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Closing a private equity (PE) deal is a monumental moment for a company, an achievement only feasible from the vision, dedication and execution of the founders, executives and entire team. Consequently, the reality of returns sets, and the celebratory cork popping quickly fades as the real work for finance begins. The portfolio company value creation becomes the highest priority for the operating partners. Unfortunately, the execution of building a mature, impactful finance function at a portfolio company is often flawed and delays the critical value creation timeline.
Typically, from finance perspective, the first order of business is an audit and achieving GAAP compliance, usually carried out by a Big Four firm. Next, finance executives set their sights on a new Enterprise Resource Planning (ERP) System to solve the organization's reporting and performance management issues.
From there, the executive team examines performance and dials in expenses to improve cost control. Although these are important processes, they are not prioritized in a manner that aligns with the desires of the new ownership group.
This course of action is a common trap for many CFOs and executives, misled that technology alone, and specifically, an ERP will be a panacea for the finance function. Indeed, a sophisticated ERP like NetSuite is a fantastic tool for general ledger purposes, recording transactions, dealing with multiple currencies and handling complex accounting for those with hundreds of SKUs and products.
However, its other modules, like planning and budgeting are not the best-in-breed solutions. Corporate Performance Management (CPM) Software on the other hand, is designed to consolidate data from multiple source systems i.e., accounting software, customer relationship management (CRM), and human resources systems to name a few, without having to commit to the limited options offered by an ERP.
Companies who stay on QuickBooks Online and use FutureView for FP&A instead of switching to NetSuite, save 65% on average.
The last thing you want is to invest months and hundreds of thousands of dollars into a new ERP system that doesn’t exactly solve your problems. Many finance professionals lament the lack of automation and functionality in NetSuite’s reporting and planning modules, and that is a compromise you should not make.
For finance, CPM software provides financial and operational data at your fingertips to automate reporting packages, forecast at vendor and customer levels, and create business unit budgets in collaboration with budget owners. The detailed reporting packages can be quickly distributed or accessed by stakeholders seeking insights to make course corrective decisions.
The goal of the finance function should be to deliver meaningful performance reports and metrics that business partners and budget owners can act on. To achieve this, finance must gain control of its data, establish a source of truth, develop an analytical framework and promote accountability across the organization.
Picture yourself in an executive meeting, whether it be on Zoom or a cleverly named company meeting room, where you are to present and go over last week’s metrics. Just as you highlight net new revenue pacing below target and new leads are down for three consecutive weeks, your head of sales points out that their numbers tell a different story, and just as you are about to troubleshoot the discrepancy, your head of marketing reveals their numbers are higher than yours.
This reconciliation issue is all too common for companies that rely heavily on Excel to measure company performance and create reports. The lack of consistency in the numbers means far too much time is spent reconciling the numbers and getting everyone on the same page rather than analyzing and discussing how they will course correct.
CPM Software is conducive to collaborating with budget owners while maintaining version control and restricting access to specific information. These are two fundamental challenges companies using ERP software and Excel face.
The flexibility of Excel to update and make changes is also its demise as more hands are involved. Surely, Excel is wonderful for creating ad-hoc reports and quick models, in fact, some CPM Software include an Excel Add-in for this very reason. Nonetheless, establishing a single source of truth and set of metrics that is consistently measured will force everyone to operate from the same scoreboard and not go rogue.
When working with stakeholders, the first question you need to ask yourself and decision-makers is, what would you do with that information if you had a set of metrics or insights?
Far too many feel they need real-time metrics across the board before making a decision. The reality is there is usually a set of collective metrics that tell enough of the story and dictate course of action.
An analytical framework is a solution to determine what drives performance across the business by consistently measuring a set of metrics and KPIs and extracting insights from those metrics to facilitate strategic conversations. For metrics to be meaningful, you want to maintain how the metrics are calculated and determined. Otherwise, they become manipulated and lack the details necessary to act on.
Private equity portfolio companies must focus on the strategic initiatives that will make a difference, typically requiring informed yet agile decisions. This mindset forces one to prioritize what is most essential and orients budget owners to the necessary analysis to course correct and optimize performance.
Once you have a single source of truth for company performance and an analytical framework to measure actuals, you can promote accountability from the top-down to ensure your teams are working towards the same goals.
Oftentimes, operations in a newly acquired portfolio company are inefficient, leaving growth and potential profits on the table — two things no PE firm will accept post transaction. Many hours are poured into modeling scenarios and identifying levers the company can pull to take market share. Unfortunately, without accountability and efficient processes in plan, the potential remains a hypothetical on paper, and not a material realization.
When a scalable CPM system, culture of accountability, and proven finance processes are in place, finance and the executive team can uncover the appropriate allocation of resources, expenses and cash to decide what must be done to reach the targets. Then, the team and management are aligned on the objectives and accountability becomes a cornerstone of company culture, which is necessary for future success.
It is important to take a step back and put into perspective the obvious reason a PE firm acquires or invests in a company — to generate a return on investment (ROI) sooner rather than later. Operational efficiencies, revenue, growth-driven opportunities and cost control measures are three levers a private equity-backed company can pull, each requiring deep analysis and expertise to reach.
It all starts with sound finance controls and scalable technology capable of delivering timely, actionable insights. Expediting this process and satisfying the expectations of the PE firm requires a proven partner, like FutureView, with a team who has been there to guide the way.
Far too much time is spent creating reports with inaccurate data that must be reconciled and adjusted later. Meanwhile, consultants or other savvy finance professionals create elaborate Excel models that require an expert to understand and manage. After a few months or quarters pass, you are right back in the same predicament of not producing timely reports and detailed forecasts that inform decision makers.
These issues can be solved with a robust FP&A Platform, like the FutureView Platform, which integrates directly with your source data from your ERP, CRM, HR, and other data warehouses and centralizes it for finance to use. It provides fully automated reporting packages ready for analysis and detailed forecasts at the vendor and customer level. The Platform is also capable of facilitating long-range planning so you can present your operating partners with a clear path the entire company can work towards.
Enhancing visibility into Company performance while assessing the actual results in comparison to the budget or forecast is table stakes for best-in-class finance functions. Finance must not only measure the variance of actuals to budget (BvA), but also dig deeper to uncover the underlying influences and reasons behind the results.
In addition, those who deliver pro forma reporting and what-if scenarios efficiently and automatically can quickly adapt to changes in the marketplace and plan accordingly. Only then can you hold your budget owners accountable for decisions and encourage rapid action to mitigate any potential issues holding the team back from reaching its goals.
Unlike other finance solutions providers, FutureView’s team is a collection of CFOs, Controllers and technical business intelligence experts with the ability to diagnose your weaknesses and be a strategic partner to rapidly progress your operation to a mature finance function.
Our white glove services and solutions create space for thoughtful financial system architecture decisions while addressing immediate financial needs of the business, so you can best prioritize your course of action.
We provide dedicated technical resources and expertise for the needs of those working with private equity firms. We infused our proven finance processes and methodologies into our Platform for you to take full advantage of.
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