Controllership Mistakes In PE Firms

Since starting my consulting practice, my experience with private equity firms has been limited. I’ve been a sounding board to a few, but that does not equate to expertise. Furthermore, I’ve only done client work for one PE firm, and their portfolio at the time was small regarding revenue under management, some $120 million.

The Rollup PE Firm

One of the trends in private equity these days (although I saw this twenty years earlier) is to start going on a buying spree in a crowded and inefficient vertical. Examples include HVAC, lawn mowing firms, sprinkler businesses, and numerous others.

One of the most crucial roles in the back office is the controller, not the CFO. In most cases, a CFO is not needed. But the controller is indispensable as every acquisition means integrating poor accounting and operational data into the current ERP environment.

In cases I know about firsthand, the partners in these PE firms are being foolish with that back office role. Most controllers are overworked and they are constantly behind by no fault of their own.

My solution is to hire a second controller for the following work:

  1. Use them to get caught up. That’s because you hired your first controller a year or two too late. You are relying on them to do everything–purchase accounting, due diligence, managing 7-8 different systems because they haven’t had time to integrate the newest acquisitions into the ERP solution, and the day-to-day work.
  2. Use them to integrate every acquisition into the current system along with compliance-oriented purchase accounting.
  3. Use them to do special project work.

Your day-to-day controller has many skills, but they need to focus on accounting and FP&A if that exists. Let the other controller do the acquisition work and any cleanup work that’s needed. If not, expect a revolving door in that controllership position.

Categories: Accounting
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