Money Matters

The CFO’s role in helping a Saas company scale

Two men in an office, using a computer screen.

This article is originally published by BetaKit.

Despite the role that CEOs, CTOs, and product managers play in a startup’s success, finance is the only department in a SaaS startup that touches every part of the customer journey. With a unique money-focused perspective, finance employees have access to data across every type of product and customer. So while SaaS CFOs are not the most talked-about startup leaders, they can have a huge impact on the business.

As startups push more than ever to have every department contributing to growth, SaaS CFOs have a unique opportunity to deliver key financial metrics that drive business decisions and sales strategies. In a new white paper, Sage Intacct walked through the five key areas where SaaS CFOs can help their startups grow.

1) Manual data entries are an opportunity for automation

Regardless of company stage, a SaaS startup relying on manual financial data entry is a red flag, according to the white paper. Not only does manual data entry take up more time, meaning direct salary costs, but it causes two other problems. First, slow reporting times from manual data entry means reduced clarity on spend and ROI for sales and marketing leaders, delaying action. Second, there is risk of human error in a manual process, meaning there’s a chance that the company will make decisions based on incorrect data.

David Appel, the Head of SaaS and Subscription Verticals at Sage Intacct, noted that most finance teams spend 80 percent of their time doing manual transaction support, and only 20 percent of their time doing strategic decision support. The best SaaS operational finance teams find a way to shift that to 20 percent manual, 80 percent strategic decision making. This creates business agility from knowing your top KPIs, including cash flow.

The immediate salary costs and the longer-term risks of human error and decision delays makes a clear business case for automation. While CFOs and their teams should still use manual data checks to ensure quality and for ad-hoc cases, repetitive and routine financial checks should all be automated.

2) Build a central compliance process

Finance holds all the company’s core data: revenues, expenses, payroll, asset values, and more. That also means that a CFO is in the best possible position to create a central compliance process. Depending on industry, a compliance process may be a legal requirement. But even unregulated industries should have a central compliance process to identify irregularities and keep the business safe from financial threats.
A streamlined, central compliance process is a critical part of running a startup efficiently.

Since startups have significant challenges and large amounts of data from invoices or expenses coming in every day, Appel said a central compliance process will help with better organization, whether that’s for legal compliance like GDPR or managing internal controls to avoid errors or malicious activity.

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3) You can never be too fast

One way a startup can track the maturity of its financial system is how quickly the finance team can close the books each month. Appel said the average startup takes 10-15 days to close the previous month’s books, giving leaders only two weeks each month to make data-informed decisions.

To provide more insight, SaaS CFOs should first automate basic processes and data flows. From there, the finance team should provide a “flash close” each month, which the white paper defines as a financial health snapshot including “10-12 key metrics and balances, such as revenue, bookings, CLTV, CAC, CMRR, AP, AR, DSO, cash balance and burn, key customer adds and churn, and others.”

With a flash close, startup leaders can begin to plan budgets earlier, using real data. Appel said that an automated data entry process can also speed up the full close each month, from 10-15 days down to less than five days in some cases. This provides significantly more time for sales and marketing leaders to act on the data and build their budgets.

4) Don’t save pennies and waste dollars

Speaking of time and budgets, a lot of startups use inexpensive tools like Excel for the bulk of their financial analysis. The primary assumption is that a cheaper technology means lower fixed costs, so the extra effort is worth it because startups have limited resources.

Unfortunately, said Appel, this is a misunderstanding of the core problem. Not only does Excel take longer, costing more in direct salary, but the opportunity cost of startup leaders unable to act on company data. The longer it takes for the finance team to close the books, the less time everyone else has to act.

Instead of looking at the cost of technology in a silo, Appel said startups need to look at the bigger picture of platform costs, salary costs, and opportunity cost of not having high-quality data or risking human error. A one percent shift in churn can mean millions of dollars of valuation over time. Having the tools and time to find and improve measures like churn and cash-flow pay huge dividends.

This doesn’t mean eliminating Excel, however. It’s still a powerful tool for ad-hoc cases and individual reports. It just should not be the backbone of a growing SaaS business’ accounting needs.

5) Finance and operations are a match made in heaven

In addition to customer data, CFOs also have access to every other key data point when it comes to business operations: payroll, platform subscriptions, office expenses, and all ad-hoc expenses. That means a big opportunity to spot areas for streamlining expenses. For example, a CFO might notice that two individual departments are paying for the same technology, when one larger subscription would save the company money.

While CFOs have access to the data, they shouldn’t make streamlining decisions in isolation. Instead, CFOs are in a position to raise the flag and then collaborate with Operations to figure out the best way forward. Unfortunately, not everyone is in a collaborative mood when a CFO approaches them about cutting costs. Appel said that when CFOs are met with hostility from Operations or another department, they should focus on the end game: explain how streamlining costs and connecting data flows will help the finance department generate useful insights that will help other teams make decisions, such as triggers for hiring, top product bundles, and funding acquisitions for complete product offerings.

Businesses live and die by cash flows, and CFOs have visibility into where every dollar comes from and goes to. In partnership with their Controllers, CFOs have a massive opportunity to help their company scale with real financial insight driving decision making.

Download the full report from Sage Intacct