Author:

Construction companies are always looking to set themselves apart. To succeed in today’s climate, smarter forecasting can change the game.

Construction companies are always looking for ways to set themselves apart from the competition. To succeed in today’s climate of fierce competition and razor-thin margins, you need to be forward-thinking in your management style.

Traditional approaches to business visibility (e.g., reporting, monitoring, and analyzing) are important and can help you gain insight into what has already happened and what is happening now, but having a solid understanding of what might happen in the future can help give you that competitive advantage.

Start by making forecasting an integral part of your business planning cycle. Your business planning cycle should look something like this:

1. Analyze Data
   Consider information about company performance, your projects, the economy, and the marketplace.
2. Identify trends
   Take note of patterns in your performance, marketplace trends, and other key indicators (such as material and labor costs).
3. Forecast performance
   Apply your findings to predict how your business/projects will perform in key areas.
4. Plan and budget
   Use forecasts to plan for the future (“Should we hire more workers?”) and to help scope projects (“Do we have the funds to cover cash outflows?”).
5. Execute
   Act decisively based on your plans but prepare to make course corrections, as needed.

Be sure to forecast at both the business and project levels as well as for external forces. At the business level, your forecasts help you develop your budgets, establish a vision for the future, and create benchmarks to measure and reward performance. Use predictive indicators such as customer satisfaction, sales pipeline, and accounts receivable turnover to help you create your forecasts.

Construction Executive’s Guides to Business Visibility

Are you running your business through a “keyhole?”

Our series of interactive guides provides step-by-step instructions on how you can turn data into a blueprint for sustainable success. Download Guides

Business forecasts to consider include backlog, new contract awards, direct and indirect costs, cash flow, net profits before taxes, gross margin, and revenue. Review your forecasts and examine any areas that show a significant change.

For example, be leery of forecasts that have your gross margin making a big leap. Costs that are high today will likely remain so in the future. When forecasting revenue, embrace your aspirations and build at least one set of projections with aggressive assumptions. Of course, you’ll also want to put together a contingency plan in case actual results fall below projections. It’s usually a good strategy to plan for the worst but project for the best.

Each project must be controlled carefully from beginning to end. Forecasting plays a vital role in identifying potential problem areas—after all, how can you know when a project gets off course unless you first understand the destination? Successful contractors are systematic with their project forecasts, typically requiring finance and operations to work together to provide monthly project forecasts.

Construction forecasts typically rely on accurate and timely input from field management for information such as percent complete and units in place. From these indicators, you can derive a forecast variance and make adjustments. To improve the timeliness of this data, companies are increasingly providing mobile access so field personnel can record project progress from the job site. Key project areas to forecast include net profit, cash flow, cost to complete, and equipment resources.

In addition to making projections regarding internal business performance, it’s important to consider how external factors will impact your organization. For construction businesses, these external driving forces typically fall into five categories: economic, political, social, technological, and environmental. Some questions to consider include:

• Economic: How are financial markets performing?
• Political: What new regulations are on the horizon? Where are taxes headed? How will government spending affect available work?
• Social: How will an aging population and the effects of the pandemic change the type of buildings and services in demand?
• Technological: How will innovations in mobile, cloud, and BIM impact the industry?
• Environmental: In what new directions will the “green” movement pull the industry?

Without a crystal ball, the best way for construction executives to understand these forces is to use a method called scenario planning. According to the Journal of Accountancy, scenario planning is focused on answering three questions: 1) What could happen? 2) What would be the impact on our strategies, plans, and budgets? 3) How should we respond?

As with most business strategies, scenario planning is only as effective as the actions you take. Be prepared: develop a playbook to respond to various triggers identified during the planning process. This allows you to take proactive steps quickly and strategically, protecting—and potentially helping—your bottom line.

Learn what Enterprise Resource Planning (ERP) systems are, how they can benefit your business, and how to implement them effectively.

Keeping your business profitable takes continuous management of all the resources that make it up.

Letting this slip leads to inefficiency, which increases your costs and reduces revenue.

There are many ways for you to stay on top, but as your business grows, this can get more complex.

Before you know it, you’re juggling product stock, cash flow, and people challenges all at the same time, with no way of improving these areas and ensuring they work together.

Enter enterprise resource planning (ERP) software.

In this article, we’ll explore what this type of software is and how it can benefit your business no matter how big it grows.

Here’s what we cover:

• What is ERP?
• 8 benefits of ERP
• ERP in action
• ERP implementation challenges
• Final thoughts

What is ERP?

Enterprise resource planning (ERP) software lets you integrate and manage all your core business processes in real-time.

That includes everything from finance and HR to supply chain and customer relationship management.

In other words, ERP acts as a central, unified hub that connects your data and lets you improve processes across many areas of operations.

Where some businesses have specialist solutions in each department (e.g. one for paying employees, one for managing stock levels, and another for storing customer details), ERP users have the advantage of keeping everything connected.

This brings many benefits, particularly to complex, medium-sized businesses that struggle to extract the full value of multiple separate solutions.

8 benefits of ERP

1. Boost efficiency and productivity

ERP systems enhance multiple areas of operations and provide the opportunity to eliminate a large number of manual processes with a single solution.

For example, your finance team could automate generating invoices, while your sales team automates the processing of customer orders.

Since every corner of the system is working from the same data, any process that can’t be completely automated is at least streamlined.

You can reduce mistakes, duplication of effort, and the use of outdated information.

People from every team can do more with fewer resources, in less time, and with fewer mistakes.

2. Enhance data accuracy and integrity

Having a single source of real-time data for your entire operations is perhaps the greatest strength of ERP.

This gives every department the best possible foundation for decision-making since the information and insights they use are always accurate and used by other teams.

This is essential for strategic planning and resource allocation, which often relies on teams ensuring their goals and actions are aligned.

3. Improve collaboration

Speaking of alignment, the integrated nature of ERP makes it great for eliminating silos between your departments.

People can collaborate more easily, both within their teams and across functions.

The sharing of data and other resources, as well as dedicated features specifically designed for collaboration (such as those within project management modules), does the following:

• Breaks down communication barriers
• Facilitates smoother project execution
• Keeps everyone on the same page.

4. Save costs 

Being able to efficiently allocate resources and get fast access to financial insights will help you consistently find ways to save costs.

For example, your procurement team could use an ERP system to manage and compare vendors, leading them to spot more competitive prices and negotiate better deals.

This can be the case for almost every area of the business, helping you directly use ERP to boost your bottom line.

5. Delight customers

A unified view of all your customer data allows you to find ways to delight those you service.

Customer relationship management (CRM) capabilities give you more control and visibility over every customer touchpoint, from tracking interactions and learning their preferences to receiving their feedback.

This gives you everything you need to tailor your services, offer more personalized and timely experiences, and build stronger relationships.

6. Simplify regulatory compliance

Many ERP systems have compliance features embedded into their modules.

This minimizes the effort required from your teams to ensure you’re doing everything correctly, whether that’s how you’re managing sensitive data, running your finances, or anything in between.

These features will be tailored to the region you’re working in and are often automatically kept up to date by the software vendor, which means you’ll be able to stay compliant even as rules change.

By removing so much friction from compliance, you’re not only protecting your business against potential fines and legal action, but you’re also able to instill more trust in stakeholders.

7. Scalable and adaptable

Today’s world is unpredictable.

ERP systems are designed to accommodate this by allowing you to scale different areas of the software as you need to.

If your business suddenly grows, or you need to quickly shift strategies, you can adjust the parts you need to suit.

For example, you might be pushing to expand your product line and need to integrate new sales channels.

ERP can evolve as your business does, and help you adapt to unexpected external shifts without compromising efficiency.

8. Data security and confidentiality

Most ERP solutions include robust built-in security measures that are perfect for protecting data confidentiality.

From encryption and access controls to regular security audits, they ensure the protection of any sensitive information you handle, which creates confidence among stakeholders and enhances your reputation in the market.

ERP in action

Organizations in every sector can benefit from giving their business processes a central hub.

By linking everything together, ERP can streamline your entire operations, from the point where your customers buy products to manufacturing and delivery.

Empire Candle is a great example of this. After a rapid growth period, the company brought in Sage X3 to help manage inventory and manufacturing.

This sudden expansion made determining supply to meet demand much more challenging, so an end-to-end solution to manage both efficiently was chosen.

Robert Turtledove, president and CEO of Empire Candle, says: “The right systems don’t just make IT better or technology better. They make the company better.

“That’s what you want. This is the central nervous system of the company.”

Having such control of operations has saved Empire Candle 30% of unproductive labor, and productivity increases have helped the company save around $400,000 per year.

ERP implementation challenges

Leading ERP solutions are designed to be fast and easy to implement, even for complex businesses. However, some common challenges can arise if you don’t take a considered approach.

Here are the hurdles you might encounter and some strategies to overcome them.

Challenge 1: Resistance to change

It can be difficult to get employees on board with new processes and technologies, especially if you’re a long-established business and your people have been doing things the same way for a long time.

You need them to buy into the new system, otherwise it won’t be used to its full potential.

Solution 1: Conduct training

A lot of the resistance will be down to a lack of confidence or knowledge of how to use a new system.

If you conduct comprehensive training and highlight the benefits, most will see the value and start to embrace it.

Also, offer ongoing support and ensure everyone has the resources they need to stay current with the software and its capabilities.

Challenge 2: Data migration

To make the transition as smooth as possible, you’ll need to migrate the data from your existing solutions into the new ERP system.

This can be an intricate and lengthy process, and if done incorrectly, data discrepancies can cause problems later.

Solution 2: Meticulous planning and testing

Think about how you’re going to migrate data well in advance of bringing the ERP system in.

Create a detailed plan for extracting data from each existing solution, working closely with current vendors to ensure accuracy.

You can also ask the ERP vendor which additional tools can be used to transfer data.

Once you have the system in place, do some data validation and testing before it goes live.

Challenge 3: Customization

Being able to customize ERP is great for helping you achieve specific business goals.

However, sometimes this introduces some system instability that you may have to compromise on.

Solution 3: Set priorities

Identify which customizations are essential, and which you could live without.

Work with the ERP vendor to understand what sacrifices each might require, and let them guide your decisions on tailoring the solution.

Challenge 4: Integration with existing systems

Even with a new ERP system, you may still have some software that you want it to integrate with.

This can present compatibility issues, but if you neglect integration, you’re more likely to maintain the silos that ERP is so good at eliminating.

Solution 4: Compatibility assessments

Work closely with ERP vendors to assess compatibility before committing to bringing in their solutions.

When researching your options, ask whether systems have APIs that allow integration, and work with third-party IT experts if you need to.

Challenge 5: Budget overruns

As with any large implementation project, there is always the potential for the budget to creep beyond your initial estimations.

This can be down to how the implementation is managed–both by your own team and the ERP vendor–as well as the technical complexity of the solution itself.

Solution 5: Cost analysis and planning

Before bringing an ERP system on board, conduct a thorough cost analysis and err on the conservative side.

Ensure you have contingency plans in your budget to create some room for unexpected mishaps that require more money to solve.

Take a phased approach to implementation, starting with critical functionalities that provide the most value.

To control costs internally, create a detailed implementation plan that outlines tasks, timelines, and responsible stakeholders.

Final thoughts

When implemented correctly, ERP systems can help you better manage your business operations.

Having a single, fully integrated system for all your departments will help you work more efficiently, give you faster access to insights, and reveal ways to enhance profitability.

Bringing in an ERP system also gives you the opportunity to get rid of all those under-used apps that aren’t adding much value and that may even be creating friction between your teams.

With this in mind, think of ERP as a strategic investment that could not only boost operational efficiency but also improve your internal culture by removing barriers and making life easier for your people.

Can you answer “yes” to any of these questions:

• Do you have limited access to real-time actionable data?
• Is your accounting team less productive than it should be?
• Are you overstaffed as compared with industry benchmarks based on revenue per employee?
• Are poor methodologies leading to higher costs in your accounting department?
• Are you burdened with inefficient manual processes that are difficult, error-prone, and require excess labor?

If you did, we need to talk. You’re likely struggling to make informed and accurate business decisions. Your margins are lower than they should be, and that’s leading to reduced profitability. Ultimately, that increases the business cost to attract new customers and maintain and improve customer satisfaction.

One of the solutions to these issues is a modern cloud-native financial management platform to provide:

• Out-of-the-box, fit-to-purpose automated workflows
• Real-time business analytics
• Self-service and mobile capabilities
• Forecasting to anticipate demand
• Seamless integration across systems, locations, and entities

What’s a platform like that worth to your business? In its recent report The Total Economic Impact™ of Sage Intacct, Forrester quantified the impact of Sage Intacct on accounting team productivity and reporting compliance. Let’s walk through the methodology it used to produce a real dollar figure.

Forrester interviewed four companies that switched from other systems to Sage Intacct. For their study, Forrester aggregated the interviewees’ experiences and combined the results into a single composite organization, a technology services company with global operations and headquarters in North America. The composite has 100 employees, generates $30 million in annual revenue, and grows 20% annually via acquisitions during the three-year TEI analysis period.

The four interviewed organizations said their accounting and financial systems were isolated, complex and problematic prior to deploying Sage Intacct. The financial processes resided across multiple platforms, such as enterprise legacy systems, bookkeeping software, spreadsheets and other applications. These systems included QuickBooks and Oracle NetSuite.

Lacking system consolidation and automation, the organizations used protracted manual processes to fill data gaps, often requiring additional labor to perform maintenance tasks, such as replicating the data in prior legacy and third-party software solutions or tracking contracts and invoices in individual spreadsheets.

After deploying Sage Intacct, the interviewees acquired visibility into their organizations’ financial performance and had confidence in their numbers due to the platform’s real-time data. They gained financial insights and the ability to parse the data, drill down on numbers, and isolate any issues with a particular number, which they could not do in their previous environments.

With this, Forrester calculated a $165,984 total three-year margin benefit gained due to increased accounting team productivity and improved reporting, with a present value of $137,593. (The total economic impact of all benefits quantified is valued at $2.1 million.) Let’s look at the details.

Evidence and Data

The interviewees stated that Sage Intacct’s integrated, fully automated multiple-entity reporting, based on GAAP’s revenue-recognition requirements, significantly improved the accounting team’s productivity and better prepared them for a business transaction such as an acquisition or divestiture.

• In legacy environments, the interviewees said reporting of revenue recognition consisted of an overly complex and tedious process and was often inaccurate due to the manual processes being managed in spreadsheets.
• In addition, these manual processes were prone to human error and meshed the data together at a macro level, making it difficult to get through due diligence required by investors versus providing the micro-level automated calculations required for proper revenue recognition.
• Also, interviewees reported that their prior systems lacked integration with their accounts payable and third-party CRM solutions, and as a result, accountants had to manually enter the data into multiple systems. This became particularly problematic when they experienced significant rapid growth that their prior systems couldn’t accommodate, putting a strain on their internal resources and costing them an excessive amount to maintain.

Modeling and Assumptions

The composite has two employees in accounting, handling accounts payable and ensuring reporting compliance per GAAP revenue-recognition principles.

• With Sage Intacct, accounting team members save 32 hours per week: 10 hours from elimination of duplicate data entry into multiple systems and spreadsheets, 16 hours from revenue allocation processes, and six hours from manual entry of accounts payable and reporting.

Risks

The ability to realize this benefit will vary according to:

• The organization’s GAAP and other reporting requirements for its investors.
• The necessary add-on modules capture additional reporting requirements, such as revenue recognition, multiple entities, and dimensions.
• The number of persons on the accounting/finance team dedicated to data consolidation, analysis, and reporting.
• Salary levels, depending on skills and geographical location.

To factor in these risks, Forrester adjusted this benefit downward by 5%, yielding a three-year risk-adjusted total present value of $137,593. The calculations assume a $35 hourly rate for a fully burdened accountant and two accountants.

As one of the interviewees noted, “There are some complicated things in GAAP rules that Sage Intacct handles very well. It reduces the amount of effort required from our team. I would have to hire another person or two to be able to calculate the revenue recognition.”  The interviewee is a CFO at a cloud and software services company.

Unquantified Benefits

Interviewees mentioned the following additional benefits that their organizations experienced but were not able to quantify:

• Improved visibility and reporting in real-time to quickly analyze data and isolate any issues with numbers, locations, or products. This enables deeper dives into transactions to determine where problems occur, which is a function absent in prior systems. Furthermore, with Sage Intacct’s customized dashboard feature, executives have better visibility into the composite’s financial performance in real-time and the ability to drill down and get answers quickly without having to rely on the finance team. This level of transparency and detail allows them to make better decisions faster rather than waiting three weeks after the monthly close.
• With Sage Intacct, organizations experience greater flexibility in accessing and reporting the data in a more meaningful way. Sage Intacct allows finance teams to generate reports based on executives’ needs in real time with speed and ease. A CFO at a cloud and software services organization commented, “When my CEO asks for something, I feel pretty confident not only that I can get it but also that I can get it pretty easily.” The interviewees found Sage Intacct’s dimension module gives them the flexibility to do custom reporting, change how dimensions are used, and add new dimensions within the system at any point in time.
• The multiple-entity function effectively captures acquisitions and reports on company performance. Within Sage Intacct, the composite uses the multiple-entity function to manage acquisitions or divestitures and view domestic and foreign business-unit performance. The solution provides the flexibility to either fully absorb the acquired organization into the parent as a branch or keep it as a separate business unit while operating in multiple currencies and countries.
• Accounts payable and ACH transfers are managed easily and securely. Once vendors enter their information into the composite’s portal, the data is transferred to Sage Intacct in a secure environment and then uploaded to the composite’s bank automatically, eliminating any human access to sensitive information. The CFO of an insurance company noted, “Everything is completely secured and embedded.”

If you’d like more information on The Total Economic Impact™ of Sage Intacct from Forrester, I invite you to follow this link, where the analysts not only explore the impact of increased accounting team productivity and reporting compliance but also examine the impacts of:

• More accurate customer billing
• Automation and integration
• Sales team effectiveness
• Increased finance team efficiency and auditability

These combined benefits add up to $2.1 million and a return on investment of 441%. Imagine the impact on your company.

As a SaaS CFO, you know the feeling: lying awake at night in a cold sweat wondering if that “one small accounting error” will have downstream effects. Maybe there was a payables mistake that impacted the timeliness of a payment to a key supplier. Will that put your company’s good standing with them at risk? And that’s just one example.

Finance leaders know the risks that can accompany even seemingly small accounting errors. You need to trust yourself, your team, and your tools.

In this blog post, we’ll explore why trust is critical when selecting automation tools for your business. We’ll be looking at the issue of trust from all angles as it applies to SaaS finance and automation. Why is it so vital that you trust these tools before switching to cloud accounting? There are answers to that question you likely haven’t even thought about.

Let’s get started.

From efficiency to trust: why you need to trust your tools

When selecting an AI accounting tool, CFOs’ main concern used to be about its impact on business efficiency. As time has passed, the core question has shifted somewhat to “Can I trust this product?”

Automation tools are crucial in streamlining financial processes and improving overall efficiency for SaaS companies. But that’s also what makes trust such an important factor when adopting these tools: they directly impact key processes tied to your business performance and cash flow.

And in SaaS finance, if something goes wrong, it can go very wrong. Whether you’re creating financial statements, running a forecast, setting a budget, or something else, a small slip can quickly trigger an avalanche of problems.

From the new accountant you just hired all the way up to your fellow accounting leaders, it’s safe to say that everyone in your department understands that.

There is no “small accounting mistake”

Even the slightest error in accounting can have far-reaching implications for your company’s ability to meet its financial goals.

This puts finance leaders in a double bind. Take your forecasting, for instance. You might know conceptually that email chains are far less efficient for forecast assembly than a centralized cloud-based platform. And you might even know that automated forecasts offer superior performance.

But here’s the thing: you don’t trust the idea of that cloud-based platform as much as your spreadsheets, or else you’d be using it right now.

This highlights two critical things:

• 1. The central role of trust in all of this. No reasonable CFO is going to offload essential financial processes to automation tools they don’t trust.

• 2. The importance of finding an AI solution you can trust. The cost of not finding one is to slowly (or not so slowly) lose market share to companies who weighed the risks, did their due diligence, and gave innovation an honest shot.

The good news is that accounting automation vendors also realize the importance of trust. And the reputable ones will bend over backward to observe several layers of meticulous trust-building practices. We examine some of them below.

Digital transformation with AI technology: the trust factor

A bit further in this post, we dive into a “vendor trust checklist” of what you should look for to maximize trust in your cloud software vendor.

In the meantime, though, here are some of the top things to look for when carrying out your due diligence. Following these tips can help you select software that keeps paying dividends for years to come:

• Check that the vendor maintains total transparency about their product development processes for AI tools.
• Make sure that their software still leaves you and your team in control: you guys still need to be the ones calling the shots. AI should be a trusted partner, not the boss of the operation.

• The software you select should be fully accessible, meaning you can trust that you can access it from anywhere with an internet connection.
• Your chosen solution should be fully auditable, providing a full audit trail of your financial processes and workflows.

If you can tick off all those boxes when doing your Google research on accounting AI solutions, you’re on the right track.

What are the benefits of using automation tools?

Using automation tools can streamline repetitive tasks for finance teams, improving accuracy and efficiency by reducing human error.

Accounting software equipped with AI helps CFOs and accountants save valuable time and financial resources while increasing productivity and ROI by eliminating data silos.

What else can cloud accounting do for you?

CFOs should prioritize automation tools–without leaping blindly

Software CFOs need to prioritize AI in order to maintain profitability and win their market. In today’s competitive SaaS landscape, manual accounting processes simply don’t make the cut any longer.

AI has grown in sophistication, and it’s now capable of helping SaaS CFOs improve their performance in all kinds of ways. Some particularly profitable use cases include:

• Long-range, low-variance forecasts: Forecasts built with ML algorithms can make more accurate predictions in the future than spreadsheet-based manual methods.
• Optimizing your billing strategy: SaaS subscribers, regardless of your target audience, will be heavily influenced by your pricing strategy.
• Making payables a breeze: Accounts payable (AP) can quickly grow hectic for SaaS companies. AP automation keeps your payables running smoothly, no matter how layered your vendor relationships become.
• Gauging user sentiment: AI software can use advanced analytics functionality to assess how your customers feel about your products.
• Improving your marketing funnel: With the help of cloud planning software, you can analyze funnel performance to identify and correct sticking points in your digital marketing, maximizing onboarding and cash flow.

Clearly, automation has a place in your department if you want to get ahead. But to avoid leaping blindly into a purchase, it’s important to be aware of the different types of software on the market and what they do.

Key automation tools for business transformation

Taking the time to understand your options will enable you to maximize your trust in your chosen AI solution.

So let’s take a moment and examine what’s available. Below are three of the main types of automation tools SaaS CFOs use today.

1. Accounting automation tools

Accounting automation tools are meant to help SaaS CFOs streamline a wide variety of financial processes involved in tracking and reporting on your company’s cash flow.

Examples of workflows that this type of software is meant to automate include:

• Financial reporting
• Tax Preparation
• SaaS metrics tracking
• Consolidation accounting
• Managing capitalization, both for public companies and smaller entities

Accounting automation tools also help finance teams with AP and payables processes for faster transactions, improving cash flow management through automated invoicing and collections.

2. FP&A automation tools

Financial planning and analysis (FP&A) automation tools are designed to help finance professionals boost the ROI of their financial strategizing.

FP&A automation software can help you:

• Use ML algorithms to create longer-range and lower-variance SaaS forecasts
• Make wise long-term budgeting allocations
• Pick the perfect SaaS pricing strategy for your company’s unique business goals

SaaS companies that operate on a subscription basis are beholden to unique accounting standards, and there’s also a type of software that can help you automate compliance.

3. SaaS tools for recurring revenue management

SaaS companies that operate on a subscription basis rather than one-off license sales have a unique set of financial realities to contend with.

Rather than just worrying about one-off transactions, recurring revenue companies need to manage an entire customer lifecycle for every single customer. In addition to GAAP, they’re also beholden to ASC 606, which calls for extremely specific revenue recognition protocols to be followed for every single customer relationship.

That’s a lot to stress over, and a lot can go wrong–which is where subscription automation tools come in. A recurring revenue management tool is a software solution meant to help SaaS businesses manage and optimize their subscriptions.

Accounting suites with subscription management functionality can:

• Automate billing and subscription management processes, such as automating renewals or helping a customer with a refund
• Ensure compliance with regulations in the United States and elsewhere
• Track churn and retention rates to measure and enhance customer loyalty

All three types of software are extremely useful in helping SaaS CFOs enhance different elements of their business performance and financial management. Sage Intacct is a full-service accounting automation solution that rolls all these products into one.

Now that you know more about the different types of automation tools on the market for SaaS CFOs, let’s see how you can maximize trust in your software vendor.

How to select the right automation software to maximize trust

When selecting an automation tool for your company’s finances, it’s only natural that you’ll want to maximize different layers of trust: trust in your vendor, their products, and the underlying processes and corporate culture that shapes those products.

It bears repeating. When you select an AI accounting suite, you’re trusting it to help you with extremely delicate and important financial workflows. One wrong move could seriously cost you.

So you need to do everything you can to make sure the trust factor is taken care of upfront. There should be no “mid-deployment jitters” if you’ve taken the time to carefully vet your vendor and their products.

Below is a checklist of things you should look for to ensure the trustworthiness of your chosen software vendor.

Vendor trust checklist

We realize that trusting your key financial workflows to AI isn’t easy. In fact, it probably goes against your basic instincts somewhat.

That’s why we’ve compiled this checklist of 7 essential things to look for to gauge the trustworthiness of your software vendor.

1. Evaluate their reputation and track record in the industry. Look for reviews from users in your specific industry, and make sure they have specialized experience helping clients like you.
2. Make sure the vendor complies with all applicable data security and privacy regulations.
3. Pay close attention to the caliber of their customer support: support speed, quality of assistance, and frequency of support needs should be taken into account.
4. Be sure that the software emphasizes putting you in control. Remember, AI is a partner, not a replacement. It’s very important that your vendor be on board with that.
5. The company should be customer-centric. Do they actively take measures to get as much customer feedback as possible, helping inform their product development?
6. Do they offer free product demos? This is an important low-risk way to gauge whether a solution is right for you.
7. What level of deployment assistance and post-deployment help do they offer? This is a huge aspect of maximizing success with these tools.

Even if you trust AI, your team members and fellow stakeholders might not. How should you handle that?

Addressing common concerns about automation tools

Overcoming resistance to automation is crucial for successfully implementing cloud accounting in your department. These tools are extremely powerful, but employee resistance or hesitation can strain the learning process and slow down your success in the long run.

Dispelling misconceptions about automation tools helps to ensure widespread acceptance and utilization among employees. Most importantly, be sure to spend time addressing fears of job loss due to automation. Clearly communicate that the role of this technology is a complement, not a replacement.

Highlighting the benefits and opportunities of automation can inspire enthusiasm and buy-in, both for employees and other stakeholders. How can you help your team appreciate what’s really at stake?

Financial process automation: appreciating the stakes

Automation tools play a crucial role in streamlining complex financial workflows that frequently produce a lot of stress for accounting employees, and stakeholders all over your company as well.

This sets up the competing stakes that we mentioned earlier: the risks of adopting AI versus the risks of not adopting it.

You should clearly convey the risks involved in not using AI while giving equal emphasis to the rewards at stake for innovating with cloud-based tools. We’ll use SaaS budgeting as a brief example.

Setting quarterly and annual budgets for a software company is an intensely collaborative process. In a manual accounting department, the collaborative elements alone are a massive headache, and that’s before you even get to the dollars-and-cents complexities of budgeting.

Cloud accounting software, on the other hand, makes collaborative budgeting seamless. So instead of wading through email chains, you can spend time making profitable allocations for the months ahead. The cumulative benefits of that will quickly add up, and soon you’re likely to see a significant leap from your pre-automation performance.

That’s just one small example, but they’re everywhere in your department if you just take a moment to look for them.

At Sage, we know the value of trust

At Sage, trust is the cornerstone of our business. We fully understand the level of trust it takes to allow AI to assist you with your crucial financial processes. We know exactly what’s at stake for your company, which is why we do everything in our power to develop products you can place your trust in.

Below are some practices and commitments that help us produce world-class cloud accounting products.

We have customer advisory councils comprised of clients.

This allows us to maintain an ongoing pipeline of real-time feedback about how our products are helping clients just like you.

Sage works extensively with AI auditing teams.

Our commitment to extensive AI auditing helps ensure that our products are free of bias and that our product development practices meet the highest possible standard.

We maintain an international employee advisory council. 

Our employee advisory council is made up of Sage employees all over the world and provides a crucial counterpoint to our customer advisory council.

Together, they help us maximize our internal and external communication to stay informed and deliver superior value to our customers.

Our commitment to trust ensures that our customers can rely on us to deliver automation tools that live up to even the most complex accounting situations.

Embrace automation with tools you can trust

There’s a lot at stake when you decide to switch to automation accounting at your company. But there’s just as much risk, and arguably more, in sitting on the sidelines while your competitors adopt these tools and get ahead.

To see how AI can streamline your department, check out our infographic explaining how AP automation streamlines SaaS finance.

How to overcome inefficiencies

The role and responsibilities of the modern CFO extend far beyond the day-to-day financial challenges of running a business. Today, it’s no longer enough to play the traditional role of finance leader. To deliver value as your role evolves, you must show resilience, demonstrate more active leadership, and build skills in other areas of the business.

Today’s CFOs are responsible for much more than finance

Being an effective financial leader requires a deep understanding of your organization and the ability to apply that knowledge to guide your people on the path to success.

Additional demands 

For many financial leaders, the current economic uncertainties and upheavals have resulted in additional organizational demands—from firefighting crises and preserving cash to assessing risk, redesigning financial plans, and revising forecasts.

“Today, the role of the chief financial officer (CFO) is under greater scrutiny, internally and externally. CFOs face never-ending pressure to cut costs, grow revenue, and ensure control.” DELOITTE.

The desire to fulfill ambitions

The expanding roles and responsibilities demanded of financial leaders today can leave you needing real-time data to confidently drive your decisions. You also need accurate insights to understand what’s happening in your business in seconds—and be able to apply that understanding to affect positive change.

With the right data and insights in place, you can look ahead and prepare for the future rather than looking in the rearview mirror. You’ll be empowered to fulfill the ambitions of your business, drive growth, and be ready to follow the path to success. So, what do you need to get there?

Removing common frustrations

Outdated legacy finance systems and processes for budgeting and accounting

can be a significant cause of frustration for today’s financial leaders.

Let’s take the close process as an example. Recent research found that 92% of CFOs feel frustrated by the time it takes their business to close, the human resources needed to manually consolidate data from multiple sources—and the lack of business impact.

Such outdated and manual processes can result in a loss of productivity and wasted time as your teams work through reams of financial records and different databases. It also means your business risks making mistakes throughout the process as data integrity and security aren’t prioritized. In worst-case scenarios, your data can become vulnerable to cyber security attacks.

The end of overwhelm

Fear of missed deadlines, the sheer volume of work needed, and the risk of making serious errors can all overwhelm CFOs—and that feeling is only heightened when audit season or budget forecasts add to the pressure.

Additional frustrations can be found when financial leaders explore the limitations of their current solutions and providers—and the time taken up by financial reporting.

Overcoming inefficiencies

Businesses relying on spreadsheets can expect to lose around 10 hours weekly on manual data entry and correction. In addition, they cannot fulfill reporting requests outside their regular reporting periods. Compare this with the 79% close time reduction reported by businesses that have the right technology in place, and it’s clear that storing data in different places and formats presents a real challenge.

Financial leaders can find themselves stuck with significant gaps in their insights and operational efficiencies without the ability to see the numbers in the format they want, when they want. They can even incur additional costs when they invoice other businesses and try to get paid on time.

Empowered decision-making

Ambitious financial leaders must be able to analyze their financial and operational data and gain the vital insights they need to make informed management decisions. In addition, fast-growing companies need the ability to manage multiple locations and entities. Only then can CFOs begin to manage, improve, and grow their businesses.

An opportunity to look at the bigger picture

When CFOs can look ahead, their reliance on outdated legacy systems and time-consuming manual processes to scale and drive their business performance becomes unsustainable.

Add to this the need to feel in control amid economic uncertainty and climate change. For CFOs to futureproof their organizations, they need to be able to adjust, pivot, and grow—especially in preparation for any planned acquisitions.

Accelerated growth

This is where the cloud and new technologies can help forward-thinking CFOs accelerate their growth and functionality across the organization.

With the adoption of new technologies and tools like paperless automation, financial leaders are freer to focus on strategic thinking. In addition, they have the time to connect with like-minded peers outside the business to shape their industries, reduce the stress and pressures of managing confidential business data, and create a better balance between work and home.

Helping business flow

The right technology and advanced reporting can enable financial leaders to focus on strategy and keep their businesses ahead of the accelerating pace of industry change.

Choosing a system with extended functionality and multidimensional reporting that slices and dices data in seconds will give you back valuable time. Spend it making the most important decisions for your business—all without the limitations of spreadsheets.

Your financial teams can complete streamlined multi-entity consolidations with automated inter-entity eliminations in minutes instead of hours, freeing them to drive strategic initiatives that will help your business flow.

Futureproofing businesses 

With the data you need to budget and forecast accurately, optimize your preconstruction and operations costs, and power your inventory management, you can expect to improve your productivity by as much as 65%. With the right technology, you will reduce costs and make better strategic decisions that will futureproof your business. Experience the transformation in your role and enjoy time-savings that will ensure you have space to think clearly and decisively.

Cash is royalty, and you MUST be smart in how you manage it.  Unfortunately, SaaS budgeting and financial planning is complicated by the many moving pieces conspiring to make financial certainty elusive: user trends and sentiment, broader economic uncertainty, unique regulatory stipulations, and other factors, to mention a mere few.

In this post, we’ll explore how budgeting and forecasting combine to reduce financial uncertainty for SaaS CFOs. We’ll also discuss the importance of planning for the unexpected, accounting for deferred revenue, enhancing your data integration, and much more.

We’ll start by analyzing one of the most important relationships in the world of SaaS finance.

How does budgeting and forecasting help SaaS companies reduce uncertainty and boost ARR and MRR?

Budgeting and forecasting work in tandem to help SaaS companies minimize uncertainty and improve their growth rate, but they do so in different ways. Budgeting helps finance leaders allocate resources for a given period, ensuring there’s sufficient capital for each department’s various projects. Budgeting plays a crucial role in risk management by helping SaaS companies make sure they can handle the fluctuations that can take place in any subscription revenue business.

Forecasting has strategic implications for the budgeting process and reducing overall uncertainty, but has slightly different objectives. These include:

• Projecting revenue growth: Being able to chart your likely monthly revenue and annual recurring revenue (ARR) is integral to both SaaS budgeting and broader FP&A. Similarly, forecasting also helps you anticipate new customers, revenue contraction, and other financial trends.
• Optimizing the billing process: Selecting the best SaaS billing model for your company is essential in reducing long-term uncertainty. Seamless and strategic billing plays a large role in keeping churn to a minimum by providing a great customer experience. Automated forecasting makes it easy to compare the long-term results of different billing models, and automated reporting helps you see which of your current billing options customers prefer.

• Helping you manage cash correctly by growth stage: As a SaaS CFO, you’ll have different priorities and goals depending on what stage of the business lifecycle you’re in. Are you pre-seed or seed and trying to establish a product-market fit? Or are you more mature and working on finetuning your revenue model or even expanding internationally? Forecasting helps finance leaders navigate each growth stage optimally.

By combining SaaS budgeting and forecasting, CFOs can make informed decisions, adapt quickly to changes, and stay competitive. Let’s peel back a few more layers. How else can this symbiotic pair of financial processes improve your company’s financial performance by reducing uncertainty?

Planning for the unexpected with accounting automation

Planning for the unexpected is crucial for SaaS companies. Extrapolating market trends and historical data into the future is one of the major ways forecasting reduces uncertainty for organizations. Automated forecasting also makes scenario planning as simple as entering your starting data and clicking a button.

Running “If-then” scenario tests is central to reducing doubt about your company’s financial future. What if there’s a sudden large-scale churn event? Will your cash on hand cover your needs while your subscription revenue recovers? Question-based scenario testing is one of the best routes to certainty for finance leaders.

Accounting for deferred revenue through SaaS forecasting

Since SaaS companies recognize revenue in a unique way, accounting for deferred revenue through SaaS forecasting is vital. Managing the demands of ASC 606 is a big piece of that, and is a much smoother experience with the help of financial automation.

By accurately forecasting deferred revenue, finance leaders can manage their cash flow effectively and avoid budget shortfalls.

Risks of spreadsheet-based budgeting and forecasting

Manual budgeting and forecasting processes pose significant risks to your department’s effectiveness and the health of your whole organization. Manual processes are time-consuming and prone to errors that need to be corrected, wasting even more time and cash. Manual methods don’t allow for real-time updates or adjustments, and inaccurate budgeting and forecasting can lead to financial instability and missed growth opportunities.

None of this bodes well for SaaS companies. Let’s check out financial automation for comparison purposes. Is it better at slicing uncertainty down to size?

Benefits of automating your SaaS budgeting and planning

Automating your SaaS budgeting and FP&A benefits your business in several important ways. Let’s review some of the most important of those.

Slashing manual financial processes. 

Automation eliminates manual data entry and calculations, resulting in greater accuracy and reliability.

Centralize your data and streamline workflows.

Integrating all your CRM, ERP, and billing data into a centralized system ensures seamless SaaS forecasts and eliminates the risk of errors.

Unlocking real-time insights and more robust forecasts.

Automated budgeting and planning provide real-time visibility into your SaaS revenue and financial performance, enabling you to make data-driven decisions. Automated forecasting models can generate lower-variance revenue projections by effortlessly incorporating historical data, market trends, and various SaaS metrics.

Investing in automated software solutions for SaaS forecasting and budgeting can significantly enhance your department’s financial planning and growth prospects. However, not all accounting suites are on equal footing.

Cloud-enabled vs. cloud-native financial planning software (and why the distinction matters for your finance team)

Cloud-native and cloud-enabled SaaS budgeting options may sound similar, but there are some essential differences that CFOs need to consider before making a purchase. Let’s briefly compare both types of tech.

1. Cloud-enabled accounting software

Cloud-enabled SaaS budgeting refers to a traditional budgeting solution re-hosted in the cloud. This is known as a “lift and shift” application. Although it sounds innovative, it’s more of a jerry-rigged approach than a true innovation. In practice, cloud-enabled software often isn’t up to the complicated automated workflows that modern SaaS accounting requires.

2. Cloud-native accounting software

On the other hand, cloud-native SaaS budgeting solutions are specifically designed for cloud use. They offer much more flexibility, scalability, and real-time data integration. And unlike cloud-enabled solutions, you’ll never get halfway through a forecast model and suddenly have the whole thing short out on you.

Trusting your company’s budgeting and FP&A to cloud-enabled solutions could ultimately produce more uncertainty instead of less. What else should you consider if you’re looking to embrace automation to maximize your budgeting and FP&A results?

How to automate SaaS budgeting and FP&A

Automating SaaS budgeting and financial planning is essential for helping departments streamline processes and ensure accurate revenue projections. Collaborating with key stakeholders is vital for anything affecting the budgeting process. Budgeting and FP&A impact every team at your company, so even a positive change like automation needs to be discussed inclusively.

But going deeper, what do you need to be mindful of as a SaaS CFO while automating your company’s budgeting and planning?

Integrate CRM, ERP, and billing data for seamless SaaS forecasts

Integrating all CRM, ERP, and billing data is crucial for reducing uncertainty with seamless SaaS budgeting and forecasts. By centralizing and analyzing customer relationship management (CRM), enterprise resource planning (ERP), and billing data, you have all the data you need for decision-making in one spot.

Financial data integration enables accurate revenue forecasting, efficient resource allocation, and optimized marketing efforts. Cloud-native accounting software automatically pulls all your data together in the deployment process.

Identify vital KPIs (and potential problems) for optimized SaaS forecasting

You need to identify the key profit drivers behind your business to fine-tune your forecasting and ensure low-variance predictions after the switch to automation. You can make truly impactful decisions by delving into factors such as customer acquisition costs, churn rates, and average revenue per user, and determining which one has an outsized effect on your company’s performance. Automated role-based dashboards put all the metrics you need right at your fingertips.

After identifying your profit drivers, remember to prioritize them in your forecasting efforts. Additionally, analyzing historical data and mapping out trends while they’re still young allows you to uncover underlying issues or areas for improvement.

Use SaaS metrics to predict bookings, downgrades, churn, and more

Remember to forecast expansions and upgrades, downgrades, and churn in your SaaS business by leveraging the correct metrics. Automated forecasting is extremely powerful, but it’s only as effective as the data you feed it.

Specifically, remember to leverage these core KPIs:

• Expansion & contraction MRR: Your monthly recurring revenue (MRR) tells you the amount of committed subscription revenue you have each month. Your expansion and contraction MRR are essential subsets of that. Expansion MRR tells you how much money you gained in a given month through subscription upgrades and account expansions, while contraction MRR tells you how much you lost to downgrades.
• Voluntary & involuntary churn: Churn occurs when a user unsubscribes from your service, and there are two different types. Voluntary churn is when someone purposely unsubscribes, but involuntary churn occurs when a user’s payment method lapses and they fail to update it on time. Automation plays an important role in minimizing both varieties of churn.
• CAC to CLTV ratio: A SaaS company’s customer acquisition cost (CAC) indicates the average cost of obtaining each customer, while the customer lifetime value (CLTV) tells you how much each customer spends before churning. Both are essential metrics in their own right, but an outstanding CAC to CLTV ratio is the true benchmark of superior performance.

Now we’ll look at five actionable tactics you can use to slash uncertainty for your SaaS business.

Forecasting and budgeting to cut uncertainty: a quick template for CFOs

Now that you know more about automating your SaaS budgeting and financial planning successfully, here are five tips for cutting financial uncertainty through forecasting and budgeting.

1. Plan accurately for revenue recognition on multi-year contracts

Accurately planning for revenue recognition on multi-year contracts is essential for SaaS companies. These contracts can be complex, as revenue recognition may occur over a long period with multiple layers of service obligations to consider. Automation makes it easy to keep track of deferred revenue waterfalls and their impact on your budget.

CFOs need to carefully review the terms of these contracts and determine the appropriate timing and method of recognizing revenue. Be mindful of potential changes or risks that could impact the revenue recognition process: contract amendments, changes in market conditions, or similar factors. By accurately forecasting and budgeting for revenue recognition, CFOs can reduce uncertainty and ensure their business remains financially stable.

2. Centralize and automate to eliminate shadow IT

One of the most important reasons to integrate and automate your financial data is that it helps you boost your cash flow by cutting shadow IT. Any application that your company no longer uses but unintentionally keeps paying for is considered shadow IT.

Enterprise subscriptions can get quite pricey, and neglecting even a few recurring subscriptions can produce a sizable hit to your cash flow. Centralizing your data in the cloud puts everything in front of you, allowing you to see what you need and don’t.

3. Get granular about your pipeline performance and your various sale cycles

Analyzing and breaking down your sales cycles into smaller segments allows you to identify trends, patterns, and key metrics that impact your sales performance. This enables you to make data-driven decisions based on the specific dynamics of each sales cycle, including seasonality, customer behavior, and market trends.

Also, give your pipeline a closer look. Are there parts of it that are converting particularly well, or any spots that could use some help?

4. Aim for a slow burn (especially in a recession)

Your SaaS company’s burn rate is one of the most essential metrics for ensuring positive cash flow. Essentially, your burn rate tells you your total expenses: how much money are you spending each month, and how long can you keep that up with the cash you have available?

5. Think ahead and prioritize seamless scaling

When scaling your SaaS business, thinking proactively and planning ahead for seamless growth is essential. By selecting SaaS solutions built to accommodate future growth and increased demand, you can avoid the constant need to switch and upgrade software.

Get revenue forecasting and budgeting advice from SaaS finance and accounting pros

Optimizing your revenue forecast activity, sales pipeline projections, and budgeting processes are all essential to cutting uncertainty to the absolute minimum. For SaaS CFOs, automation is the most straightforward pathway to doing that because it integrates your data, finetunes your forecasting, and equips you with robust financial analytics all in one fell swoop. But do you and your team know how to work with these tools in the first 90 days post-deployment and beyond? How to scale in a sustainable way that matches the needs of your growth stage? How to confidently build and forecast different billing models?

All of this plays a central role in reducing financial uncertainty for SaaS organizations. If you want to learn more about managing uncertainty and winning your market, the Modern SaaS Finance Academy has what you want. Featuring dozens of cutting-edge digital lessons taught by SaaS finance and accounting pros, you’ll learn everything from automating and forecasting different billing models to building the ideal tech stack, mastering financial storytelling, and much more.

You can start learning today by clicking here.  Patterned off the success of the Hubspot Academy, but for SaaS CFOs, Controllers, RevOps, FP&A, and CEOs, it is free and offers the option of CPE credits.

Enterprise Resource Planning (ERP) systems are crucial in managing most business processes, making the selection of an ERP system critical for organizations.

Navigating the myriad ERP solutions, many companies or CFOs hire ERP selection consultants for their expertise, often paying $20,000-$100,000 in the middle market for help picking the right system for their needs.

However, these consultants, like any other professionals, are susceptible to biases that influence the outcome of the selection process. Some are so biased they act as paid spokespeople for a particular vendor.

In this blog, we will explore five biases that can arise in ERP selection consultants and their impact on the decision-making process.

1. Vendor affiliations create a conflict of interest: ERP selection consultants often have established relationships with specific vendors or resellers. These relationships can create a bias toward recommending those vendors, even if they may not fit the organization’s needs best. Consultants often receive financial incentives or perks from vendors, consciously or subconsciously affecting their recommendations.

Most common is the same ERP selection consultant being paid to implement the chosen software, adding thousands of dollars of revenue for themselves if a particular vendor is selected over another.

It is important for organizations to be aware of these affiliations and question the motives behind consultant recommendations.

2. Preconceived notions about industry standards: ERP selection consultants may have preconceived notions about industry standards and best practices. While experience and expertise are valuable, rigid adherence to industry norms can lead to overlooking alternative solutions that could better fit a particular organization.

Consultants must remain open-minded and consider diverse options to ensure an unbiased selection process.

3. Confirmation bias: All people, including ERP selection consultants, may develop a bias towards confirming their initial beliefs or assumptions. This bias can hinder exploring alternative options and limit the range of choices presented to the organization.

Organizations should require consultants to share what percentage of their client base chose each available ERP solution. If they always recommend the same solution, what are you paying for?

4. Limited knowledge or experience: ERP selection consultants may lack comprehensive knowledge or experience across various ERP systems. Requests from consultants new to a particular industry or unfamiliar with best-in-class cloud functionality available. This limitation can lead to biases favoring solutions they are more familiar with or have previously implemented.

Organizations should ensure that consultants have a deep understanding of various ERP systems and experience working with diverse clients.

5. Overemphasis on Technical Features: ERP selection consultants often focus heavily on technical features and functionalities while neglecting the importance of the organization’s unique requirements and strategic goals. This bias can result in a mismatch between the selected ERP system and the organization’s needs.

Consultants should prioritize understanding the organization’s business processes and aligning the selection criteria with the strategic objectives.

Final thoughts

Selecting the right ERP system is crucial for the success of any organization, and ERP selection consultants can provide valuable guidance throughout the process. However, it is important to recognize that both deliberate and unconscious biases can influence their recommendations.

Organizations must approach the selection process with skepticism, actively questioning and challenging the recommendations provided.

By fostering open communication, encouraging diverse perspectives, and ensuring consultants consider a broad range of options, you can mitigate biases and make informed decisions that align with your unique requirements.

SaaS FP&A is the ticket to ensuring long-term growth and profitability for software companies.

Whether you have a dedicated FP&A team or you’re handling those responsibilities as the CFO, this post will help you:

• Understand why optimized FP&A is fundamental to your organization’s success.
• Pave the way to profitable planning and analysis at your firm.

Let’s begin.

Why is data all-important in FP&A?

In order to achieve optimal results from your FP&A, it’s vital to have access to as much financial data as possible. After all, acquiring financial data is the first step in analyzing it.

Organizations that rely on manual accounting technology often find themselves in a vicious cycle.

With the best of intentions, they collect what little financial data they can. Then they analyze it through the lens of present goals, run forecasts with it, and otherwise put it to use.

But FP&A is a lot like life itself: you largely get out of it what you put into it. Finance professionals who come to the table with incomplete or unhygienic data are setting themselves and their companies up for failure–or, at the very least, highly ineffective SaaS FP&A

What objectives should you have when conducting financial analysis?

The primary goals of FP&A in SaaS finance

Modern SaaS FP&A is conducted with a few core goals in mind.

We’ll go into much more detail about specific FP&A functions below. But the broader goals underlying those processes include:

• Helping companies understand the likely financial outcomes of various plans.
• Identifying companies’ main profit drivers for optimal resource allocation.
• Supplying organizations with a comprehensive and updated view of their essential financial information.

How, specifically, do SaaS FP&A teams achieve all this?

Revenue & billing forecasting

Revenue forecasting is the lifeblood of profitable sales campaigns, pricing rollouts, billing adjustments, and much more.

A cardinal rule of effective financial management is that you always look (then look again) before you leap.

Cloud-native financial management software makes revenue forecasting as simple as entering your data and clicking a button.

Forecasting in the cloud enables further-reaching, more reliable forecasting for:

• Hybrid billing experimentation
• Pricing new products and features
• Extrapolating usage trends into the future and much more

FP&A also plays a vital role in effective hiring for SaaS organizations.

Hiring decisions and department headcounts

Hasty hiring can be costly in terms of both time and cash. FP&A helps companies make profitable hires in a few different ways.

Preventing overhiring 

Without detailed FP&A, it can be tricky for SaaS companies to gauge the precise scope of their hiring needs in various departments.

Clearly establishing goals 

“We need more people here” is not a strategic hiring statement. FP&A establishes concrete outcomes to aim for and keeps you from making regrettable moves.

Providing team and department headcounts

Once the hiring process is underway, your FP&A team will also carry out headcounts. This helps SaaS CFOs keep an ongoing and updated sense of how their hiring results are shaping up relative to their budget and expectations.

Reporting on metrics and KPIs

FP&A is inextricably tied to your SaaS metrics. The more exhaustive your library of KPIs and metrics, the more detailed and profitable your financial analysis will be.

Manual accounting software is often unequipped with the full range of KPIs necessary to thrive in today’s competitive SaaS market.

When you equip your FP&A team with cloud-native financial management software, you’ll never have to worry about missing metrics.

Automation will help your team fully understand how all your various KPIs work together and impact each other in real time.

Budgeting optimally and minimizing variance

Budget variance is a massive impediment to SaaS profitability. What’s more, if you repeatedly miss the mark on budgeting, it won’t be long before your board takes notice.

A strong investment in FP&A can help you hit your budgeting goals by:

• Providing real-time variance alerts: Cloud-based accounting software automatically alerts your team when you’re approaching budget milestones too quickly.
• Enabling detailed budget forecasts: Forecasting removes the guesswork from SaaS budgeting–because when it comes to setting budgets, no one likes surprises.
• Ensuring proper allocations: Failure to achieve proper budget allocations can cause serious capital shortfalls in your company. It’s hard to stay profitable unless you can put the right resources to work at the right place, at the right time.

Cloud-native financial management software helps CFOs and finance professionals eliminate budget variance.

Enhance your SaaS FP&A effectiveness today

In many ways, FP&A acts as the foundation of SaaS accounting success. Maximizing the FP&A function and surrounding technologies such as automation allows leaders to confidently chart their course for effective financial decision-making.

FP&A may serve as the foundation of accounting success. But when you’re building a house, you don’t stop at the foundation. That’s why we created the Modern SaaS Finance Academy, an online academy designed to help you learn vital skills that will set you apart from the competition in the coming years.

Join the academy today.

When economic uncertainty strikes, turn to your metrics and KPIs. They offer an objective touchpoint during times when everything else is up in the air.

This post is all about why metrics matter during a market correction. We’ll explain why metrics are so essential for SaaS financial health (in all markets but particularly in poor ones), and then cover 5 of the most important KPIs to watch during a dip.

How do metrics help when certainty drops?

Since SaaS CFOs are human beings just like the rest of us, their decisions are colored by emotions.

This means that unless you’re either very careful or very disciplined, it’s incredibly easy to make impulsive and fear-based decisions in a downturn.

And since it’s easier to be unclear than to remain disciplined in scary situations, putting up “guardrails” in the form of SaaS metrics is invaluable.

That way, any time you have a thought or a plan you suspect might be influenced by fear of external conditions, you can check it against your metrics.

Optimal financial leadership during a recession means being proactive rather than reactive–and that starts with your metrics. Below are 5 of the most crucial metrics to watch in times of uncertainty.

1: CAC to CLTV ratio

Your customer acquisition cost (CAC) and customer lifetime value (CLTV) are two extremely important KPIs.

Your CAC tells you how much you’re spending on average to acquire each customer, and your CLTV tells you how much money your users are spending with you before they churn.

During an economic dip, you need to keep a very close eye on your CAC to CLTV ratio. Do everything you can to reduce your CAC and get your CLTV as high as possible.

Some techniques for doing that include:

• Experimenting with different billing and pricing methods.
• Carefully observing usage trends to identify what’s working and what’s not.
• Reducing subscription upkeep costs by embracing financial process automation.

What other metrics should be on your radar in uncertain times?

2: Monthly recurring revenue

Monthly recurring revenue (MRR) is one of your most essential revenue metrics during a downturn. It measures the amount of committed monthly revenue you’re generating from existing subscriptions.

Drumming up new customers is essential too, but capital preservation and customer retention are more profitable for most companies in a recession (or pre-recession market).

Cloud-based financial software makes tracking and improving your MRR simple and seamless.

3: Churn

Churn simply cannot be tolerated when the markets are poor. SaaS accounting automation can help you proactively manage both types of churn.

Voluntary churn: Early intervention is the key to preventing voluntary churn. AI enables finance teams to carefully track and forecast churn rates to easily identify users who are likely to churn soon. Once you’ve identified them, you can send that data over to sales for customer success outreach.

Involuntary churn: Involuntary churn occurs when users need to update their payment data and their card gets declined. Once a user’s card declines, cloud-native accounting software can send out automatic emails asking that person to update their payment info.

Staying on top of both types of churn is an absolute necessity in subpar markets.

4: Trial health

Trial health measures the percentage of users who converted to a full subscription after signing up for a free trial.

It’s usually expressed as a percentage and can be found by dividing the total number of trial conversions for a given period by the total number of trial signups for that same period.

So, for instance, if you achieved 3,300 conversions across 3,500 free trials in the previous quarter, your trial health for that period would be 94%.

Free trials are a great way to create more business in times of uncertainty, but only if they’re measured and managed proactively.

5: Cash burn rate

Your cash burn rate (CBR) tells you how long your cash reserve will last given your revenue and liabilities.

It’s broken down into three pieces:

• Gross burn rate: Your gross burn rate measures your company’s expenses. Just total up your average monthly liabilities, and you’ve got your gross burn.
• Net burn rate: To find your net burn rate, subtract your monthly expenses from your monthly revenue.
• Cash runway: To calculate your cash runway, divide your current bank holdings by your net burn rate. Your cash runway is usually expressed in months.

The three parts of your cash burn rate work together to provide a clear picture of your cash coming in and going out. More importantly, it offers a precise gauge of how much financial leeway you have in light of those two realities.

Making the most of your metrics

In order to develop a truly profitable relationship with your metrics during a downturn, it helps to follow a few best practices.

Make sure everyone understands why KPIs matter

If everyone in your department is fully aware of the strategic importance of KPIs, it will be much easier to keep things from slipping through the cracks.

Optimize your SaaS finance tech stack

Opting for modern accounting software gives teams much more freedom to interact with their metrics.

Embrace financial process automation 

Manual reporting and forecasting around SaaS metrics are ineffective and potentially costly.

You can’t control the state of the markets. But as a SaaS CFO, you can certainly control how your department responds to those conditions.

Thrive in any market by investing in yourself

When it comes to achieving SaaS accounting success and long-term profitability, very few things matter more than your metrics. When market conditions are poor, fear tends to creep in and become a larger influence in decision-making. Your SaaS metrics provide an objective reference point to keep that from happening, allowing you to operate confidently at all times.

To learn more about how you can lead with confidence and clarity in and out of recessions, join the Modern SaaS Finance Academy. It’s an online academy designed by SaaS finance and accounting leaders at the forefront of the industry. Each course was created to help you gain the skills and perspectives you need to guarantee success in the coming years–topics include forecasting for fundraising, frameworks for reporting to your board, innovative AR designs, and much more.

Join today and level up your SaaS finance career.

Recently, I sat in on a financial-services session at our annual Sage Transform conference for Sage Intacct customers and partners. The session focused on family offices, and one of the panelists, a CFO at a firm with dozens of multiple entities,  described her journey building the firm’s financial tech stack. She spoke of taking months to analyze their business processes so their automation efforts would get it right the first time. Her elegant summary was, “we went slow to go fast.” Brilliant.

During my flights back and forth to the conference, I read a great Winston Churchill biography, in which he was quoted to have said (and I paraphrase a bit) “…the longer one looks back, the further ahead one can see.”

Look back to look forward. Go slow to go fast. Great ideas when it comes to automation. With technologies such as robotic process automation, machine learning, and artificial intelligence, it’s tempting to jump in with abandon. Here’s another phrase that I’ve long adhered to: “A bad process that’s automated is now an automated bad process.”

My point is that going slow, taking your time, and doing it right is essential. Looking back to analyze what’s worked and finding ways to streamline processes will reap great rewards. A systematic review and a deliberate phased-in approach are more advantageous than “ready-fire-aim.”

There are some great places to start automation, including accounts payable, billing, payroll and tax compliance. Let’s look at each to find ways to go slow to go fast.

Accounts Payable Automation

One of the first processes accounting departments look to automate is accounts payable. Typically, the AP process includes receipt of the purchase order from the purchasing department, receipt of the invoice from the vendor, comparing the PO to the invoice to match and validate accuracy, and then paying the vendor. Some organizations use a two-way match while others use a three-way match to check the goods receipt.

While the process itself might be easy, it’s time-consuming lacking automation. (It might be easy, but no one has said it’s simple.) Depending on what you purchase (think goods or services), your AP process is most likely well-defined, but likely not without challenges that may include:

• Matching errors
• Exception management
• Missing documents
• Double payments
• Delayed payments
• Unnecessary or unauthorized purchases
• Theft and fraud

Automating AP offers the opportunity to significantly cut costs. Most studies put the cost to manually process an invoice at around $20, when factoring in time spent, error reconciliation, approvals and fully loaded labor costs. By automating AP, the cost per invoice drops by 90%.  For example, if you’re processing 2,000 invoices a month, the potential cost savings is $36,000 per month.

So how do you go slow to go fast? One area to review is the approval process. Depending on the amount of the invoice, you may have two or more levels of approval. Take a look at these levels and the number of invoices in each and see if there’s an opportunity to adjust the levels without adding risk. Also, look at who is approving invoices as the manager approving the invoice should be a different person than the individual approving payments.  If you don’t have it today, document your approvals matrix to define who the approvers are, their timelines to approve and who the secondary approvers are in their absences. This will make it easier to set up the right rules when automating routing, so you can create “if-then” rules. Of course, exceptions will happen, but AP automation can dramatically reduce the outliers and speed up the payments process.

Billing Automation

An automated billing system invoices customers without significant manual intervention. The system is ideal for businesses that charge customers a recurring amount every month through a subscription or retainer model. With automated pricing models and billing templates that match your business, you can “set it and forget it.” You get bills out faster, decrease days sales outstanding, and free up cash to grow your business. By driving your billing, revenue, and financials from a single source—the contract—you can manage a single revenue stream and automatically recognize revenue throughout the customer lifecycle. Contract changes, including renewals, upsells, downgrades and holds, drive automatic updates to revenue recognition, billing and your financials so that they are aligned. You save time, eliminate errors and reduce confusion.

For example, real-time bidirectional synchronization between Salesforce and your financials allows you to maintain templates and schedules in your financial solution while maintaining customers, contracts, changes and renewals in Salesforce. Billing and payments are easily visible to salespeople all in one place. Everyone stays up to date with your customers’ financial relationship to provide a more consistent customer experience.

Software-as-a-service is a great candidate for billing automation. Professional services and medical offices can also benefit from implementing an automated billing system, even if they don’t charge a uniform amount to clients and patients. Automated billing systems operate by invoicing customers and accepting payment or automatically charging customers with an on-file payment method.

Billing is another opportunity to go slow to go fast. There are some obvious business models where billing automation plays well, but your business might have less-than-easily apparent places where automation makes a lot of sense. For example, my local car wash offers a subscription package for unlimited car washes in addition to one-time charges. Using an automated billing system, they wouldn’t have to worry about manually processing the recurring charge.

Look at your invoices to find recurring charges to customers and clients, then automate these to cut costs.  More importantly, this can improve your cash flow.

Payroll Automation

Automating payroll all but eliminates the most labor-intensive aspects of the payroll process. Specific features vary from one provider to the next, but employers should be able to:

• Calculate wages earned
• Integrate payroll with time and attendance
• Withhold taxes and other deductions
• Pay employees
• Run payroll reports
• Access important tax forms

For example, payroll managers can automatically synchronize new employee records, managerial hierarchies and changes to employee information or status. As well, hierarchies synchronize across solutions and approval workflows, expenses, timesheets, journal entries and purchasing. These are automatically set up or updated once an employee is created or changes jobs. This allows you to generate payroll journal entries that accurately map to your general ledger. As well, it eliminates the need to manually key-in payroll journal entries or build and maintain complex integrations to accurately map payroll journal entries to your general ledger. With just a few clicks, you can automatically prepare and push payroll journal entries, including dimensions, so they fit into your existing chart of accounts and increase the ease of reporting.

One way to go slow to go fast is to ensure every employee, regardless of role, is correctly mapped and associated with cost centers, so as that employee moves within or exits the organization, payroll expenses are properly allocated. In some cases, it might mean creating new cost centers. Changes in employee roles might also lead to splitting allocations, so it makes sense to predefine these splits by role.

Another word on payroll. You might be using a popular payroll service today. If so, your “go slow” step might be looking at whether that service can integrate with a general ledger platform.

Tax Compliance

The process of manually managing the collection, calculation, and filing of taxes is problematic at best and a nightmare as companies scale and grow. Your company might be selling more goods and services in more places and ways than ever before. On top of that, tax rates are constantly changing. In the United States alone, there are hundreds of changes each year.

Chances are you’re already using some type of automation to help with tax compliance as the risks associated with noncompliance are great.   With that said, in a recent report IDC listed some questions you should be asking of your current vendor or any vendor touting tax compliance. Some of these questions include:

• Does the vendor have experience with my type of product, service and company size?
• Is the vendor knowledgeable about financial regulations and guidelines both locally and globally as they affect my company?
• Does the vendor understand the regulations that will impact my business? How are these regulations reflected in my current product and how will it change in the future?
• Can the vendor integrate with my company’s other IT systems and those of my partners?
• Will the vendor be a partner, helping my business grow now and in the long term?

Good questions to ask and not just of a tax-compliance vendor. These could apply to any vendor in your financial tech stack.

Why Automate? 

If the complexities of accounts payable, billing, payroll, tax compliance and other financial processes aren’t enough to convince you to automate, let me share some reasons why you should look to automation to go fast.

• Automation cuts cost. Manual tasks, including account reconciliation and variance analysis, can turn into deep pits and you can avoid these with automation. Often, we talk about automation as a time saver, but I believe the cost reductions that result are more significant. Sure, we all want a faster close or continuous close, but taking cost out of these processes moves money to the bottom line.
• Automation reduces the chances for human error.  And if you go slow to go fast, you can greatly reduce the opportunities for any errors, human or otherwise. There will always be some percentage of outliers, but that percentage goes way down when you deploy smart, intelligent, purpose-built automation.
• Automation reduces the opportunity for fraud. Let’s face it, fraud happens. It might not be your number-one concern as you trust your colleagues, but it happens, nevertheless. And though you’ve vetted your vendors, there are humans at the other end of that invoice. Automation with outlier detection greatly reduces your risks.
• Automation ensures consistency. As you go slow to go fast, you’re going to discover that everyone has a slightly different way of doing things. Two persons might have different ways of approaching something as cut-and-dry as double-entry bookkeeping. Automating processes creates greater consistency within teams, reducing the chances of mistakes and information gaps.
• Automation gives you faster access to the information you need to make data-driven decisions. This is the biggest benefit of all and enables you to be more strategic.  You can get fast access to real-time key performance indicators to drive your business forward.

I’ve outlined just four processes where you can go slow to go fast. Others include expense management, commission tracking, bank reconciliation, contract management, revenue recognition and many more, but remember – a bad process automated is an automated bad process. Take your time and enjoy the rewards of getting it right from the start.

P.S.  If you’re interested in the Churchill biography, let me know and I’ll pass along the title and author.