Picking up a new asset company to add to your private equity portfolio represents an exciting opportunity for growth. Before that growth can be actualized, however, there's a number of steps to take and hurdles to clear. One of the most common potential stumbling blocks is a lack or – or mess of – accounting processes within the financial departments of newly acquired organizations.
For these newly acquired assets to grow enough to be positioned for the maximum amount of profit at exit, financial processes and back office operations need to be streamlined for efficiency. To achieve these milestones, more and more private equity firms are looking for outsourcing partners with unique approaches to operational efficiency across the entire portfolio. Here's how you can leverage business process outsourcing (BPO) to stay competitive in a market with more opportunity – and more players – than ever before.
Identifying Challenges in Accounting Systems in Private Equity Portfolios
The first step to streamlining accounting processes within your portfolio companies is to identify where the challenges to efficiency lie within them. There are a few issues that tend to become immediately apparent to investors that are preparing to take the reins at a newly acquired organization.
Oftentimes, the root of these problems is only discovered when the impact of not fixing them is felt, and then ripples outwards to affect profit margins. A monthly close that takes far too long and detracts from strategic tasks like research and forecasting usually points to a lack of qualified talent or an overabundance of transactional rework.
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Undocumented, vastly disparate desktop procedures across departments and business units often point to an issue with the software stack – either there's too much variety or it simply hasn't been updated to reflect the capabilities of industry standard cloud-based ERPs.
Wildly different processes or the kinds of procedures that tend to "live inside someone's head" may also point to an issue with talent – a team that needs to be rightsized, re-evaluated or encouraged to work toward internal universalization.
Why Rebuilding Accounting Processes from Scratch Doesn't Work for Private Equity
In traditional merger models, there can be a fair bit of value in taking an "Under New Management" tack for the bowls of accounting spaghetti new owners are served in the organizations they acquire. In instances where an investor is hoping to hold onto an asset indefinitely, putting the time and work into overhauling or systemizing back office operations could very well be worth it.
That process, which usually involves pulling in a third party consultant to drill down into the challenges at hand and the solutions required to make a long-term change can be long and arduous.
It takes time to zoom out on individual business units and departments and identify the bottlenecks, talent shortages and even potential fraud that may contribute to departmental inefficiencies. It takes even more time to implement the required corrective measures: universalizing desktop procedures, reorganizing teams or deploying technology changes.
It's obvious why internal rebuilds don't work for private equity. Firms enter into deals with an eventual exit in mind, usually with a turnaround time that doesn't allow for the time expenditure that this kind of sea change would require. Opportunity cost translates to actual line item loss, and the more you spend on internal correction, the less you have to invest in the action items that drive a profitable exit. Margins narrow very quickly when time and money flow toward rebuilding internal processes instead of outward facing strategy items like R&D or marketing efforts that fuel growth.
Your Best Bet: Streamline F&A Processes with a BPO Partner
Outsourcing is generally considered a cost-saving measure, but with a proactive and invested BPO vendor, there is so much more to it than simple margin erosion control. A BPO provider with a wealth of experience in bringing finance and accounting (F&A) offshore has an entire system that makes systemization a byproduct of partnering with them.
As your portfolio company's in-house talent works with their overseas counterparts to relay knowledge and protocol within existing ERP software, desktop procedures are documented as a matter of course. In this way, systemization and streamlining occur alongside cost-effective team reorganization and rightsizing.
You're essentially killing multiple birds with a single stone: controlling for talent shortages and expenditures; correcting disparate processes within newly acquired finance departments; and expediting the reprioritizing of strategy all while bringing operations costs in line with your exit goals. Exceptional BPO partners implement the same kind of quality control measures you can expect from stateside talent – like adherence to GAAP, access to CPAs and Six-Sigma certified leadership – making the choice to outsource a long-term investment instead of a simple short-term cost-control measure.
At Personiv, we've worked with clients across industries and business sectors to whip their F&A processes into shape for measurable profit gains and increased efficiency for over three decades.
Learn more about the legacy partnerships we've formed with industry leaders and our people-first solutions for business builders, and then get in touch to see what solutions we can provide for you – one company at a time or across your entire portfolio.