Support for Small and Mid-Market Private Equity Firms

Oct 22, 2021

Small to Mid-Market Private Equity Firms Can Master the Post-Close with help from ProCFO Partners

Small and Mid-Market Private Equity companies (PE) face unique challenges from their larger counterparts largely because of resourcing. Rather than robust financial departments, it could be just a handful of people fulfilling financial functions. Post-close, this small team can be exhausted and stretched to its limits.

In this article we’ll explore why smaller private equity companies can sometimes struggle and what kind of support they need for a smooth transition. With the right approach to post-close financial functions, PE companies can avoid inefficiencies, frustration, risk and operational headaches. When a framework for these processes is utilized by an expert CFO, problems can be solved quickly or avoided altogether.

Understanding Small and Mid-Market Private Equity Companies

Small to mid-market focused PE firms typically focus on buying companies that are between $20 to 80 million in annual revenue. Oftentimes, they have finance functions ranging anywhere from three to ten positions. The functions can in many ways be less mature than their larger counterparts: There’s usually no FP&A (Financial Planning & Analysis) leader, there may be a loose grouping of financial generalists, and perhaps some legacy employees or a legacy CFO. More about them in a bit.

The challenges to the PE firm, post close, come from having this relatively smaller team be just put through the ringer of due diligence. The finance function can be stretched to its limits during due diligence. Yet, post close, there’s a lot more work to be done. They need help providing what the PE sponsor requires, which might include:

Accurate, quick monthly reporting
Budgets that are substantial and logical, and that build in accountability by department
Budgets by quarter or month, with reporting that is meaningful

They need expert advice and insight to move forward with confidence.

Focus Areas Post-Close

Directly post-close is the monthly close

Every month the books need to be closed and be gap compliant, measured against best practices and regulations. This has to be done in a timely manner, say 8-12 days. And, it need to be correct from an accrual accounting perspective.

The monthly close and its processes need to be repeatable and predictable, adopting a framework.

The second imperative post-close involves tightening any operational loopholes

Any low or mid-market PE company will, because of the challenges already mentioned, not be a perfectly oiled machine in terms of financial operations, such as how quickly customer invoices are paid or how quickly vendors get paid.

Other operational considerations are factors. In a renewal business, for instance, it’s important that pricing is reviewed regularly to make sure it’s staying up to date, or that the rate card makes sense in a professional services company.

Why Do Small and Mid-Market PE Firms Struggle?

Let’s dive a little more into why the small or mid-market PE teams face some unique challenges.

A legacy CFO or legacy employees have maybe been with the company for a long time – maybe since the start. They’re loyal and they care – great! But as the company has grown and its opportunities and challenges have become more sophisticated, the business needs have outgrown their skill sets. A company with $3 Million in revenue faces a very different reality than one with $30 Million.

An alternative – hiring a new CFO with 25 years of industry experience and deep expertise and paying them maybe a few hundred thousand dollars each year – also isn’t very viable. Plus, replacing loyal legacy employees, who may still have value to add, also doesn’t necessarily help morale. So companies find themselves seemingly with no great options before them.

There is a third option to explore – leveraging the expertise of a network of professional CFOs that, together, have rich, broad and deep experience. A part-time CFO can help support your financial functions in powerful ways.

How to Get Support for Your Small and Mid-Market PE Firm

At ProCFO Partners we can match up the right CFO to the right portfolio company, one who has 20 or more years of experience in whatever the industry may be: manufacturing, software, skincare, retail, services, you name it. Small and mid-market PE firms can easily and quickly access all of our best practices and expertise. The net result is the company’s ability to dramatically accelerate its funding selection light years above and beyond where they are now.