In today's competitive and global business landscape, many accounting and consulting firms are outsourcing the financial due diligence function to reduce costs. However, we would like to explore other benefits of outsourcing (partially or completely) the financial due diligence function.
1. Access to high-quality talent and depth of experience
Outsourcing a portion of the financial due diligence function taps into a global talent pool with multi-sectorial experience. Smaller accounting and consulting firms may not have the depth of deal experience which private equity firms, strategic and other investors demand in their deals. Generally, smaller accounting and consulting firms rely on utility players who can work on audits, accounting activities, tax work, due diligence engagements, valuation activities and financial modeling, among other things. Being generalists, they undoubtedly bring breadth of experience to the table, but fall short in understanding the nuances and complexities of a transaction which is a key value add a seasoned specialist can provide. Utilizing a variable or outsourced solution allows immediate access to Big-4 trained talent who are specialized in transaction advisory and financial due diligence activities.
2. Be more agile
The transaction advisory function within accounting and consulting firms is cyclical in nature which lives and dies by the fluctuations of the market. The M&A market and its activity is driven by interest rates, inflation, recession fears, current and future valuations and regulatory changes, among other factors. This cyclicality is inherently at odds with maintaining a fixed resource base, which is unable to ramp up or scale back quickly with the ups and downs of the market. During an uptick in activity, professionals and teams can be ready immediately. Firms do not have to deal with the significant lag time and cost involved in bringing on new hires. Conversely, during a reduction in activity, such variable talent can simply be removed and can potentially replace fixed FTEs. A variable solution can provide financial due diligence professionals immediately allowing accounting and consulting firms to be agile, flexible and prepared for any market swing.
3. Be more streamlined
In line with agility, accounting and consulting firms can be more streamlined in their cost structure. Fixed costs of FTEs do not jive with variable revenue streams driven by M&A. The fixed cost base can be replaced partially or fully with a variable team, available when necessary and not there when not required. Outside of time, bringing on new hires is costly, and often requires paying a premium (e.g. raises, sign-on bonuses and immediate promotions) to secure talent.
4. Work around the clock
Access to a global talent pool allows the benefit of multiple time zones. When used properly, this achieves a level of optimization you cannot achieve in one time zone alone. For example, allowing the buildout of the databook in one time zone and the subsequent review in another can take advantage of the full 24 hours within a day. This is critical as the timeline and budget for completing a due diligence engagement are tighter than ever.
5. Allow on the ground training
As mentioned, accounting and consulting firms’ internal financial due diligence teams may not have the depth of experience required for an engagement. Teaming up with variable talent solutions allows the internal team to grow and learn from their global counterparts. The internal leaders of the accounting firm may not be financial due diligence specialists or may not have the time necessary, which both limit the effectiveness of internal training programs. Incorporating outsourced team members results in the by-product of free coaching and training which provides benefits and greater efficiency for current and future engagements.
6. Allow more focus on other activities
Given the onerous hiring and onboarding process of new hires and their potential technical shortcomings, the transaction advisory leaders of accounting and consulting firms have reduced time to focus on other activities. A common refrain from our clients is wanting to escape the minutia of projects to devote their time to business development, client interaction and growth initiatives. Having the power to deploy fully trained, world-class talent on an as-needed basis is a superpower which frees up time, energy and resources to focus on value-added activities.