FloQast vs. AuditBoard for PE-Backed Portfolio Companies

An add-back for a one-time legal settlement, a founder's above-market compensation normalization, or a non-recurring consulting cost only holds up if it's documented with the same rigor as any other ledger entry, not carried as a side spreadsheet the CFO maintains separately from the close. Reconcile each add-back to supporting documentation monthly, as it's incurred, rather than reconstructing the justification once a year during the annual valuation or when a buyer's diligence team starts asking pointed questions.

A quarterly or monthly management fee owed to the sponsor under the management services agreement is a fixed, contractual calculation, and an accrual that drifts from the agreement's actual formula, even by a rounding difference, is the kind of small discrepancy a fund's own auditor tends to flag immediately during the portfolio company's audit. Reconcile the accrual against the agreement terms every period, not just when the fee is actually paid.

Unlike an internal close that can tolerate some informality, a sponsor reporting package usually follows a fixed template, on a fixed deadline, with specific KPIs and variance explanations expected every period. Treat each line of that package as its own reconciliation with a named preparer and reviewer, since a sponsor comparing month over month will notice an inconsistency in how a metric was calculated far faster than an internal reader would.

Add-back documentation, management fee accruals, and the recurring structure of a sponsor reporting package are exactly the kind of repeating, checklist-driven work FloQast handles well: a reviewer sees at a glance which line items are reconciled and which are still open, instead of a CFO manually assembling the sponsor package from scratch every period.

Once the fund's own auditor requires evidence that portfolio company controls were tested, not just that the numbers reconcile, or once a sale process puts the company's diligence file under direct scrutiny, AuditBoard's controls library is what holds that record: who reviewed each add-back, on what cadence, and against what supporting evidence, in a form a diligence team can sample directly.

• If assembling the sponsor package each period is the slow, manual part, start with FloQast.
• If the fund's auditor or a sale process has started asking for documented control evidence behind the numbers, bring in AuditBoard well ahead of the deadline.
• If add-backs are tracked in a side spreadsheet with no reconciliation to the ledger, fix that discipline first, since it's the piece most likely to get challenged in diligence regardless of which platform holds the record.

Say a portfolio company's quarterly package includes an add-back for severance from a role that was eliminated, another for legal fees tied to a contract dispute that settled, and a third for consulting fees paid to help select a new ERP system. Reconciled against documentation, the severance and legal fees hold up as genuinely one-time, but the ERP consulting turns out to be an annual recurring engagement mislabeled as a project cost. Catching that during the quarterly reconciliation means correcting one line before it compounds into four quarters of a mislabeled add-back that a buyer's diligence team would eventually challenge, and challenge specifically because it recurred every year rather than once.

Beyond the income statement metrics, most sponsors track cash conversion and covenant compliance under the credit agreement just as closely as EBITDA itself, and a covenant calculation that drifts from the credit agreement's exact defined terms, debt-to-EBITDA ratio, fixed charge coverage, or a liquidity minimum, is one of the fastest ways to trigger an uncomfortable conversation with the lender group. Reconcile each covenant calculation to the credit agreement's precise language every period, not to an internal approximation of what the covenant roughly means, since lenders read that definition literally.