can follow the growth of your portfolio companies.

All of these benefits also lead to one main positive result, which is the reduction of costs related to the finance and accounting function. Improving the return on your investment can be accomplished through Finance as a Service.

When you consider all of these benefits, it becomes clear why many private equity firms are already turning towards working with professional finance and accounting service providers like us. If you would like to discover more about the solutions that your PE firm could leverage, contact Consero today.

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