The Overlooked FP&A Dilemma in Private Equity
Private equity (PE) investors pursue efficiency, profitability, and long-term value creation. Yet, many PE-backed companies struggle with financial planning and analysis (FP&A), which creates barriers to achieving growth targets, cash flow clarity, and operational alignment. Unlike traditional corporations, PE-backed firms operate on compressed timelines, with aggressive EBITDA goals and exit strategies that demand a level of financial agility many FP&A functions are not equipped to handle.
For these companies, FP&A should serve as a strategic enabler—not just a reporting function. Yet, misalignment, outdated tools, and tactical distractions frequently undermine its potential. Let’s examine six common FP&A challenges in PE-backed companies, gleaned from real-world experiences working with our clients, that provides actionable solutions to position FP&A as a driver of financial and operational success.
Six Reasons FP&A Falls Short—and How to Fix It
1. FP&A as a reporting function, not a strategic asset
The Challenge: Too often, FP&A is seen as a reporting mechanism rather than a forward-looking financial intelligence function. Executives rely on FP&A for backward-looking analysis rather than proactive scenario planning.
Solution:
- Redefine FP&A’s role as an integrated business partner.
- Implement driver-based forecasting that links operational metrics to financial outcomes.
- Ensure FP&A leaders participate in performance reviews, business health assessments, and financial insights to enable more informed decision-making.
Read more about why strong FP&A matters in Private Equity
2. Overextended FP&A leaders with tactical burdens
The Challenge: FP&A leaders often spend excessive time on manual data aggregation and spreadsheet maintenance, limiting their ability to provide strategic financial insights.
Solution:
- Invest in automation tools to streamline reporting and free up FP&A capacity.
- Establish a dedicated analyst team for tactical financial modeling.
- Shift FP&A’s focus from reactive reporting to proactive financial advisory, supporting CFOs and executive teams with scenario planning and real-time analytics.
Learn how leveraging financial analytics improves decision-making
3. Portfolio Managers expect data, not insights
The Challenge: Some PE portfolio managers primarily seek raw financial data, without engaging FP&A as a source of strategic insights. This limits FP&A’s ability to influence decision-making.
Solution:
- Define FP&A’s role in decision-making processes, ensuring it supports but does not dictate strategy.
- Advocate for FP&A investments by demonstrating how improved analytics lead to more informed, data-backed portfolio decisions.
- Establish governance structures that align FP&A’s analytical capabilities with portfolio managers’ financial oversight needs.
4. Outdated forecasting models & lack of real-time visibility
The Challenge: Many PE-backed companies still rely on static, spreadsheet-based forecasts that fail to capture real-time business shifts, leading to financial blind spots and delayed decision-making.
Solution:
- Implement rolling forecasts to enhance agility and adaptability.
- Utilize real-time dashboards for cash flow, working capital, and key financial indicators.
- Leverage AI-driven forecasting tools, ensuring data accuracy and executive buy-in.
5. Cash Flow Management as an afterthought
The Challenge: A focus on EBITDA growth often comes at the expense of liquidity management. Poor cash flow visibility can create financial strain, particularly in leveraged buyout (LBO) scenarios.
Solution:
- Implement weekly (not just monthly) cash flow forecasting.
- Integrate working capital analytics into FP&A dashboards.
- Strengthen cross-functional collaboration between finance and operations to align cash flow strategies with business objectives.
Case Study: Specialty Pharmacy company achieves major cash flow turnaround
6. FP&A and Operations Operate in Silos
The Challenge: Misalignment between FP&A and operational teams results in financial planning that lacks real-world business context. When FP&A functions independently from sales, supply chain, and operational leadership, decision-making becomes disconnected.
Solution:
- Build a cross-functional FP&A framework that integrates finance, operations, and sales.
- Use operational KPIs (e.g., sales efficiency, production cycles, customer churn) to inform financial planning.
- Implement driver-based planning models that directly connect financial insights with operational execution.
The Value of a Strategic FP&A Function in PE-Backed Companies
A well-structured FP&A function delivers tangible value to PE-backed firms by enabling:
- Accelerated EBITDA Growth – FP&A identifies profitable growth levers, margin improvements, and efficiency gains beyond cost-cutting measures.
- Enhanced Liquidity Management – Moving from static cash tracking to real-time cash flow intelligence allows for proactive financial decision-making.
- Informed, Data-Driven Decisions – FP&A serves as a financial control tower, equipping leadership with real-time insights rather than historical reports.
- Stronger Exit Planning – Beyond financial modeling, FP&A plays a crucial role in stress-testing exit strategies and conducting market-driven valuation analysis.
When PE-backed companies elevate FP&A from a financial reporting function to a strategic asset, they gain better financial transparency, mitigate risks, and drive superior returns for investors.
Conclusion: FP&A as a Competitive Advantage
PE-backed companies that invest in FP&A transformation will:
- Improve financial visibility and decision-making.
- Accelerate value creation and support faster, more profitable exits.
- Differentiate themselves in a competitive PE landscape.
Conversely, those that neglect FP&A risk financial instability, missed performance targets, and weaker investor returns
Next Steps Does this resonate with your experience? If your FP&A function isn’t delivering the insights you need, it may be time for a strategic reset. Let’s connect to explore how to enhance your FP&A effectiveness and drive sustainable growth.
