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Accounting in America is in crisis. Businesses face shortages of CPAs. Accountants are resigning in record numbers. The profession suffers from an image problem among young folks who prefer supposedly glitzier careers.
CFOs at venture capital, private equity and other private capital firms are wisely concluding that they need to invest more in automation and outsourcing if they want to bridge the gap between their accounting needs and the experts who will be available to satisfy them.
But these firms face challenges when making the switch to innovative technologies and smarter data management.
Firms are busy raising new money for funds. That’s their job. Accountants, meanwhile, must service those funds immediately. They don’t always have time to learn and integrate new systems into their workflows at the pace of their firms’ fundraising. As a result, they often buy software and wait a year or more before implementing it. Even then, many wind up leveraging only some but not all of their new system’s functionalities. Instead, they fall back on spreadsheets to fill in the gaps.
Spreadsheets, of course, allow human error to be introduced into calculations while losing the all-important audit trail. This can cause major headaches down the line.
If financial leaders take a holistic view of their work and make some changes, however, private capital firms can derive amazing benefits from platforms that leverage deep financial expertise as well as cutting-edge, user-friendly technologies like automation, machine learning, the cloud, and other tools for business solutions.
Co-sourcing in particular can give financial firms the security and flexibility they will need amid a shortage of accountants.
When co-sourcing, firms control their data but invite third-party fund service providers to administer it. In addition to the firm enjoying constant access to the technology, they also maintain possession of their data, so they can scale up or down and move between service providers and administrators while retaining oversight capability and the full audit trails required for compliance.
Co-sourcing puts pressure on service providers and administrators to perform well. It also compels financial firms to perform their due diligence when picking a new partner who claims to offer the latest technologies and approaches to private capital. Here are two suggestions that CFOs might consider.
First, financial leaders should see which service providers have teams that include financial professionals as well as technology experts. Software providers often have too little experience in finance to understand which technologies private capital professionals will most readily adopt into their daily workflows. Firms, meanwhile, have too few accountants with too little time and tech experience to harness the full range of their software’s capabilities.
Second, trust service providers and administrators who take a bird’s eye view of your operations, processes, systems, and workflows. That approach is the only way to identify the bottlenecks to clear to gain full efficiency. They earn a gold star, additionally, if they ask about the work done on spreadsheets outside your current software system’s workflow. Those pain points are where the best service providers and administrators can leverage automation to save time, money, and extra accountants.
CFOs at venture capital, private equity and other private capital firms can deploy technology more intelligently to make up for the accountant shortage. But they’re still going to need smart, tech-savvy fund service providers and administrators to make the shift go smoothly.
