As fervently pro-accountant as Embark tends to be, we have a somewhat surprising statement for new management teams in E&P and midstream O&G portfolio companies, so we hope you're sitting down. Here we go.
Don't hire any more accountants. There, we said it. And it needed to be said. Think about that statement for a moment, though. If you're a PE-backed O&G company with a sale in your future, there's simply no point in hiring an accounting team if you're just going to have to let them go in a few years. Save yourself a ton of intensive training, paying for benefits, and the myriad other things involved in bringing on that fleet of in-house accountants.
Granted, if your goal is an IPO, our bold statement no longer rings true, and you will definitely need a large internal team posthaste – as well as the expert guidance gleaned from our downloadable pre-IPO timeline. However, if all signs point towards a private sale, an accounting staff is something that you can live without.
Given those fervent pro-accountant sentiments we began this bold thesis with, we must state an obvious caveat to our declaration – talented, trustworthy, and reliable accountants are not easy to come by so if you already have a good one, hang onto them with all of your might. We in no way advocate letting a good accountant go. However, if you're a new management team building a company from scratch with a private sale in your future, establishing an accountant free zone is an extremely viable option for accelerated growth.
Stay Lean and Mean
To that last point, the fewer expenses you have, the better you're going to look for potential buyers whenever that time comes. With so much money, effort, and time devoted to finding and training the right people – particularly ones with O&G industry experience as well as a background in meeting reporting and audit requirements for PE firms – don't spin your wheels and burn resources better spent elsewhere. The headaches in finding the necessary office space for an accounting team– not to mention the salaries and benefits – should alone dissuade you from rolling out the accounting red carpet.
If a good controller is already in place, providing your controller with a sufficient discretionary budget to hire outside consultants is an effective and efficient model. Rather than hiring an in-house team and spending the time and money needed to properly ramp-up and manage them, consultants hit the ground running, are self-sufficient, and allow your controller to concentrate on other pressing matters.
If a good controller isn’t already in place and finding a new one proves to be easier said than done, companies are preserving significant equity on the backend by strictly utilizing outside consultants. Management and equity holders can save millions with this approach since consultants don’t take a piece of equity upon project completion.
Avoid Continuity Issues Throughout the Company Lifecycle
Given the traditionally high turnover rates in the O&G industry, there’s bound to be significant knowledge gaps, breakdowns in communication channels, and resulting information silos that inhibit all processes and procedures when team members leave, accounting obviously included. When these inevitable gaps form within in-house accounting and finance departments as attrition rears its ugly head, they can lead to costly mistakes on financials or additional time spent on audits. Avoiding these continuity issues by using outside consultants – who obviously don’t create attrition issues – rather than an in-house team is an effective first defense against creating the information gaps that can create costly errors.
Skip Costly Mistakes
While we're on the subject of new hires or at least settling on someone less senior and lacking industry experience, saving a couple of bucks upfront can prove to be extraordinarily costly down the line. When it comes to financial reporting, it just isn't worth exposing the company and equity holders to those expensive mistakes. Instead, hire a consultant with vast industry experience to help you avoid such catastrophes.
Focus on Running Your Business
To further bolster the argument against a new management team hiring in-house accountants, think about the immediate goals that will naturally fall into place moments after you receive a multimillion-dollar check from a PE firm. Chances are, your primary focus will be on running your business rather than recruiting, hiring, and managing a new accounting team. There's a time and place for that sort of thing, and a massive influx of PE money isn't one of them. Do what you do best and let outside experts handle the accounting.
As a matter of fact, it's in your best interest to have whoever handles your financial reporting also handle the eventual sale of the company. First and foremost, you won't have to worry about knowledge gaps with a new team coming in, ensuring accuracy and consistency across all aspects of your accounting practices. Also, someone already familiar with the requirements of both PE and audit firms will save you significant time since the process will go much faster and be more streamlined.
Financially speaking, throughout an average four-year life-cycle of a PE sponsored portfolio company, you'll likely spend marginally more money on the front end using consultants versus hiring a controller and a handful of lower-level employees. However, even though short-term costs might be higher, using outsiders won't require you to manage another team while also assuring you the job will be well done, thus avoiding costly mistakes. From a cost perspective, your return when using outside consultants comes at the point-of-sale by keeping more equity that otherwise would have been spent attracting talent to come on board.
Be smart and meticulous with your strategizing because even the smaller decisions can have substantial consequences when it's time to sell. Spend some time thinking about whether or not you really need to hire an in-house accounting team, remembering that under the right circumstances, relying on the experience and expertise of a team like Embark's will likely save you both headaches and money in the long run.
