Although private equity (PE) has enjoyed an upward trend in the last five years, the outlook for the industry suggests that 2023 will be a tough year for PE firms like yours.
With fundraising challenges forecast to persist into the new year, you may want to prepare your PE firm for a ‘new normal’ that presents a tougher investing environment than in the past.
Because of this, PE firms like yours are changing their priorities, and resorting to shorter-term financial planning.
To that effect, having as much data visibility into the financial health of your portfolio companies will be key to ensuring the profitability and success of your PE firm, going into 2023.
First, let’s take a look at why PE firms like yours are resorting to shorter-term financial planning than before, and why this has become an emerging trend.
PE Firms Will Face Four Difficulties In 2022. Here's Why ERP Software Is The Answer To Them.
The Importance Of Process Visibility For Short-term Financial Planning
An overview of quote to cash visibility with ERP; Source: OptiProERP Software
Over the past two years, evidence suggests that the average length of short-term financial planning amongst all types of organisations has only gotten even shorter.
On top of that, such planning is increasingly sparse in detail and consists of more broad strokes. It’s a sign of businesses everywhere experiencing a lack of confidence amidst geopolitical events, supply chain instability, and soaring inflation across many parts of the world, amidst other uncertainties.
But to conduct effective business planning in the face of such uncertainties, PE firms like yours will find that access to accurate financial data in real-time is more essential than ever. Without it, no business can react quickly or agilely enough to sudden changes in economic conditions.
Relying on spreadsheets alone for your financial reporting is not enough either. Multiple versions of the same data set, most of which don’t reflect the latest data in real-time, could be spread across your entire business; meaning there’s no single source of the truth for everyone in your business to work off of.
To help your PE firm and your portfolio firms adapt to changing conditions, you need a solution that automates your accounting and finance processes. But you also need buy-in from your accountants who may be used to spreadsheets, but are now being asked to trust in the reliability of these automated processes.
This has made full visibility into the processes that produce, correct, and report on the numbers generated by your accounting and finance functions even more important as well.
Apart from your accounting and finance professionals, process visibility is also valuable to your managers. This is because the more your leadership understands who your finance processes works, the more inclined they will be to enter into data-sharing partnerships with your finance function.
Your C-level executives could also benefit greatly from process visibility. They’re expected to have full confidence in the financial operations of your PE firm, and having process visibility means they can use it to deliver and demonstrate that level of confidence to the industry analysts, investors, regulators, and other stakeholders they deal with as part of their duties.
Let’s take a look at some ways you can improve process visibility in your PE firm.
How Can You Enable Process Visibility Into The Financial Operations Of Your PE Firm?
1. Capture The ‘Invisible’ With Real-time Cloud ERP Software
Gain access to full business visibility via NetSuite ERP dashboard, source: Oracle NetSuite
To truly gain full process visibility into your PE firm and portfolio companies, you need a solution that captures the ‘invisible’ data being generated by the ongoing on processes in them.
For that purpose, a cloud-based ERP software such as Oracle NetSuite is the ideal solution.
Because they’re designed to unify real-time data across your PE firm and its portfolio companies to provide a single source of truth, cloud ERP software can easily provide the end-to-end process visibility you’re looking for to drive your short-term financial planning.
In addition, the process visibility that NetSuite affords your PE firm also allows you to undertake process optimisation in your business, allowing you to quickly identify and eliminate inefficient processes across your portfolio.
And because it’s hosted on the cloud, ERP software like NetSuite are easily scalable – a desirable trait for PE firms like yours, as their capacity can be easily increased in line with the growth of your portfolio companies, and accelerating it to the point of a profitable exit for your PE firm that much sooner.
Here's Why PE Firms Like Yours Turn To Oracle NetSuite To Support The Growth Of Their Portfolio Companies.
2. Make The ‘Invisible’ Visible With Data Analytics Tools
Overview of Microsoft Power BI and its data analytics functionality; Source: Microsoft Power BI
Having a solution that unifies data in real-time is one thing. But to make process visibility a reality, the finance function of your PE firm needs to activate two additional criteria.
The first is to enable the creation of process key performance indicators (KPIs). First, your solution must have a mechanism for capturing all the steps in your PE firm’s accounting workflow.
This makes it possible to see how much time is needed to perform each individual task, and helps you identify any issues in your workflow
With this insight, you can then create process KPis such as auto-reconciliation percentage, total rejection percentage, and average assignment rejection rate etc. to help you drill down into the most relevant details.
The second criteria is to visualise your process KPIs through dashboards for the consumption of the executives and managers in your PE firm. This is crucial, as easy-to-read dashboards helps reveal complex details and relationships quickly and easily for laymen like them.
Armed with these insights, your leadership will gain confidence in the value of the finance function in your PE firm, and thus empowered to make data-driven business decisions based on them.
To create these dashboards, you need specialised data analytics tools with the requisite dashboard creation features. Some of these include Microsoft Power BI and Jet Reports, both of which are usable with Microsoft Dynamics 365 Business Central.
Should You Keep Business Intelligence In-house, Or Outsource It To A Third-Party MSP? We Discuss The Pros And Cons Here.
Acquiring Process Visibility Is Key To Successful Short-term Financial Planning For Your PE Firm
With rough seas for PE firms like yours forecasted for 2023, your PE firm would likely resort to shorter-term financial planning in order to cope with economic uncertainties looming ahead.
But to truly achieve the agility needed to adapt to ever-changing conditions, you need to acquire full process visibility into your PE firm and associated portfolio companies.
To achieve that, you need two types of solutions. The first is one which can make the ‘invisible’ visible by unifying data generated by processes running throughout your portfolio, and creating a single source of truth; such as a cloud ERP software like NetSuite or Business Central.
The second is a data analytics tools which can visualise the data collected into easy-to-read dashboards, which can then be consumed by your executives and managers for insights that drive their business decisions. These include solutions such as Power BI, and Jet Reports.
With these solutions in place, you’ll put your PE firm in a good position to meet the challenges that it’s likely to face in the new year.
To learn more about how a cloud ERP software like Oracle NetSuite could be an asset to your PE firm, click on the image below to learn more.