Growth puts big demands on the finance team to prove out the revenue model, forecast the future, and manage cash and revenue. Are you able to stay ahead of it? Or is it all-nighters going through spreadsheets line-by-line and taking the whole weekend to do the board deck?
We recently talked to Elay Cohen, CEO & Co-Founder of SalesHood about their growth journey. SalesHood is the sales enablement platform that onboards and ramps sales teams 50% faster.
Five Signs Your SaaS Finance Software is Holding You Back
Do you see the five signs? Many of us have experienced these challenges, especially when business needs require better accuracy. If you don’t want to add more finance staff, you’re going to need automation, including automated SaaS billings.
First, your SaaS billings are completely manual.
In general, we see the turning point at around 200 invoices, particularly if you’ve got a blended billing model with multiple types of product lines. You spend too much time reentering and manually calculating bills. This presents a number of challenges you have to get through- not being able to scale and dealing with errors. In turn, these issues can impact your customers. Now that’s a challenge to address as soon as possible.
Especially problematic is trying to manage complex usage-based pricing across various models in Excel, and manually inputting that data into QuickBooks for monthly, quarterly, and annual billing that varies by customer. Implementing a subscription management software like Sage Intacct can improve subscription billing accuracy and timeliness when you have complex contracts and, or unique pricing models.
With the Sage Intacct cloud financial management platform, you can generate new finance efficiencies and visibility. You can also get on track to cut your time to invoice in half, or more. Speeding up billing ultimately helps software companies adapt to changes triggered by the COVID-19 pandemic- and the critical need to bill customers in a timely manner.
Second, your SaaS billings are inflexible.
“I was brought in to help streamline finance operations, create efficiencies, and enable scalability. I do that with Intacct. . .and the SaaS-specific tools are really important to me as a finance team of one.”Caitlyn Greene, SalesHood finance lead, on preparing for hyper-growth
When you’re in an order-based system like QuickBooks or an order-based cloud product, it’s just hard to scale with a high-volume business with hundreds of revenue schedules. If you have a lot of changes to the revenue schedules and the subscription life cycle, that can lead to manual errors. Then, you’ve impacted your audit and delayed your close. That can also lead to a critical issue- you misrepresent the company’s position to your investors and ultimately, they lose confidence in you and the leadership team.
Another issue can arise when your competitors make market or product shifts. Where do you want to spend your money- on increasing your finance team or increasing your R&D, marketing and sales spends? Ultimately, inflexible billing can limit growth, because you can’t take advantage of market shifts that create new opportunities. It can also result in lower subscription software conversions because you don’t have the ability to price competitively. Why lose deals because your subscription billing tool is inflexible?
With flexible, agile billing that’s automatic and driven directly from your contracts, you can iterate and innovate your pricing to deliver value to your customers and prospects and more easily take advantage of new opportunities. Companies that can innovate their pricing can provide more value to customers, commonly resulting in:
- Increased committed monthly recurring revenue (CMRR) by up to 15% to 30% with new billing models,
- Increased add-on sales to increase customer lifetime value (CLTV) by as much as 15%, and
- Reduced churn by as much as 2%.
Third, you calculate revenue recognition in spreadsheets.
“For us, moving over to Intacct helped with a lot of our quirky contracts and cohort billing. It’s a lot easier to have everything in one specific contract. You can add additional lines and different products and different services, and it keeps it in one easy to find place. That is not an option in QuickBooks. There are so many manual processes we had to do. I don’t want to spend my time or Caitlyn’s time doing duplicate or triplicate work.”Elay on automating revenue recognition and efficiencies
ASC 606 has created a huge burden for revenue accounting. QuickBooks users are forced to manage revenue recognition and expense amortization in spreadsheets. If handling new contracts weren’t enough, every time there’s an upsell, down-sell, renewal, hold/resume, or extension, schedules need to be adjusted. Add in multi-element billing arrangements, and you take the complexity and manual calculations to a whole new level. In addition, at the end of every period, the data needs to get entered back into the QuickBooks general ledger (GL) and reconciled.
With a subscription management software like Sage Intacct, you have the ability to manage compliance with ASC 606. The ability to have historical reporting is key as well. Knowing that you’re in compliance will become increasingly important on a go-forward basis with your business.
Another issue with manual processes- calculating complex revenue recognition in spreadsheets is error-prone and raises concerns about accuracy and audits. This is the last thing you want to face when you’re gunning for growth in your software business. Not only that, but lack of visibility and understanding of recognized revenue and cash positions negatively impacts your investor valuations. Moving off of QuickBooks allows you to have much more visibility – especially visibility into your growth and the growth of your customers.
Automating a single revenue stream throughout the customer lifecycle saves you hours of painstaking calculations, accelerates your close and reporting, and improves accuracy and compliance. You have one source of truth—your financial system. And, it doesn’t require another reconciliation.
Bottom line: You need intelligent, automated, and compliant revenue recognition software to move towards 100% growth like SalesHood.
Fourth, your SaaS metrics reporting is delayed.
When you don’t know where you stand, you can’t move on opportunities and you run out of time for thoughtful analysis. If that’s happening constantly, it impacts the confidence the leadership team has in making informed business decisions.
“The longer we have to wait for the reporting until mid-month or late in the month, that prevents us from being able to verify and accurately reconcile all the transactions in the previous month. That means decisions are delayed. We’re in a fast-growth industry. So, we’ve got to move fast, right? When we turn the corner on the month, I want to be able to see the numbers within a day or two.”Elay on the value of just-in-time financial reporting
Since revenue is outside of QuickBooks and must be manually imported, it delays the close as well as GAAP reporting. If your close takes three weeks, which is typical for customers that we talk with, your reports are delayed by that much. But that’s not the worst part. Your executives, board, and investors want SaaS metrics such as customer monthly recurring revenue (CMRR), customer acquisition cost (CAC), and churn. If it takes two weeks to crunch these numbers after the close, there’s often little time for analysis before you need to deliver your key metrics.
When contracts flow seamlessly from your CRM solution into your financial solution and your billing, revenue recognition and general ledger are unified, you can automate the end-to-end process. This means you have real-time GAAP reporting and SaaS metrics, saving weeks of report preparation with the click of a dashboard. Since all the data you need is in your financial solution, reports can be run anytime—not just after close. Companies that have real-time metrics are more agile in their decision making and frequently:
- They can reduce budget variances to less than 10%,
- Create monthly executive reporting packages in less than 10 days, and
- Reduce board report creation time to less than a week.
Fifth, forecasting your SaaS business is a challenge.
The worst thing you can do is give a report to a shareholder or share numbers with employees that are inaccurate, or even just plain wrong. They’ll lose trust and that’s not a way to run a successful business. With better forecasting and access to the most important SaaS metrics, you’ll be able to drive success during your board meetings.
“I can’t control what’s going to happen in the future if I can’t run models appropriately. We need to be able to know our cash position. We ask ourselves: what happens if we don’t hit our goals? What are the impacts on our cashflow? And, then, what changes do we need to make? These questions are on our minds all the time. If we can’t trust our forecasts that they’re verifiable and based on data, then we could hinder the business with just one bad month of reporting.”Elay on the critical need for data-driven forecasting
In addition to challenging reporting, when you’re piecing together multiple systems and spreadsheets, you also impact your ability to forecast what’s happening in your business—when will revenue be recognized, what has been billed already, and when will the cash come in? Forecasting happens once a month or once a quarter instead of happening continuously and on demand.
When you move to a single source of truth for your subscription-based software company, your quote to financial forecast process is connected and forecasts on revenue, cash, and billings can be run with the click of button.
Now more than ever, in light of the volatility of COVID, it’s a business imperative to run more and better “what-if” scenarios. Your forecasts need to go beyond a few weeks, to several quarters, 12 months, and ideally, 18 – 24 months out. For SalesHood, forecasting is key to cash management and, more importantly, controlling their own future.
So, what’s the big picture payoff for moving off of QuickBooks?
Upleveling your SaaS subscription management software leads to a healthier business that’s able to scale faster. For SalesHood, it’s helping them move towards 100% growth.
“We want to look at growth and we want to see revenue growth, month over month, quarter over quarter, and then year over year. SaaS metrics are key for us; we want to see gross churn and monthly recurring revenue growth. Accurate and clear reporting on gross churn and net churn is also important. We are building a healthy, fast-growth business.”Elay on running a positive cashflow business
So how do you get there? From the five signs you’ve outgrown QuickBooks, we move to the five steps to achieve a scalable SaaS subscription business.
Step 1: Integrate quote-to-cash. It’s common for companies that we work with that integrate Salesforce with Sage Intacct to decrease processing time of quote-to-cash by 30%.
Step 2: Establish flexible, contract-based billing. Coupled with integrated quote-to-cash, companies are able to grow revenue through new pricing models and commonly see their cash flow increase by 20%.
Step 3: Automate end-to-end revenue management around the customer lifecycle. Automating revenue management along with other accounting tasks commonly allows our customers to reduce the time to close the books by 50%.
Step 4: Create real-time SaaS and GAAP dashboards. With more timely, accurate information, companies can make better decisions to affect the growth of their companies, such as product investments, hiring, acquisitions, and reduce churn.
Step 5: Forecast future revenues, cash, and expenses to anticipate where the business is going and put the strategies in place to grow revenue per transaction.
Diginomica, which provides cloud computing business insights, published a blog about the value of a single SaaS finance system from integrating quote-to-cash to forecasting.
Putting the five steps we outlined into action- moving away from manual processes and to a single SaaS finance system, can have lifestyle benefits as well.
“Our subscription management, financial data, and reporting are much more accurate. And ultimately, I’m getting to spend more time with my family on the weekends.”Elay on the impact of implementing one financial system of record
If your SaaS business is in its growth stage, Salesforce integration and automation is a game changer. It enables you to integrate the entire quote-to-cash process, which can cut order-to-bill processing time by 50%. It also results in a significant DSO decrease, up to 30%. Sage Intacct enables these improvements with native Salesforce integration to support growth stage companies.
For early-stage SaaS businesses, Sage Intacct subscription management software allows you to scale your subscription billing & cash flow management so you can get your next round of funding. Learn more about how to increase revenue and operating cash flow in this video with GoGuardian, who achieved 2x revenue growth and 110% increase in operating cash flow.
To learn more about proving out SaaS business models, check out Olo.com, a subscription company disrupting the restaurant industry.
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