Whether you’ve simply completed your letter of intent or you’re full steam ahead with a full acquisition, you’re looking to add a new company to your portfolio. You’ve seen the potential your investment carries, but now the work begins. Building a good company into a great company requires careful planning, attention to detail, and strong vision–all of which must be built on the bedrock of integrated back-office functions.
Your management team likely feels the crunch with the inevitable addition. Integrating your acquisition and answering to a board of directors while overseeing daily operations could stretch their reserves. Ensuring that the crucial finance and human resources functions driving the company are run efficiently and effectively relieves this pressure and allows management to focus on company goals. To help your teams navigate this period, our experts have tips on how to build more value in your portfolio companies, starting with the back-office.
1. Analyze, Benchmark and Optimize
The first step to ensuring a smooth acquisition process is to conduct a comprehensive analysis of the target company's existing processes. Because private equity firms face the dual challenge of aligning acquisition companies with their operational standards and then scaling those operations efficiently, a clear map of all key finance and HR processes becomes a valuable asset. This visualization helps in understanding how tasks flow from inception to completion so that you can pinpoint areas where delays or redundancies occur.
Using this assessment to look at the acquisition’s finance and HR departments along with its technology integrations, you should:
Benchmark against industry best practices for middle-market companies
Identify areas for improvement
Uncover opportunities for optimization
Finance and Accounting
By closely examining the target company's accounting practices, cash flow management, and financial reporting, you can uncover inefficiencies and implement streamlined back-office processes that support your growth strategy.
Key areas to address include:
Accounts receivable and payable management
Inventory control and cost accounting
Budgeting and forecasting
Financial reporting and compliance
Human Resources
A thorough review of the target company's HR practices can reveal opportunities to enhance employee engagement, talent management, and organizational structure.
Crucial HR considerations include:
Talent acquisition and onboarding
Performance management and development
Compensation and benefits
Employee relations and compliance
Technology and Automation
Assess the target company's existing systems and identify opportunities to automate repetitive tasks, streamline data management, and enhance cross-functional collaboration.
Areas to explore include:
Enterprise resource planning (ERP) systems
Workflow automation and document management
2. Enact Sustainable Improvements
Once the analysis is complete and the benchmarking is done, it's time to enact the necessary improvements. This phase requires the oversight of experts in each department and a collaborative approach with the target company's internal teams so that changes are both effective and sustainable.
Align with Strategic Goals
Recommended changes should be closely aligned with the overall strategic objectives of the combined organization. This alignment will help secure buy-in from key stakeholders and ensure that your back-office teams are not operating in silos but rather contributing to the company’s objectives. For example, if the overarching goal is to scale operations, HR might need to shift its focus towards recruiting strategies that support rapid scaling. Similarly, finance processes should be optimized for better cash flow and liquidity.
Embed Sustainable Practices
To set the stage for the true, long-term value creation of a company, you’ll need to implement sustainable and scalable back-office practices that grow with the company. Here is list of ways to begin, track, and measure your success:
Collaborate with the target company's internal teams to embed the new processes, policies, and technologies into the organization's daily operations.
Achieve sustainability in those back-office operations by establishing standard operating procedures (SOPs) and continuous monitoring mechanisms.
Use KPIs (Key Performance Indicators) and dashboards to glean ongoing insights into the efficiency and effectiveness of the implemented changes.
Foster a culture that values adaptability and resilience so that teams continuously look for opportunities to improve.
Update existing practices or enact new practices based on the most recent data available.
Leverage Interim Expertise
Consider hiring fractional or interim experts to fill any gaps in finance, accounting, or HR until you can hire the permanent staff needed to sustain the improvements. A fractional CFO, CHRO or CEO with experience in acquisitions–especially in your industry–can provide a stable vision as you transition. This approach gives you access to external expertise that provides immediate value while you assess the long-term talent needs of the organization. These experts bring in rich industry experience that drives significant change rapidly, including back-office support. They also help in upskilling the existing team and laying down the groundwork for permanent hires.
How to Build a Great Company
The true measure of a successful acquisition lies not in the deal itself, but in the long-term performance and resilience of the combined organization. By prioritizing optimization in the back-office, you can lay the foundation for a great company that’s buoyed by sustainable growth and profitability.
The experts at Growth Operators build companies for P.E. and Venture Capital firms every day. If you’re looking to improve the acquisition process at your firm or need specific expertise with a new company, contact us today. Following our nextLEVEL template for growth, our team will foster a robust back-office framework that supports and accelerates your company through ownership adjustments.