Shared Services for PE Portfolios

Executive summary

Shared services for a private equity portfolio means running a defined set of back-office processes, such as accounts payable, payroll, billing, or procurement support, for several portfolio companies from one team and one set of tools. The aim is lower cost per transaction, more consistent control, and better data across the holdings. The risk is that the center costs more than it saves, or that it slows the companies it was meant to help.

The business case rests on three things: how similar the processes are across companies, how much volume the center would handle, and how much the center itself costs to run. Companies of similar industry and size often have more in common than expected. A mix of unlike businesses on different systems usually does not. Most failed programs started with the structure and worked backward to the case. This guide goes in the other order: screen the processes, build the case with real numbers, pilot with willing companies, and move more only when the service levels hold.

Shared services do not replace each company's finance leader. Judgment about the business, customer relationships, and the numbers that go to the board stay with the company. What moves is repeatable, rule-based, high-volume work. The page also covers the governance, data, and employment questions that determine whether a program survives its second year. Where roles move or are eliminated, involve HR and employment counsel early and follow local law and your own agreements.

When to use this

Consider shared services when:

• A sponsor holds three or more companies whose back-office processes look alike, such as the same ERP family or the same kind of transactions.
• Each company runs its own small accounts payable and payroll team, and absences or turnover create control gaps.
• Reporting to the sponsor is inconsistent because each company codes transactions differently.
• Add-on acquisitions keep arriving and each one needs a finance integration.
• A new technology platform, such as an automated invoice capture tool, is too expensive to justify for any single company but sensible across several.

Do not use it when the companies run very different processes, when volumes are too low to need the specialization, or when the companies are near a sale and the disruption could cost more than the saving. Also be careful where a company's lender or customers require specific controls, location of data, or named personnel; check your agreements before moving anything.

Diagnostic questions

Answer these for each portfolio company before drawing up a design.

1. Which processes are rule-based and high-volume: invoice processing, payroll, cash application, billing, expense review?
2. How many full-time equivalents (FTE) in each company spend most of their time on those processes, and what is their fully loaded cost?
3. How many ERP or accounting systems are in use across the portfolio, and how different are the charts of accounts?
4. What is the volume of each process: invoices per month, pay runs, customer invoices, expense reports?
5. What control or compliance requirements, such as segregation of duties or customer audit rights, apply to each?
6. How much of the work today depends on one person who holds the knowledge?
7. What are the contract terms, regional laws, and works council or collective agreement constraints that affect moving roles?
8. How is the sponsor reporting built today, and how much time goes into reconciling the companies' different codings?
9. Which companies are expected to be sold, merged, or integrated in the next 18 months?
10. Who at each company would lose a team, and how will their leaders react?
11. What do internal customers (operations, sales) expect in turnaround time from finance today?
12. Is there a leader with the time and standing to run the center, and who funds it until it pays back?

Read the answers by cluster. Questions 1 to 4 tell you whether there is enough similar volume to justify a center. Questions 5 and 7 tell you what you cannot do. Questions 9 and 12 tell you whether the timing and leadership exist. A company that fails questions 5, 7, or 9 should usually be left out of the first wave.

The framework: screen, size, design, pilot, scale

Screen: which processes and which companies

Score each process on four tests. A process is a candidate only when it passes most of them.

Typical candidates by process

Operating model options

Start with the lightest option that delivers the benefit, and move heavier only when the evidence supports it. Many portfolios find that shared standards and a shared tool deliver much of the control benefit before a single role moves.

Step-by-step process

1. Inventory the work (weeks 1-3). Owner: operating partner or portfolio operations lead with each controller. Output: a table by company of process, volume, FTE, cost, system, and control requirements.
2. Screen the processes and companies (weeks 3-4). Owner: portfolio operations lead. Output: a short list of two or three processes and two or three companies for a first wave, with reasons for those excluded.
3. Build the business case (weeks 4-6). Owner: portfolio finance lead. Output: a model with current cost, center cost, one-time cost, savings, payback, and sensitivities. Use the template below.
4. Check the constraints (weeks 4-6). Owner: HR lead and counsel. Output: a list of legal, contractual, and lender constraints, and the process for any role changes that follows your agreements and local law.
5. Agree the service levels (weeks 5-7). Owner: the center lead with each company controller. Output: a service-level agreement per company: scope, turnaround, accuracy, escalation, and cost allocation.
6. Standardize before moving (weeks 6-12). Owner: each controller with the center lead. Output: common chart of accounts mapping, approval rules, vendor master clean-up, and written procedures.
7. Select tools and set up data access (weeks 6-12). Owner: IT lead. Output: shared invoice capture or workflow tool, access controls, and a segregation-of-duties matrix.
8. Pilot with one or two willing companies (months 4-6). Owner: the center lead. Output: the process running from the center for a full close cycle, with measures against the SLA.
9. Review the pilot (month 6). Owner: the sponsor's operating partner. Output: a go, adjust, or stop decision with evidence on cost, quality, and company satisfaction.
10. Scale in waves (months 7-18). Owner: the center lead. Output: one company or process at a time, each with its own cutover plan and a stabilization period before the next.
11. Review annually (each year). Owner: sponsor and company CEOs. Output: cost per transaction trend, service levels, and a decision on scope.

Templates

Process inventory (copy into a spreadsheet)

Business case

Service-level agreement outline

Worked example (illustrative)

The numbers below are invented to show the method. They are not benchmarks.

A sponsor holds five companies that each run accounts payable, accounts receivable, payroll, and general ledger support locally. The inventory shows 14 FTE spend most of their time on these processes, at a fully loaded cost of $62,000 each.

Current cost: 14 × $62,000 = $868,000 per year.

The case assumes the center can handle the same volume with 8 FTE, because specialization and one shared invoice tool remove duplicate work and cover absences.

That is a saving of 172,000 ÷ 868,000, or about 19.8% of the in-scope cost.

The one-time cost is estimated at $280,000, covering tool set-up, standardization work, transition, and parallel running. Any severance or role change cost is part of that figure and must be confirmed with HR and counsel.

Payback: 280,000 ÷ 172,000 = 1.63 years, or about 19.5 months.

Sensitivity. If the center can only reduce the headcount to 10 FTE rather than 8:

• Center staff: 10 × $62,000 = $620,000.
• Total center run cost: 620,000 + 110,000 + 90,000 = $820,000.
• Annual saving: 868,000 − 820,000 = $48,000.
• Payback: 280,000 ÷ 48,000 = 5.83 years.

The lesson from the arithmetic: the case depends almost entirely on how many FTE the center needs. Two FTE moved the payback from under two years to nearly six. Before approving the program, the sponsor tests the headcount assumption against the pilot, and treats the savings as unproven until the pilot shows it. A case that works only under the optimistic headcount is a reason to run a pilot first, not to launch.

The sponsor also notes what the arithmetic does not capture: faster consolidated reporting, fewer control gaps from single-person dependencies, and the ability to absorb add-ons. Count these only when you can name the owner and the measure.

Metrics and KPIs

Targets by method. Use the company's own pre-center results as the baseline: its own cost per transaction, its own close days, and its own error rate. Set the first-year target at the improvement the pilot showed, not a number from a vendor brochure. Where a contract or lender requires a deadline, such as a covenant certificate date, that is a floor on turnaround. A named public peer that publishes cost-to-serve may be a reference but it is rarely comparable to a private mid-market business, so state the differences.

Common mistakes

1. Starting with the structure. Building a center and then looking for work to put in it leads to a team with nothing to do or an unrealistic savings number.
2. Moving unstandardized processes. If the companies code things differently, the center inherits every exception. Standardize first.
3. Counting soft benefits in the case. Savings that have no owner and no measure are not savings.
4. Ignoring the one-time cost. Transition, parallel running, and tool set-up often cost more than planned. Include a contingency and show the payback with and without it.
5. No service levels. Without written turnaround and accuracy, the company controllers lose confidence, and the center becomes a bottleneck.
6. Underestimating the people impact. Roles change and the affected employees will notice. Plan the communication, and have HR and counsel lead on anything affecting employment, following local law and agreements.
7. Forgetting lender and customer requirements. Some agreements specify controls, data location, or personnel. Check before moving data or roles.
8. Scaling before the pilot proves it. Add companies only after a full close cycle meets the service levels.

AI prompt assistance

AI is useful for screening and drafting. It does not know your agreements or your people, so verify each result with the people who run the process.

1. Screen processes from an inventory.

Here is a table of processes by company with volume, FTE, system, and control requirements. For each process, score it from 1 to 5 on standardizability, volume, judgment content, and customer risk, and explain each score in one sentence. Then list the five processes most suited to a first wave and the three that should stay local.

Check: review the scores with each company controller, and correct any where AI assumed a system or control you do not have.

2. Stress-test the business case.

Here is my business case with FTE, loaded cost, tool cost, and one-time cost. Recalculate the annual saving and payback. Then show payback if the center needs 25% more FTE than planned and if one-time costs run 30% over. Show every step.

Check: recompute one scenario by hand and confirm the totals tie to the model.

3. Draft a service-level agreement.

Draft a service-level agreement between a shared services center and a portfolio company for accounts payable processing. Include scope, exclusions, turnaround targets as blanks to be filled in, accuracy measures, escalation steps, and a monthly report. Do not insert numbers.

Check: have the controller and the center lead fill in the blanks from the pilot, and have counsel review any contractual language.

Implementation guide

Governance: the sponsor's operating partner owns the decision to proceed. The center lead owns service delivery. Each company controller owns the quality of inputs and the relationship with the business. A steering group of the operating partner, the center lead, and two or three controllers meets monthly to review SLA results, issues, and the savings tracker. Report realized savings against the case in the portfolio review, using the same format as other portfolio benchmarking so the numbers are comparable.

Expect the first quarter to cost more than it saves because of parallel running. Do not announce savings until the pilot has shown them.

Downloadable assets

The process inventory, business case table, service-level outline, and cost allocation options above are written to be copied into a spreadsheet. No calculator is attached to this page.

Related resources

• Portfolio company benchmarking without bad data: comparing the companies fairly before and after consolidation.
• Operating review system: where the center's service report belongs in the portfolio review.
• Span of control cost analysis: checking management layers when teams consolidate.
• Management reporting playbook: standard reporting that shared services make easier.
• Portfolio operations hub: the rest of the portfolio operating playbooks.

Frequently asked questions

What are shared services in private equity?

Shared services in private equity means running repeatable back-office work, such as accounts payable, payroll, or billing, for several portfolio companies from one team and one set of tools. The goal is lower cost per transaction, stronger controls, and consistent data. Judgment-heavy work stays with each company's finance leader.

Which processes should a portfolio centralize first?

Start with rule-based, high-volume processes that can be standardized across companies, usually invoice processing, cash application, payroll within one jurisdiction, and expense review. Leave judgment-heavy work such as reserves, customer disputes, and strategic sourcing near the business. Choose the first wave from companies that are willing and not near a sale.

How do you build a business case for shared services?

Subtract the annual run cost of the center from the current cost of the in-scope work to get annual savings, then divide the one-time cost by those savings for payback. Test the answer by repeating it with more staff than planned and higher one-time costs, because headcount drives the result.

Do shared services always save money?

No. Savings depend on process similarity, volume, and the cost of the center itself, and a center that needs nearly as many people as the companies had will save little. A pilot with a full close cycle is the way to test the case before moving more companies.

What are the risks of a shared services center?

The main risks are moving unstandardized processes, creating a bottleneck without service levels, damaging relationships by moving judgment work, and underestimating people and legal issues. Check lender and customer agreements, and involve HR and counsel before any role changes, since employment law and your own agreements govern.

How this works in a System of Performance

A shared service lives or dies on whether its results are visible across companies. A Performis routine can take on a recurring job like this, with the scope and fit agreed with you: it works from the records your team supplies, prepares the work for your named reviewer, and keeps each approval on record. If you want a first look at how consistent your portfolio's records are, bring it to us as a launch partner.