PE Insight: The Benefits of Finance and HR integration in mid-market companies

How aligned are the Finance and Human Resources functions at your operating companies? How often do they meet? Do the leaders share information regularly and freely?

If the answer to any of these questions is, “I don’t know”, it’s time for a re-set of priorities.

Private equity firms frequently focus solely on driving EBIDTA. While this makes sense to a degree, doing so at the expense of other initiatives can reduce the pace of growth. How? Most M&As or PE investments involve some level of internal realignment to meet future growth objectives. These steps are much more successful with Human Resources providing insight and guidance from the planning into the implementation phases, vs. driving change using only numbers and without a roadmap. By partnering the Finance and Human Resources teams from the onset, companies ensure successful integration and faster adoption of new structures, processes and plans.

2024 Finance and Human Resources Planning

With the ever increasing uncertainty around future economic trends in 2024, and a continued tight labor market, it makes sense for Finance and HR to jointly review their strategies in the near and long term. There will be necessary give and take required from both departments, but alignment will fuel success. For example, if a new strategy calls for a focus on product development, but the organization lacks leadership or bench strength in this area, or is at risk of losing tenured PD talent, the business strategy is at risk. Enter Human Resources. They analyze the current situation, including internal sentiment and skill sets, identify gaps and develop a plan to ensure talent is retained or recruited. HR must work hand in hand with Finance to update forecasts with realistic salary / benefits needs to support corporate strategies. Finance needs up-to-date budget requirements to inform forecasts.

Attracting and retaining top talent is a reoccurring theme for the C-Suite that isn’t projected to improve in 2024. For this reason, developing talent recruitment and retention plans that dovetail with the company’s goals and objectives is a priority. The initial time investment to align Finance and HR teams pays dividends later in the form of accelerated execution, process improvement and improved integration.

Finance and Human Resources Synergies

While Finance provides a budget number based upon corporate goals, they must work together with Human Resources to ensure those goals are achievable. Here are just a few of the budgeting links that exist between Human Resources and Finance that are necessary to future growth:

  • Employee recruitment – backfilling or eliminating open positions or creating new positions all require budget input and agreement.
  • Retention – HR initiates a variety of actions that result in retention of employees. From training & development programs, to total rewards statements (TRS), to consistent salary reviews and more, the HR team partners with Finance to prioritize how to best fund initiatives each year.
  • Systems and technology improvements – Digital transformation in the HR function is critical to keep pace with transformation across the company. Many organizations overlook this, resulting in the HR team working with less efficiency, which results in higher costs in the long run. From AI-supported platforms to enable day-to-day HR services, to automated recruitment systems, technology upgrades allow HR leaders to focus their time on strategic tasks vs time-consuming tactics.
  • Benefits Packages – With healthcare costs continuing to rise, they comprise the significant portion of employee benefit packages. HR works to identify the best options at the best possible investment for the company.
  • Leadership Development – hiring great talent isn’t the only step. Continuous training & development of leaders at all levels to learn how to deal effectively with change, ambiguity and how to foster innovation among their teams is critical.

These few examples illuminate the benefit of improved communication flow between Finance and HR. Rather than discussing during a one-time C-Suite meeting, these conversations need to occur early in the planning process and frequently throughout the year.

How to Transform Finance and HR Alignment

Each company is at a different point in the post M&A alignment journey. Prioritizing HR and Finance alignment can be one of the best decisions to activate. At the very least, a kickoff meeting with the CEO, CFO and CHRO to outline business objectives and set initial budget parameters is the starting point.

If this work is new or foreign to the organization, bringing on external expertise catalyzes the process. Seasoned Finance and HR professionals have led these processes multiple times and know how to avoid mis-steps that may derail alignment. Consider fractional executives as quick and high impact resources to help achieve these goals. Whether you need help in HR, Finance or both, Growth Operators works with Private equity and Venture Capital firms to quickly bring their operating companies into alignment. With over 60 fractional / interim professionals covering 20+ industries, we arrive ready to make a positive impact on day one.

Learn how we rapidly started up all aspects of a Human resources function (within budget) here, and how our Finance experts helped a consumer services organization, newly formed from two acquisitions, get up and running quickly and efficiently.

Regardless of the need or size of the challenge, Growth Operators will develop the right solution for the business and ensure that Finance and Human resources are working in lockstep to deliver accelerated growth. Reach out for a complimentary initial call today.