Turnaround situations are common in portfolio companies, often requiring significant changes to improve performance. A new ERP system can be the foundational key of the solution.
A Shortcut to Success
Portfolio companies often struggle due to ineffective business processes and a lack of transparency into operational and financial information. This problem is exacerbated when their private equity firm has an ongoing need for financial information and metrics.
One approach is to engage an expensive consultancy to study the business and make improvement recommendations. This is a costly and inefficient approach.
A faster and more effective approach is to implement a new ERP system. Modern ERP systems are based on industry best practice business processes and readily enable access to financial and operational information.
ERP and EBITDA
An ERP implementation can have a significant impact on EBITDA, as it can improve efficiency, reduce costs, and improve financial reporting accuracy. By focusing on EBITDA in a turnaround situation and implementing an ERP system to improve profitability, PE firms can improve the overall performance of their portfolio companies.
But, implementing a modern ERP system is not free. While solutions like Oracle can be quickly and cost-effectively implemented, there is a cost for the software and implementation. The beauty is the implementation cost does not impact EBITDA. And the software is purchased on an annual subscription basis, minimizing the impact on cash flow.
Conclusion
PE firms should like the EBITDA impact of an ERP implementation in a portfolio company turnaround situation. An ERP implementation can help streamline business processes, increase efficiency, and improve financial reporting accuracy, leading to improved profitability and an increase in EBITDA.