Growth companies in private equity portfolios move fast. New companies are acquired, new markets open, and the group structure becomes more complex. This often happens before the finance function has had time to build the processes, systems and reporting needed to support the new reality.

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Many CFOs and owners will recognise the pattern. Over time, the group consists of several legal entities, often across multiple countries, with different ERP systems, different charts of accounts and varying accounting principles. Reporting continues in Excel, based on manual extracts, local adjustments and key individuals who know how the numbers should be put together. This may work for a while. When the group passes the thresholds for consolidated financial statements, audit requirements increase, or owners need a better basis for decision-making, the weaknesses become clear. Reporting numbers is no longer enough. The numbers must be documented, explained and traceable. This was the starting point in an assignment for a Norwegian PE-backed company with a global footprint. The group consisted of 9 entities across 7 countries, with several historical acquisitions and significant complexity in structure, systems and accounting. The company was approaching its first year-end close with a requirement to prepare consolidated financial statements, and the need for a functioning group reporting process was urgent.

The starting point

When the work started, the company had reporting, but no established consolidation process. Monthly reporting was prepared in a large manual Excel file. Numbers were collected from different ERP systems, and there was no standardised structure for mapping across the entities. Intercompany transactions and balances were difficult to follow up. The reporting did not include proper eliminations, and no purchase price allocations had been prepared for the historical acquisitions. Critical knowledge sat with a limited number of people, and the reporting model was vulnerable. For the owners, this created limited insight and increased risk. It was difficult to get a consistent view of group performance, and the group lacked a documented financial history that could be used for audit, board reporting and a future exit process.

What needed to be put in place

The objective was clear: the company needed a functioning group reporting process within a short timeframe. It had to cover first-time consolidation, consolidated financial statements, monthly reporting and a management reporting foundation that could be used going forward. The first step was to establish the group structure and accounting framework. The legal structure and ownership were mapped, accounting principles were clarified, and historical acquisitions were structured. This created the basis for a correct consolidated opening position. Three previous acquisitions lacked purchase analyses. Retrospective purchase price allocations were therefore prepared to allocate the purchase price to identifiable assets and goodwill, establish correct opening balances for goodwill and intangible assets, and secure consistent amortisation going forward.

In parallel, a web-based consolidation tool was implemented. The solution had already been purchased, but had not been used in practice. The work included setting up the group structure, consolidation at several levels and segments, income statement, balance sheet and cash flow, standardised mapping across ERP systems, and automated integrations for collecting accounting data. This was a demanding operational implementation. Data quality varied, the systems were different, and the companies were spread across several countries. To make the solution work, accounting principles, system setup and practical routines had to be built as one coherent structure.

From manual reporting to a fixed monthly process

An important part of the assignment was to establish a monthly close and reporting process that would continue to work after the assignment ended. Clear deadlines were defined, reporting requirements were set for each entity, and routines for quality assurance before consolidation were established. Intercompany was given particular attention. Existing intercompany relationships and transaction flows were mapped, and routines for intercompany invoicing were established in line with transfer pricing principles. Reconciliations between entities were systematised, and elimination logic was implemented in the consolidation tool. This led to a clear improvement in control. Manual clarifications were reduced, deviations became easier to identify, and the group gained a more structured way of handling intercompany matters. Reporting was also automated to a greater extent. Standardised models for monthly reporting were developed, with direct links to the underlying data. Dependence on Excel was reduced, and traceability in the numbers improved significantly.

What the client achieved

Within a few weeks, the company moved from manual reporting without real consolidation to an operational group reporting process. The client achieved first-time consolidation of 9 entities across 7 countries, established opening balances based on completed purchase price allocations, full consolidation of income statement, balance sheet and cash flow, and a monthly close process with clear deliverables and deadlines. Data was collected automatically from several ERP systems, and control of intercompany transactions improved materially. Reporting became more traceable, more consistent and less dependent on individuals.

For the owners, this provided a much stronger basis for decision-making. The numbers could be used for monthly follow-up at group level, with greater confidence in their quality. Audit risk was reduced, and the group gained a financial history that could be documented and explained. This is particularly important in PE-backed companies. In a future exit process, the quality of historical numbers, consolidation and documentation will affect how demanding the process becomes. Good reporting improves day-to-day management and also creates a stronger basis when the company is presented to new owners, banks or other stakeholders.

Lessons from the assignment

• Temporary solutions become part of the permanent infrastructure. Excel models originally created to solve a specific need gradually become critical to reporting. As complexity increases, these models become vulnerable.
• Consolidation requires more than a tool. The system must be built on the right accounting principles, correct structure and a clear understanding of the underlying data. The tool only creates value when the chart of accounts, mapping, eliminations, ownership structure and reporting logic work together.
• Financial history must be built systematically. The quality of consolidated financial statements in an audit or exit process is determined by the work done in the period before. Missing purchase price allocations, weak documentation and unresolved intercompany matters can become difficult and costly to resolve late in the process.

What this means for PE-backed companies

PE-backed companies often have high growth ambitions, high transaction activity and clear expectations from owners. This makes the finance function an important part of value creation. When reporting is structured, consistent and traceable, management and owners gain better control of performance. They can follow up margins, cash flow and improvement initiatives with greater precision. This requires operational experience. Decisions must be made about structure, accounting principles, system setup, process and ownership. The solution must work in practice, also in a small finance function with limited capacity.

At ADVALO, we often work at the intersection of group accounting, reporting, system structure and the requirements placed on PE-backed companies. These assignments share a common need for pace, quality and execution capability.

Please get in touch if these are challenges you recognise in your own business.

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