Where Your Finance Team Stops & The Investors Start
How internal financial teams support private equity initiatives is often murky territory to navigate. Which parties are responsible for what tasks, and how can they support each other to unite in the common goal of increasing profitability? We’re here to help draw lines between the two and show how to connect the internal financial team and investor team.
Check out the conversation between founder Nick Lipetzky and Jake Chapman for an overview. Or stick around and read the article below.
Understand the duties of the private equity firm.
Your hypothetical company has been acquired by a hypothetical private equity (PE) firm. The objectives of this deal are clear enough: Grow profitability and ultimately sell the company when it’s grown in value over the course of several years. But what happens in between all of that? As a firm that’s basis of existence is to grow profitability, it’s the role of the PE to provide modeling and reporting.
What the PE firm will provide is a long-term financial plan that includes:
- YoY growth rates
- High-level marketing strategies
- Cash flow generation forecasts
That’s just to name a few, but you get the idea. PE’s are there to dictate and follow a long-term plan that’s carefully crafted by outside analysts who can break down budgets on a CFA-level that you wouldn’t be able to source in-house.
This high-level financial support can’t accomplish much on its own. That’s why PE’s depend on the support and operational functionality of the existing in-house teams. We’ve drawn the line of what PE’s are responsible for, now we need to understand where the internal finance teams (and beyond!) come in.
Bringing together strategy and execution
Maybe you already read our piece on the concept of the Seamless Web of Deserved Trust. If not, the gist is that to reach an optimally functioning company, all employees need to understand the goals to enable a nimble and successful company. This differs a bit from the context of a PE acquisition, but the fundamentals are the same. Your entire team needs to understand the direction of the PE’s long-term strategy. When everyone is on the same page and making decisions informed by long-term goals, a company can cohesively work to increase value—driving them toward what we call the modern office of finance.
Leveling up profitability needs to be a concerted effort between both the firm and the internal employees, who will be executing on the plans in everyday decisions. New budgets set in stone by the PE firm will need to be acted out by CMOs and marketing teams, and finance teams will need to interpret P&L statements as they relate to the larger strategy set forth.
Think of it this way: How does the five-year plan dictated by the PE firm come back to not just the last quarter, but yesterday’s performance?
As a business leader, you need to ensure that every decision being made within the company relates back to the five-year plan. It’s these everyday decisions that build up to long-term success, so each one matters and needs to be understood by all employees. It’s easy to view a long-term plan as a shiny object off in the distance, but it needs to be grounded in reality—and that’s where you need to draw the line from the PE firm to your finance team.
Performance that’s informed by long-term strategy will help shape larger decisions like employee and team utilization, price adjustments, captures of market share, and other things intended to drive value.
How AmpliFi Can Level Up Your Operation
Understanding where PE comes into everyday operation won’t always be simple. Before initiating deals, we always suggest consulting with a third party for an outsider’s perspective. The team at AmpliFi is here to take you from working with disparate teams to a modern office of finance, supporting your decisions and empowering you to make more informed decisions.