Top FP&A Issues for PE to Address in Recent M&As

All Private Equity firms have a responsibility to their investors, as well as large financial incentives for their firms, to ensure that their operating companies are performing well. It’s key to clearly understand what’s going on in the business– good and bad – so issues can be addressed quickly and accurately. This knowledge allows PE to work effectively with the leadership teams at these companies to identify growth opportunities or execute on strategies in place. Due diligence is important, but once the deal is done, PE firms may not have the resources to evaluate portfolio company performance to ensure the business case is being met.

Here are a few of the top FP&A priorities PE firms should address:

Top 10 FP&A Priorities for PE

1. Understand the uniqueness of the business – the industry, the systems, the available data (as well as what’s missing).
2. Understand the company’s competitive advantage, and where can they improve.
3. Determine the current reporting available and what might be missing. If data do not exist, that must be fixed immediately.
4. Turn operational metrics into financial statements.
5. Set clear priorities/focus areas and financial goals for the company.
6. Assess capital budgets, e.g., new facilities? New market expansion? Calculate the return on investment for each and prioritize.
7. Budget based on the company’s strategic plan with data points so the internal team can adjust accordingly.
8. Risk assessment – determine the company’s risk in the marketplace based on current and forecasted macroenvironmental trends.
9. Modeling – for example, what’s my marketing spend analysis? My return on investment for my marketing spend? What might need to adjust?
10. Build a long-term forecast grounded in data with actual analysis for financial and strategic planning, scenario planning & analysis, and more.

Most PE sponsors don’t have the time to spend embedded in their individual Operating Companies’ businesses to learn what is and isn’t working. Bringing in an interim or fractional finance executive to assist with FP&A serves as a force multiplier, helping PE dive deeply into the business while serving as objective eyes and ears, all with the goal of accelerating profitable growth.

Fractional CFOs, VPs and managers add value in multiple areas. The largest benefit may be the established best practices they bring to the business, stabilizing the team, establishing processes and day-to-day workflows. This allows their PE partners to focus on larger vision areas for the business, confident in the knowledge that an experienced professional is meeting these foundational needs.

Look for specialists who can demonstrate a track record of:

1. Establishing success quickly for customers and clients by growing the business and adding tangible value.
2. Acting as partners, not just staff, not individuals just coming to fill a seat, but true professionals who identify insights and know how to act on those insights. They know how to partner not just with the CEO and CFO, they meet, work alongside and develop relationships with employees.
3. Spending time up front to understand the whole picture/current situation of the company. If weaknesses or gaps exist, they deliver a plan to fix them. For example, they may recommend hiring an accountant for compliance purposes, to avoid a potential risk of mis-stating revenues or costs and thereby triggering an audit.
4. Quantitatively assessing the processes and controls in place, and the technology/tools finance needs to succeed. Technology is important to finance and accounting and you need a partner with the experience to help determine the best tools for the company. It’s not just QuickBooks and NetSuite. There are other tools that help gain deeper insight into the business, like Power BI. Your FP&A partner can make recommendations about how to improve these areas appropriate to the company’s situation, and then help implement and train the team, driving long term sustainability.
5. Demonstrated experience translating large company operating knowledge to middle market businesses. Not everyone can make this jump cleanly. Look for examples of how they tackle smaller budgets, gaps in reporting, establishing KPIs, communicating internally – can they speak the company’s language and at the correct level?

Ready to find a great FP&A expert? Growth Operators offers interim or fractional Finance & Accounting Executives who immerse themselves in the business on day one. We understand Private Equity, have worked with over 60 PE sponsors and provide that deep layer of knowledge alongside best practices a company requires. Our Growth Pros aren’t career consultants, all are operators who have the experience to hit the ground running to help our PE sponsors achieve their goals.

Click here to connect with us and learn more.