Finance teams in private equity (PE) have been through a marked shift. They are increasingly central to business strategy, rather than simply supporting it.

As PE investors demand faster reporting, greater visibility and more sophisticated forecasting, finance teams are being asked to do far more than produce management accounts.

To guide informed, confident decisions, finance teams need to provide detailed insight, challenge assumptions, identify risks and drive value creation within the business. Many PE firms have a clear investment plan but need to put some focus into building out the finance function to be able to deliver against it.

The evolving role of finance in private equity

Historically, finance teams were largely viewed as custodians of financial information. Their work centred on financial control, compliance and statutory reporting.

Today, that role has fundamentally changed. PE investors expect finance functions to act as strategic partners to the management teams. For businesses that were previously owner-managed, this will be unfamiliar territory and can be challenging to navigate.

CFOs and finance directors are increasingly expected to:

• Deliver real-time management information
• Provide forward-looking forecasting and scenario planning
• Support acquisition and integration activity
• Enable data-driven decision-making
• Drive and monitor value creation initiatives
• Prepare businesses for investment, refinancing or exit
• Navigate increasingly complex accounting and reporting standards
• Manage multiple stakeholders.

While finance can now play a pivotal role in driving growth, many teams are already operating at full capacity. They often lack the specialist skills or additional resource to provide the level of insight needed for significant change.

Why PE-backed businesses face unique challenges

PE ownership often amplifies the demands placed on finance teams. Portfolio companies are typically expected to achieve ambitious growth targets within relatively short investment timeframes. That could be through organic growth, acquisitions or market expansion, and it requires management teams to deliver rapid transformation while maintaining robust financial control.

Common finance challenges include:

Managing growth at speed

Rapid growth can quickly expose weaknesses in financial processes, systems and controls. A finance function that worked well for a £20m business may struggle to support a £100m business operating across multiple locations, entities or jurisdictions.

Without the right reporting infrastructure and processes, management teams can find themselves making strategic decisions using incomplete or outdated information. This could be the result of inadequate technology and AI that has not scaled in line with growth. Many finance teams don’t have the experience of modelling larger forecasts and to the level of detail a PE investor needs to make decisions. Being able to use such tools is a critical skill to support future growth and exit capabilities.

Supporting acquisition integration

Many portfolio companies pursue buy-and-build strategies, which create significant finance challenges that may need additional time and support to address. These tasks can include:

• Purchase accounting
• Opening balance sheet preparation
• First-year consolidations
• Intangibles valuations
• Accounting policy alignment
• Forecasting a new roup
• Systems integration – specifically, ERP alignment.

Building the right finance team

The finance team is one of the most important enablers of the investment plan. A finance team can quickly become a constraint on growth if it is not equipped to support the objectives of the PE house.

Having the right team is a vital foundation to provide proper support. Without it, growth can quickly outpace infrastructure, which creates additional risk and can limit returns.

Preparing for future due diligence and exit

Due diligence is a crucial part of exit processes. During this stage, confidence in a business can quickly be undermined when information is not readily available, key questions cannot be answered promptly and with confidence, or errors are uncovered. These issues can lead to reductions in valuation, introduce delays or even jeopardise the transaction.

Making sure that data is accurate, accessible and robustly supported is a critical value driver, helping to maintain buyer confidence and protect deal value.

Three priorities for PE-backed finance teams

The finance function is seen as a genuine driver of enterprise value and should be equipped to help businesses move faster and manage risk.

To enhance their foundations, finance teams should focus on three priorities in the short term:

• Producing fast, reliable and forward-looking management information so decisions are based on insight rather than instinct.
• Building scalable processes, systems and controls that can keep pace with growth, acquisitions and investor expectations.
• Ensuring the right skills and capacity are in place to support transformation, integration and exit readiness without compromising day-to-day financial control.

If you're considering how your finance function can better support growth, acquisitions or future exit plans, please get in touch with Louise Rudd.

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