Accounting for private equity — 5 best practices for smarter investments

Healthcare private equity reached $115 billion globally in 2024, the second-highest deal volume total on record, according to a Bain & Company report. This has included a marked increase in PE acquisitions of physician practices over the past decade or so, with 484 deals in 2021, up from 75 in 2012, according to a report by the American Antitrust Institute.

Whether it’s a hospital, nursing home or private physician practice, every deal adds complexity for the acquiring firm, especially when it comes to multi-entity accounting. Finance teams can become mired in manual data entry and other inefficient processes. 

Maximizing the potential of a PE investment strategy requires following best healthcare private equity accounting practices, and following those practices requires smart, scalable private equity accounting software.

1. Consolidate financials across entities in real time

Healthcare private equity accounting involves monitoring the overall financials and everyday transactions for as many as dozens of practices or facilities. Legacy software like QuickBooks isn’t built to support this type of multi-entity consolidation, as these entry-level applications require a separate database for each new acquisition. 

A multi-entity accounting solution like Gravity Software is an ideal private equity accounting software. This is because its structure allows financial information to be segmented by entity to allow for individualized attention yet still supports a centralized database to promote visibility and a single source of truth across the organization. 

No longer does information need to be manually copied out of individual databases and pasted into a spreadsheet in order to compare performance across practices or facilities. With Gravity, all of this information is available in real time, as consolidation is inherent in its design. 

2. Automate intercompany transactions

With any multi-entity business, including healthcare private equity companies, costs can often be cut with economies of scale, such as centralizing procurement or entrusting universal tasks like payroll and vendor billing to one team on behalf of the entire organization.

But consolidating these responsibilities creates a new, different responsibility: ensuring each company pays its portion of a particular expense with intercompany transactions. 

Without automation or a centralized database, creating and balancing intercompany transactions is a multi-step process that can all but cancel out any savings or additional efficiencies you might achieve by consolidating tasks in the first place. 

As an example, a private equity firm with 23 physician practices in its portfolio may opt to purchase new thermometers on behalf of all 23 practices. Handling the intercompany transactions to properly record each practice’s share of the expense requires the firm’s finance team to complete several steps:

• Calculate how much each practice owes for their share of the thermometers.

• Create 23 "due from" journal entries to reflect each practice’s share of the purchase price. 

• Create 23 intercompany invoices.

• Make a "due to" journal entry in each practice's database reflecting their share of the expense. This requires logging into 23 different databases, navigating to the correct screen and recording the correct amount in the appropriate place. 

• Recheck their work to make sure all of the "due to/due from" entries balance and no entries were missed.  

Gravity Software eliminates the need to manually divide expenses among entities. 

Instead, the finance team would calculate how much each practice owes for their share of the thermometer purchase, enter the bill, amount and vendor ID into Gravity and go to “voucher lines” to select the practices receiving a share of the thermometers. 

Gravity automatically creates the necessary line items, intercompany invoices and self-balancing “due to/due from” journal entries. 

Dr. Tavel Family Eye Care is just one example of a company that struggled with inefficient, manual accounting processes before using Gravity Software. Their on-premise accounting software, Sage 100, had no cloud-based document storage capabilities, so closing the books meant sifting through piles of paperwork in the office at the end of every month. This extended the month-end close beyond 30 days.

"That's no really acceptable in finance, and it certainly wasn't acceptable to me as a financial professional," VP of Finance and HR Tera Carpenter said. 

Gravity Software's bank reconciliation feature streamlined the process of matching invoices and bank records to journal entries in the company's internal records, which reduced their month-end close time to 10-15 days instead of more than 30. The accounting team also saves time on triple net calculations, financial reporting, budgeting and more. 

3. Ensure compliance and security at scale

As healthcare private equity deals have soared in recent years, so, too, has public scrutiny of PE’s effects on patient care and pricing. This has led to increased regulations governing the healthcare industry, such as the No Surprises Act. This act is aimed at curtailing unexpected out-of-network costs and joins regulations that have long been in effect, such as HIPAA. 

Secure, auditable systems are critical for remaining compliant with these and other policies that may be on the horizon.

Built on the Power Platform, Gravity Software uses Microsoft’s best-in-class security features, which are continually being updated based on the latest best practices and threat analyses. As such, Gravity is HIPAA-compliant as well as SOC2 and SOC3 certified. It enables multi-factor authentication, role-based user access and audit trails into every transaction. 

4. Use AI for faster month-end close and better insights

For the finance team at Dr. Tavel Family Eye Care, the healthcare franchise’s paper-based expense reconciliation process often resulted in a “not acceptable” month-end close time of more than 30 days. That time was quickly cut in half after the company began using Gravity Software and its automated bank reconciliation feature, which matches invoices and bank records to journal entries in a company’s own internal records. 

Using AI and automation where it makes sense is key to ushering in efficiency, reducing errors and preventing the under-utilization of employee expertise. In addition to automated bank reconciliation, Gravity Software features invoice processing powered by Microsoft Azure Form Recognizer, an advanced AI tool that extracts relevant data from vendor invoices even when they aren’t in conventional format. 

With the time saved by automating these routine tasks, finance teams are better positioned to perform analysis and decision-making in service of a robust PE investment strategy. These are activities that can be facilitated by another Gravity-Microsoft integration: Microsoft Power BI. 

With individualized Power BI dashboards that are built into Gravity, stakeholders can see KPIs in real time across entities, translating to better insights and quicker actions.  

5. Prepare for exit or additional acquisitions with strong financial reporting

As they prepare to exit, PE sellers need to tell a compelling story about the asset to future owners. 

This isn’t possible if your team is looking at a disparate collection of data on spreadsheets. More meaningful financial reporting gives private equity investors, partners and prospective buyers a clear and comprehensive picture of the company’s financial health.

In Gravity Software, creating consolidated financial reports is significantly less time-consuming than with entry-level accounting software, as the finance team at Australian healthcare private equity firm Brandon Capital learned. With Gravity’s multi-dimensional reporting capabilities, users can focus on a particular location, service line or provider, or even individual transactions.

This level of reporting paves the way for advanced budgeting, forecasting and scenario modeling, which are key capabilities whether your PE investment strategy for the near future involves exit planning, accounting for M&A activity or maximizing the value of your assets during a prolonged hold period.

Why Gravity is the best accounting software for private equity

 Healthcare private equity in particular requires an accounting solution built to thrive in a highly regulated yet often unpredictable environment. 

Gravity Software was designed specifically to navigate the complexities of multi-entity accounting and accommodate future acquisitions and divestitures. It helps to automate manual accounting processes and approvals, streamline reporting and give stakeholders the real-time visibility they need to make smarter decisions.

Using the Microsoft ecosystem, Gravity offers myriad AI and automation capabilities in a secure cloud setting to promote maximum efficiency and organization-wide visibility without compromising compliance or security. 

Schedule a demo today to learn how Gravity transforms accounting for private equity.

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