Private equity and venture capital investments in growth organizations have grown exponentially in recent years, with $1.3 trillion invested in 2021 alone.
Startups and seasoned organizations need a bit of a push to realize their potential; through a monetary investment and the sophisticated leadership that comes from these external investment firms in exchange for an equity stake in the organization. Initial discussions with outside investors are exciting, inspiring and optimistic. Then comes the start of due diligence – and all bets are off.
More often than not, organizations targeted by PE and VC firms are high-growth, early-stage companies lacking the sophistication and reporting that is required for all portfolio companies. The diligence process will be a stressful time for the company compiling data from legacy systems that are not integrated and will require a great deal of manual effort to provide the data necessary to complete a transaction.
How Can This Overwhelming and Stressful Process Be Avoided?
Unfortunately, it can’t, simply because there is so much at stake. Every document exchanged with the buy-side organization needs to be properly vetted and reconciled to represent the true operations and financial standing of the organization being acquired. But with a good amount of research and technology investment in advance, the process can run much smoother.
ERP systems and back-office finance operations can be overlooked when companies are going through major growing pains with fires to put on a regular basis. However, this will be the first place an outside investor will look for valuation and feasibility for continued growth. With a heavy reliance on data and KPI metrics, a move to a sophisticated ERP software will certainly alleviate many pain points in the diligence process. For example, a multi-entity organization using QuickBooks for their accounting software will need to provide a consolidated income statement, balance sheet and cash flow (at minimum); this will require hours of work recording manual elimination entries outside of the accounting system to properly consolidate the financial results for the period end. If they upgraded to an ERP system like NetSuite, these reports are as simple as a click of a button.
Not only will the investment in advanced technology alleviate the pressure on your current team, but it will also reduce the need for additional headcount by providing process automation and efficiencies to drive better performance from your current team.
Contact Us
For more information on this topic, please contact a member of Withum’s CRM and ERP Consulting Services Team.
