Private equity due diligence is rigorous. Market sizing, customer concentration, management quality, EBITDA normalisation, the deal team covers the ground. And yet, time and again, the thing that creates the most friction in year one of ownership isn’t the market. It isn’t the product. It isn’t even the founder.

It’s the finance function.

Not because it’s broken. But because it was built for a different business, the one that existed before you wrote the cheque.

The Business Grew. The Finance Function Didn’t.

Most SMEs reaching PE-investable scale have a finance setup that got them to the deal, not through it. 

• A part-time bookkeeper.
• A year-end accountant. 
• A financial model that was built for the raise and hasn’t been touched since. 

Management accounts that take three weeks to land and tell you what happened, not what’s coming.

That’s not a criticism of the founder. It’s entirely rational. When you’re scaling from £2M to £8M on working capital and willpower, you spend money on the things that generate revenue. Finance infrastructure feels like overhead.

But the moment PE capital enters the business, the rules change. Now there are covenants to track. Board packs to produce. Investors expecting monthly reporting that’s accurate, timely and decision-ready. A model that needs to flex as the business evolves, new headcount, new revenue lines, acquisition scenarios, refinancing stress tests.

The gap between what most SMEs have and what PE ownership demands is significant. And it opens up fast.

What the Risk Actually Looks Like in Practice

It rarely announces itself as a finance function problem. It shows up as:

Slow decisions. The board wants to green-light a new hire or a capex investment but the numbers aren’t clean enough to underwrite it with confidence. The decision gets delayed. Momentum is lost.

Covenant surprises. Compliance is being tracked manually, reactively, and not frequently enough. A breach or near miss, arrives without warning. The lender relationship takes a hit that takes months to repair.

Investor-founder friction. The PE director asks for a reforecast. The founder spends a week building it in Excel because there’s no live model to work from. What should be a 48-hour exercise becomes a source of tension.

Model drift. The financial model that underpinned the investment thesis no longer reflects the business. Assumptions haven’t been updated. The revenue build doesn’t match the new sales structure. When you need to use it for a refinancing, a follow-on raise, or an exit, it needs rebuilding from scratch.

None of these are catastrophic in isolation. Together, they quietly erode the value creation plan.

The Professionalisation Problem And Why Timing Matters

There’s a window ideally before close, certainly within the first 90 days, where getting the finance function right is both most impactful and most achievable. After that, you’re fixing problems under pressure rather than building infrastructure with intention.

Professionalising the finance function at the SME stage means four things:

1. A model that works for the business you’re running, not the business you pitched. Built to flex. Built to stress-test. Built by people who understand what investors and lenders actually expect from a model not just what looks good in a deck. 

Rather than leaving a portfolio company to rebuild their model internally, we bring in people like Joe van Gelder15 years building models through restructures, debt raises and exits for PE firms and major banks across the UK, who already knows the standard required and delivers it from day one.

2. Reporting that lands on time and tells the right story. Monthly management accounts. Covenant compliance. Board pack financials. Delivered consistently, in the format the investor needs, by people who understand the audience. Not chased. Not late. Not a spreadsheet that needs interpreting.

3. A finance function that adapts as the business changes. Ongoing remodelling isn’t a luxury, it’s a necessity in any PE-backed SME that’s actually growing. New channels, new geographies, M&A activity, debt restructuring the numbers need to keep pace. Static models and annual updates don’t cut it.

4. The right people, at the right level, without the full-time cost. Senior financial leadership matters but the timing and cost of a full-time hire doesn’t always stack up at the SME stage. That’s where having fractional CFO capability within your support structure changes the picture. 

Rather than a portfolio company going through a lengthy CFO search, we can place someone like David Pearce, formerly CFO across PE and S&P-listed businesses directly into the business in a fractional capacity. Board-level experience, at a cost that reflects where the business actually is.

Technology Changed the Economics. Most SMEs Haven’t Caught Up.

A decade ago, building a finance function capable of meeting PE reporting standards required a team. Today, the combination of cloud accounting, FP&A platforms, and automation means you can deliver institutional-quality output at a fraction of the traditional cost.

This is the single biggest shift in SME finance support that most PE investors haven’t fully factored into their portfolio operating model. The tools exist. The question is whether the right people are using them.

At Powdr, our approach is built around exactly this. Instead of a portfolio company hiring a bookkeeper, a management accountant, and an FP&A analyst separately, each at full-time cost we provide that coverage through a single, integrated relationship. 

Claire Willmott handles the bookkeeping layer with a practice built specifically around outsourced finance support for growing businesses, while our modelling and FP&A team ensures the numbers feeding upward are accurate, structured, and investor-ready from the moment they’re produced.

The result is a full finance function,  bookkeeping, management accounts, modelling, FP&A, fractional CFO that a PE-backed SME can actually afford.

What the Best PE Investors Do Differently

The funds that consistently generate strong returns from SME investments tend to treat the finance function as a value creation lever, not a compliance requirement. They move early. They bring in the right support before the reporting cadence becomes a problem. 

They ensure the model reflects the business and gets used in board meetings, in lender conversations, in strategic decisions.

It’s not a coincidence that the most sophisticated names in UK private equity and lending including Barings, Dunport, Livingbridge and RSM understand this and choose partners accordingly.

The businesses that struggle in year one of PE ownership almost always have the same story: great fundamentals, real growth potential, and a finance function that was never set up to support what the investment demands of it.

The Practical Question

If you’re a PE investor reading this and thinking about your current portfolio or a deal you’re about to close the question worth asking is a simple one:

Does the finance function in this business meet the standard the investment requires? And if not, what’s the plan?

That answer shapes year one more than almost anything else.

Powdr works with PE houses and their portfolio companies to build finance functions that are fit for purpose from the moment investment lands. Whether that’s a model build ahead of close, an outsourced FP&A setup post-investment, or ongoing reporting and remodelling as the business scales, we’ve been on every side of this conversation, and we know what good looks like.

Get in touch to talk about how we support PE-backed SMEs and the funds that back them.