Platform companies play an important role in a Private Equity (PE) firm’s portfolio. Essentially, they serve as your anchor into a specific market. As a PE firm, you’d typically acquire a platform company for its dominant ability to integrate smaller companies within the same industry. This would strengthen expansion into a specific market. For example, a leading healthcare provider can easily build out its services to include that of smaller specialized clinics under the same umbrella.
While the potential benefits are vast, the administrative demands can be daunting. There are not only operational considerations, but regulatory obligations too. To aid compliance in this regard, you need an airtight accounting system. Not just to minimize the risk of penalties but also to provide critical insights into your platform company’s performance. Our CPAs take a deeper look.
Core Accounting Considerations for Platform Companies
From diving deep into the financial risks of acquisitions to ensuring compliance with transfer pricing rules, you must put several accounting processes in place to maximize your private equity investments.
1. Financial due diligence
Before acquiring a platform company, it is advisable to conduct thorough financial due diligence. This helps to uncover hidden liabilities and assesses the financial health of your target company. Some of the factors to take into account include:
- Considering the tax classification of income under IRS regulations and potential multi-state tax obligations.
- Understanding the tax implications for different business entities
- Managing varying deductions for acquired companies to ensure compliance and financial optimization.
2. Standardize accounting practices
Different businesses often use different accounting methods, so it is key to standardize practices across your portfolio after acquiring a platform company and sub-businesses. Standardization gives you a clearer view of your overall financial health and improves intercompany transparency, for better decision-making.
3. Ensure integrated accounting systems
Once you have uniform accounting practices in place, you will need an integrated view of your financial data. Disparate accounting systems can lead to inconsistencies in your financial reporting. Therefore, implementing accounting systems like NetSuite or QuickBooks that are highly compatible with interconnecting software, is key to operational coherence and accurate financial reporting.
Accounting Software for Compliance
Embracing reliable technology benefits your accounting in many ways, especially when integrating platform companies. It supports accuracy, which is crucial for maintaining compliance, and provides the oversight needed to manage risks.
Software like NetSuite and QuickBooks, for example, helps you:
- Manage financial data accurately to ensure compliance.
- Streamline financial processes to improve efficiency.
- Provide real-time data insights to support decision-making.
With data analytics from accounting software, you transform raw financial data into actionable insights, optimizing operations for better profitability. However, getting all the integrations right is not always easy. Without this crucial step, you risk unreliable data that can jeopardize your entire business.
Therefore, working with a CPA to integrate accounting systems effectively is essential. At Fusion, our CPAs are NetSuite-certified and have years of experience working with QuickBooks. We can help you integrate your tools to leverage data effectively. We also conduct monthly clean-ups to identify potential risks such as cash flow issues, debt levels, and discrepancies in financial statements. Contact us for help today!
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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. We base articles on current or proposed tax rules at the time of writing and do not update older posts for tax rule changes. We expressly disclaim all liability regarding actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.
