Building the optimal finance tech stack at your SaaS company (Part 1)

A pattern has emerged from your peers on the technology, process, and people to apply in building your finance technology stack at your SaaS firm. How you go about recurring subscription billing, collecting and forecasting cash, managing revenue recognition, and calculating SaaS metrics and financial reporting depends on your business model and growth stage, however, there is a core structure to build upon.

To help break down these tech components and best practices, we brought together a trio of experts in finance solution selection, SaaS metrics, and finance community networking. We had a recent on-demand webinar, “What Is the New SaaS Finance Technology Stack,” for you to hear practical guidance from:

• Ben Murray, the founder of The SaaS CFO, through which Murray shares his expertise in helping finance leaders understand SaaS economics, metrics, and forecasting to improve results 
• Gene Hammons, director of Profit From ERP, an ERP/accounting selection consultancy with a proven methodology to help clients choose the right financial management platform and maximize ROI
• Sam Jacobs, the founder of Revenue Collective, an exclusive global group of finance pros providing support, assistance, education, networking, and career growth to its 3,700 member growth operators.

The webinar, part of our SaaS Success Series, covers three mains points:

#1. What makes up the finance tech stack?

#2. Leveraging peer community networks to guide your journey

#3. Best practices for engaging stakeholders and managing change

#1. What Is the Finance Tech Stack?

A finance tech stack moves a SaaS company beyond initial use of basis accounting or an outdated legacy system, with heavy Excel usage.

• Seed – with a focus on Product Market Fit, accounting is simple payroll and accounts payable
• Series A – now proving the revenue model, the emphasis is on the order-to-cash billing and cash collection processes, with basic revenue recognition, expense management, SaaS dashboards, and reporting
• Series B – you evolve to showing a recurring revenue model with the ability to upsell and renew customers, keeping the growth rate up. Finance matures to more complex subscription management, revenue recognition, metrics, and commissions/expense management
• Series C – F – once the model has been proven, it is time to professionalize finance and clean up the experiments from the earlier stages. Emphasis is upon budget v actuals, forecasting/variance, and reconciliations
• IPO – the company takes a capital efficient model and expands to adjacent markets and/or geographies. Everything becomes more standardized with greater controls and compliance of public company reporting and international consolidations

Hammons, who has worked on more than 400 ERP projects over 20 years, noted that some companies tend to add more headcount to accommodate growth, rather than leveraging technology automation.

“The big, big pitfall we see is people try to handle growth with a lot of spreadsheets,” he said. “They add one person and it gets busier, then they add another person. You end up looking at $350,000 in labor every year to avoid a $50,000 piece of software.”

Murray agreed. “Because accounting is so transaction-oriented, it’s easy to slip behind with spreadsheets until it becomes overwhelming, and then it’s hard to catch up,” he said.

Starting with a cloud-based accounting system, companies can eliminate manual work and improve reporting visibility. From there, a next step is introducing further automation through additional modules in the core platform or best-of-breed applications.

Additional components can handle invoicing, CRM, revenue recognition, close management, travel and expense, and analytics. Needs will vary by pain points and business model. For example, some companies many may need fixed assets, while others will benefit from a sales commission solution.

A full tech stack supplies a broad range of functionality.

Some best practices include:

Avoid the “Big Bang” approach. An iterative model is far better than trying to build a full tech stack at once, our experts agreed.

“Getting the basics live and understanding how the software works before adding subsequent modules makes it easier for everyone,” Hammons said. “With a ‘Big Bang’ project, you’ve got a huge learning curve that can slow the whole project down to a crawl.”

Pay attention to workflows and controls. Fully understanding the workflows you want to automate with a cloud application pays off in implementation and subsequent modifications, Jacobs noted. It’s also important to pay attention to controls into financial and process management as you create your tech stack over time.

“As you’re layering in technology, you also need to be building the right controls into the business,” Jacobs said. “That’s something I’ve seen some companies lose a handle on.”

The right tech stack positions a SaaS company to scale with growth, according to our panelists.

“You can keep pace as the company grows and finance data grows,” Murray said. “You’re spending less time on the close and more time analyzing the data and forecasting to make proactive decisions.”

#2. Leveraging Peer Community Networks to Guide Your Journey

Building the optimal tech stack is more difficult than ever in today’s volatile landscapes, with rising complexity and tenures for finance execs at high-growth SaaS companies lasting just 17 months on average. Guidance from peers can be incredibly valuable, Jacobs said.

“There are people out there who’ve already been there, done that,” Jacobs said. “Wouldn’t it be useful to talk with a fellow finance executive who was at your stage about their journey over the last 18 months? You want to be able to avoid costly mistakes through shared experiences.”

Jacobs’ advice: Look to collaborate with “two-step” executives — in other words, executives who are two steps ahead of where you need to be.

Today’s best finance networking communities are much more than “public bulletin boards” or a five-hour in-person monthly meeting Jacobs added. Instead, an invite-only organization brings together knowledgeable, committed finance pros for frank exchange and collaboration in a trusted space. Plus, technology today provides access to executives in seconds.

Murray said networking has been vital in his professional growth.

“I’m often messaging with other controllers or CFOs asking their advice on processes or technologies,” Murray said. “Don’t reinvent the wheel. There are people out where who have gone through this before — hit them up for advice.”

#3. Best Practices for Engaging Stakeholders and Managing Change

On-time implementation, stakeholder engagement, and change management are important ingredients as you build out your finance tech stack.

Under-promise and over-deliver. As Hammons noted, a financial system upgrade has a tendency to move slowly during the initial software selection phase — after all, the target go-live date might be nine months out. Then before you know it, you’re running behind and a fast implementation becomes urgent.

Still, you miss the target go-live by two months. Right off the bat, the new system can be perceived as a failure, all because early stages dragged on. It’s a common scenario best avoided, Hammons said.

“When you’re doing software evaluations, take some of that urgency from the last 90 days and put it in the beginning of the project,” Hammons advised. “Getting it done on time leaves a little extra time for training and getting people used to it.”

Engage and educate stakeholders. A robust finance tech stack doesn’t affect just accounting and finance. It can touch sales, operational, revenue, IT, and audit areas as well. Working with a broad range of stakeholders throughout an upgrade process pays off.

“Get out of the business office and find out what’s going on in other areas,” Hammons said. “Understand what their drivers are, what’s moving them forward, and help them understand from the beginning how this new software is going to make their job easier.”

In one example, Jacobs noted an opportunity to rethink revenue models traditionally based on sales headcount plans.

“We, the finance teams, need to be working with sales and revenue teams to be thinking about marketing funnel-driven and opportunity-driven revenue models, not just headcount-driven revenue models,” Jacobs said. “That’s one example where collaboration can surface insights before we get too far down a road and figure out we’ve taken a wrong step.”

Overcome resistance to change. Managing politics and personalities effectively is another key to success. As Hammons noted, there’s often at least one stubborn person who’s strongly opposed to changing software.

“You realize it’s because he’s the expert in the existing processes and if you take away the old system, you take away his expertise,” Hammons said. “The way you win over that guy is get him trained so he becomes the expert in the new system. All of a sudden, he’s the guy with the answers and kind of even likes the new program.”

Check out our SaaS Success Series for additional webinars focused on helping SaaS finance leaders guide their companies and to build great teams.