To strengthen and continuously improve their private equity portfolio, private equity firms need to go beyond the traditional role of being a mere provider of capital. With ROI always in mind, due diligence is a must. Unfortunately, the whole process can be time-consuming. Entire management teams need to work tirelessly to come up with a business plan that would secure a stable portfolio growth.
With more regulations coming in every year, this can prove to be a considerable challenge. Laws and regulations, like the Alternative Investment Fund Managers Directive (AIFMD) & the Foreign Account Tax Compliance Act (FATCA), require private equity firms to deliver timely and accurate financial reporting. All of this can have a significant impact on efficiency and portfolio value. Here's how your private equity firm can maximize portfolio value by outsourcing finance and accounting.
Outsourcing finance enhances growth
To reduce the costs of their whole operation, PE firms are always on the lookout for new solutions and new partnerships for their portfolio companies. Sometimes even a simple management consulting session can bring massive value to your firm.
Great outsourced solutions have financial experts that are fully aware of the market conditions. This means that they know what you need to do and when you need to do it with your private equity portfolio in mind at all times. This doesn't only cut costs but also helps you focus on performance management. In turn, finance and accounting are entirely managed by a third party company that offers innovative technological solutions and skilled staff for your portfolio companies. This removes the necessity for an in-house accounting staff but also opens a new value creation path for the PE firm and their portfolio.
Efficiency as a high priority
With the regulations mentioned above in place, a portfolio company must have instant access to the insightful financial information that is accurate and delivered in a timely matter. This creates a few possible problems private equity portfolio companies might face:
- Lack of high quality and skilled staff
- Outdated systems that won't allow in-depth analysis
- Lack of internal control which may result in bad reporting
In a time where regulations require complete transparency, outsourced finance and accounting can be the solution to all of these problems. Financial institutions can benefit immensely from this shared service model. By outsourcing repetitive tasks to a service provider that will likely use their advanced solutions to automate them, a CFO can focus on core issues and better align with the overall goals of the business. It is worth mentioning some key benefits before we move forward:
- On-demand financial reporting and accounting
- Full insight into your firm's investment strategy and planning
- Access to advanced software and technological solutions
The role of technology and software
Top finance service providers have access to the very best software solutions that help your portfolio to achieve top line growth. These tools help with a better organization within the company but also bring access to new information. In short, these tools help with reorganizing and improving outdated systems that are slowing down growth and productivity. These software solutions usually come with a high cost, and that is another reason why a portfolio company would instead reach out to a third party then handle the total expenditure on their own.
Access to trends and information
With an in-house accounting team, it could be hard to keep up with technology and regulations. Outsourced teams have a huge advantage because their staff isn't necessarily working in one office. Thanks to outsourcing, they can hire the best talent worldwide and be sure that they are up to date with their information. Access to such staff would unlock value that wasn't there before. They can continuously provide valuable info about upcoming trends and how they can affect your business plan. With risk management always in mind, they will have the best intentions towards your portfolio and your company's growth.
When hiring a third party solution to manage your finance and accounting, it is essential to know that their reputation can mean a lot. If they had a lot of satisfied customers in the past and a strong history of helping private equity firms grow their portfolio companies by increasing efficiency, this should mean that they can repeat the same results. In an industry that is continually evolving, it is vital to stay on top of things. Institutional investors, private equity firms and their portfolio companies are learning that outsourced accounting comes with significant benefits, so it is no wonder that finance as a service is growing in popularity.
Regulations require efficiency and transparency
Accounting can be a real hassle if you can't keep up with regulations. They are continually changing and improving, giving your accounting staff less time to focus on the numbers. Finance as a Service helps portfolio companies to deliver timely reports with full accuracy and transparency. They are there to make sure everything regarding the company's finance is in perfect order. This ensures quality reporting with lower operational costs. Private equity portfolio companies need to keep their finances in check, and financing as a service gets the job done efficiently and cost-effectively.
By looking at the market conditions in the investment space, it is evident that PE firms need to stay competitive now more than ever. To do that, they must understand regulations and plan their ROI accordingly. If the accounting staff within their portfolio companies isn't skilled enough, the whole process could be slowed down. To make the right decisions, a fund manager needs full insight into the company's financial health at all times. It is now clear that outsourced accounting saves time and helps set a clear path toward portfolio growth. It has become common knowledge that all private equity firms are aiming for this. Doing your due diligence before making the final pick is highly advised.