The Untapped Potential of Private Equity Portfolio Companies
I’m just going to come out and say it: Private equity firms are perfectly positioned to benefit from fractional financial services.
In fact, you could be leaving up to 20% in unrealized revenue on the table.
Bold claim? Maybe. But I’ve got the data to back it up (which I’ll get to in a sec).
First, the logic behind it: Every stage of a portfolio company’s lifecycle demands strong financial oversight. But building a full-time finance team from scratch for every acquisition isn’t just expensive; it’s downright inefficient.
Fractional finance, on the other hand, lets you scale your finance department to exactly the right size, at exactly the right time, and with exactly the right expertise… for each one of your portfolio companies.
Curious how? Let me show you.
Proof of Potential: What PE Firms Stand to Gain
Let’s start with the data I promised:
- 61% of companies failed to hit their revenue targets in 2023. In other words, almost two-thirds of businesses are leaking revenue somewhere.
- Enterprise-level orgs suffered the most, with up to 20% revenue loss. Meaning revenue leakage scales with business size.
So… what does this have to do with private equity?
Well, PE firms manage multiple portfolio companies (portcos). And even if they’re not enterprise-level, the sheer complexity involved might as well be. Similar surveys show an over 10% revenue loss, particularly among SaaS firms (a common acquisition target).
Can you imagine what a 10–20% revenue boost would do for you?
Now it would be reckless to promise such a boost just by plugging leaks, and I can’t guarantee those same results.
But the simple fact is that the potential is there. And finances are the key to unlocking it.
The Three Stages of a Portfolio Company’s Lifecycle
Let’s expand on this logic. For the sake of simplicity, we’ll distill the PE portco lifecycle into three stages:
- Acquisition
- Growth stage
- Exit planning
Fractional finance teams uniquely serve each of these three stages. Especially as rollups hit a fever pitch, consider the benefits they could bring to you and your portcos at each one.
Stage 1. Acquisition & Stabilization
From the moment you add a new business to your portfolio, every second counts. The post-acquisition goal can essentially be summarized as “financial triage.”
More specifically, your objective at this stage is to:
- Establish financial visibility, consolidating disparate systems and ensuring accurate, compliant monthly closes.
- Set up governance to get your financial house in order, including a CFO, Controller, and other management hires.
- Stem the cash flow leaks to prevent fiscal bleedout (e.g., fixing billing errors and broken AP/AR processes).
Fractional teams are your on-call triage partner for this.
For example, you can deploy a dedicated fractional accounting team to execute your 100-day plan. Or opt for a Controller to tighten up the ship with comprehensive, GAAP-compliant reports and rock-solid budgeting.
Either way, kicking off with numbers you can trust sets you up for subsequent wins.
Stage 2. Growth & Scaling Operations
At this point, your financials are likely functional, but not yet optimized. And as your GTM strategy comes to fruition, you need the fractional flexibility to help your finance team absorb the sudden influx of transactions and operational complexity.
This is where a fractional CFO becomes your financial flagbearer. Their experience bridges tactical execution and strategic foresight, enabling you to:
- Shift from stale reporting to dynamic strategy and projections
- Cultivate internal talent with seasoned, cross-industry expertise
- Defend and validate growth initiatives in board meetings and investor discussions
Fractional CFOs deliver executive-level leadership without the overhead of a full-time hire. No benefits, PTO, or office politics needed. (And frankly, that’s a win in itself.)
Stage 3. Exit Planning & Sunsetting
To a potential buyer, everything hinges on your financial footprint.
I’m preaching to the choir here, but think for a minute about everything that goes into exit planning, including:
- Credible forecasts that don’t crumble under a half-second’s scrutiny, proving by the numbers that both sides have a good deal on their hands.
- Process readiness that includes prepping due diligence files, refining financial packages, and ensuring clean, compliant historicals across the board.
In short, the books need to be pristine, projections in place, and pre-due diligence packets ready to go.
Of course, exits won’t go quite so smoothly if you’re leaking revenue all over the place. And for that, you’ll need a little more than basic bookkeeping.
Tap Into Your Portfolio’s Potential with Quadrant Advisory
A goldmine is only valuable if you put in the effort to dig. Similarly, portcos have potential, but only if you’re willing to draw on it. (Otherwise, the only thing that’ll scale with you are the losses.)
So if you feel like it’s time to take action, if you’re ready to do something to reclaim your leaking revenue…
Then I recommend exploring the full suite of our fractional financial services.
At each of the three key inflection points we talked about (and really, anywhere in between), our fractional teams are on call as your go-to financial shepherds, directors, strategists, and catalysts for genuine growth.
The only question is… Will you take advantage of it?
If that sounds exciting, book a free consultation with me or Ramsey. Let’s tap into your portfolio’s potential.
Sources:
Clari. The 2024 Revenue Leak Report. https://pages.clari.com/rs/866-BBG-005/images/revenue-leak-report.pdf
The Kaplan Group. 93% of Companies See Revenue Loss from Late Payments. https://www.kaplancollectionagency.com/business-advice/new-survey-93-of-companies-see-revenue-loss-from-late-payments-some-lose-over-10/