Are my numbers correct? How much revenue can I expect in 6 months?
Best Practices on Business Reporting & Planning for SaaS companies
I spoke with some 100+ startups across geographies in the last few months and found some common patterns in terms of the challenges faced and how the best startups behave.
Current Environment
We are experiencing the first significant economic headwinds since SaaS became mainstream. For over a decade, we have been in an unnatural zero-interest-rate policy fueled by the economic bull market. What we are experiencing now is a lot closer to normal.
As we enter this re-balancing stage, what does it mean for SaaS companies?
2023 will be the year of companies that can plan for higher efficiency and the ones that prove that their business is resilient to any significant economic headwinds will be the ones that survive (and hopefully thrive.)
As a CEO/CFO, and as a finance team, one needs to be completely plugged into what all departments are doing.
Unfortunately, the lack of tech investment has trapped the financial side of companies in a pattern of looking backward. Finance spends too much time finding data siloed in the tech stack, integrating data, interpreting data, and then rectifying man-made errors. We have identified some ways in which the CFO can enable the team to be more strategic and forward-looking.
Common challenges faced:
1. Poor Visibility and delayed insights
Data siloed in disparate systems (e.g. CRM, Accounting tool, ERP, Billing software, etc.) and multiple spreadsheets with lack of common identifiers across systems.
E.g. One customer will be called Customer A in CRM and Customer A Ltd. in billing software making it difficult to track booking to invoice journey
Delayed Insights due to unavailability of real-time metrics and real-time forecasting and the only value you can provide to company is this’
Lack of a single source of truth and collaboration among stakeholders. E.g. limited visibility of their respective budgets to all stakeholders
2. Manual Effort
Data is not readily available in a consumable form
The processing, stitching, and cleaning of raw data from ERPs and CRMs into reports are extremely time-consuming.
E.g. companies take 4-5 days just to compute their ARR every month, the days become more if it is usage based or has different products.
3. Error prone
Dependency on individuals and high chance of human errors
Frequent monitoring, fine-tuning your models in heavy excels and changing data in raw sources can give inaccurate picture.
4. Lack of specific benchmarks related to their stage and industry
Automation journey:
Systems:
Companies should get the following systems to make sure their processes are automated
Accounting tool
CRM
Billing/Invoicing software
Marketing tool/Customer Success etc.
FP&A tool
Challenges in automation:
Lack of common identifier across systems
Non reliable data across systems
Not the right classification in system. E.g. unearned revenue in Invoicing system
Some data still sitting in spreadsheets Inconsistent format within a platform
Get all stakeholders involved
. . . . and so on and so forth.
Best practices:
1. Early automation and link different systems
Ensure different systems are linked to each other in some way. For example having Hubspot customer name in Chargebee
Automate the processes sooner than later. It is easier to set processes when you have 50 customers vs 500 customers
2. Ensure data cleanliness across systems and set processes with relevant stakeholders
Set processes to ensure people enter correct data and that matches across systems. E.g. introducing drop down for industry in CRM
Ensure the data sources are regularly updated to get a real-time of what is happening
3. Plan for the unforeseen by being Agile
Run different what-if scenarios and automate the process on the platform to quickly recast budgets by changing drivers and assumptions
Forecast based on current and past trends
4. Planning is a continuous process
Keep identifying the areas of misjudgment and error and course correct them immediately
Identify areas of variance from the budget and define a process to get it back on track.
Have real time forecasts along with budgets
5. Integrated centralised planning
A single system ensures the completeness and accuracy of data (I am the founder of Mantys.io which does this)
Collaborate with different stakeholders on one platform instead of multiple spreadsheets
6. Appoint an FP&A Manager to take control and ownership of the process
I will keep sharing more tactical practices as I speak with more CFOs or founders. It is a different market for everyone for sure and the processes which worked for the last 10 years might not work now.