Lowering operating costs and increasing ROI across all portfolio companies should be the first steps in growing a private equity firm. As your private equity portfolio grows, so will your financial and accounting needs.
When it comes time to scale your business, maintaining an in-house workforce demands additional office space and equipment. Additionally, full-time employment with pay and benefits is required, as is ongoing staff training. Portfolio companies can reduce costs, free up office space, and alleviate the financial burden by outsourcing.
Outsourcing to a Finance as a Service provider equipped with cutting-edge tools and software also eliminates the repetitive duties associated with accounting, freeing up time for fund managers to focus on high-value work. The CFO can maintain their strategic role within the organisation, allowing them to devote more time to team management and core business challenges.
Outsourcing financial activities inside your portfolio may be the key to securing your private equity firm’s success. Nonetheless, there are some widespread misconceptions and unknown benefits associated with outsourcing.
Private equity specialists play a critical role as coaches, developing a winning strategy at each stage of the process to ensure an exit that outperforms.
This requires managing multiple facets, from sourcing assets to purchase and crafting a competitive bid in a crowded market, conducting due diligence and obtaining the actionable data necessary to make changes and facilitate growth, all while cutting costs and aligning disparate processes across the portfolio.
With so much to manage, a private equity professional’s playbook always has room for cleaner, more powerful moves, and one method, in particular, has the potential to transform your portfolio from an outperforming phenom to an undefeated powerhouse: outsourcing.
To win, you must execute your game plan with accuracy and agility, always prepared to shift gears if the tide begins to turn from kickoff to final touchdown. With our private equity outsourcing playbook, you’re off to a solid start.
To appreciate the value of outsourcing, consider the lifespan of a typical private equity deal from acquisition to exit without it. Winning is mostly determined by strategy, whether in football or the alternate market.
A well-planned game that appears conceptually sound on whiteboards and PowerPoint slides does not necessarily take into account the unknown factors of play. Just as a top player may be forced to the bench due to an injury, or unforeseen overtime may present a difficulty on the football field, you’re likely to unearth something you didn’t anticipate when professionalising your portfolio.
When operating independently, it’s frequently easy to identify these potential blunders in the form of inefficient back-office activities at your portfolio companies, many of which might result in significant penalties later in the game:
At the outset of every acquisition, you want to maximise the potential of what may be a rising star in your portfolio, transforming it from a draft pick to an MVP with an exit price that matches that potential. To get there, you should be advancing with an unstoppable offensive tactical strategy, not defending. Without the agility of new plays in your repertoire, you’ll be stuck in a reactive feedback loop indefinitely.
Without a doubt, a feedback loop generated by poor back-office operations, particularly those that plague the necessary but value-neutral processes that cause finance departments to lag, will hinder growth.
If the weakest component of an alternative investment is used as the benchmark, even a lucrative portfolio firm with no other significant concerns will underperform when EBITDA is calculated (earnings before interest, taxes, depreciation and amortisation).
In a market where rising demand needs ever more competitive bids, surgical cost reduction and rapid expansion are essential to generate the profits expected by limited partners on their investments. PE firms require an aggressive offence that prioritises portfolio company efficiency in order to build these new additions before the clock runs out.
If you’re always holding the line, it’s time to experiment with some new plays. Thus, how can partnering with a business process outsourcing provider alter the game?
By beginning with a business process outsourcer (BPO), the issues associated with managing fragmented systems and clumsy accountancy processes in the face of a talent shortage are resolved in the background. Costs can be lowered, inefficiencies eliminated, and technology issues resolved, all with the help of a professional, cost-effective team built exclusively for your benefit.
In other words, outsourcing can help you win the game by putting you in control of a winning plan. After implementation, you will notice the following benefits:
When a reputable BPO joins the team, the weak points in a portfolio company’s finance department’s back-office infrastructure are eliminated. Your offshore expertise can help you overcome the obstacles that prevent investors from focusing exclusively on growth measures, allowing your key players to excel where it matters most.
By reallocating funds formerly allocated to non-value-added departments to those that directly affect strategic growth (such as sales and marketing), you’ll see the EBITDA at the exit that they require to be competitive in the future: That’s winning in the private equity market.
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