The Annual Financial Close

In an economic environment that’s turbulent and prone to change, finance leaders need to be ready for anything. That’s true across industries, but even more so in the fast-paced Software-as-a-Service (SaaS) sector, where business can shift on a dime when prospective customers aren’t spending.  For some, it’s part of what makes the SaaS industry so exciting. But it also means SaaS finance teams need to be prepared to pivot. So how do they ensure they’re ready to pivot? Vena explored the answers in “Lessons from SaaS Leaders: Aligning Your Budget To Changing Business Goals,” now available on demand for members of Vena’s Plan to Grow platform. Moderated by Tom Seegmiller, Vena’s Vice President of FP&A, the panel gathered SaaS finance leaders to discuss the current financial climate and how finance teams can stay ready for whatever’s ahead. Harjot Ghai, Chief Operating Officer at Delbridge Solutions; Steve Player, Principal Consultant at BPM Partners; and Chris Ortega, Chief Executive Officer at Fresh FP&A, all offered their insights.  The question of the day: How can teams stay agile in the wake of these uncertainties? 💡Key Takeaways:  Agility is key in SaaS, and even more so in these times of change. SaaS organizations need to plan for anything. But they should also understand that their plan will likely go wrong at some point and to be ready when it does. By documenting their assumptions and strategy, and using agile-based rolling forecasts to keep looking ahead, finance teams can stay on top of potential changes and better understand where their assumptions go wrong. This will keep them more agile when those changes happen. Keeping a close eye on critical KPIs and being ready to leverage drivers when changes happen will help finance teams pivot quickly. Technology can add to those efforts, helping them align their data and making collaboration and communication easier. 1. Know That Your Plan Is Going To Be Wrong Planning ahead doesn’t come with a crystal ball. You don’t really know what’s going to happen in the future—so while you can plan for anything, you’re not going to get it perfect. At least that’s what Steve Player, Principal Consultant at BPM Partners, pointed out during the “Lessons from SaaS Leaders” panel. “Everything we do is filled with tons of assumptions. Assumptions about how deep the recession is going to be, what the economy’s going to be, what the supply chain availability’s going to be, are we going to be able to find the people,” Steve said. “It’s really hard to get to clear, concise conclusions when the reality is that anything we conclude is based on a bedrock of a bunch of assumptions that oh, by the way, are likely going to be wrong.”  The question is, to be agile, how do you make the right move when you know you’re going to be wrong? Ensuring your data is accurate and putting in the work to have detailed short-term planning in place are good ways to start. You also want to test your minimum viable product (MVP) and build forecasting and planning around it, added Chris Ortega, Chief Executive Officer at Fresh FP&A.  But it’s also okay knowing you’ll be less than perfect the further you look ahead. “I think too many times, as finance leaders—and I've fallen victim to this—we focus too much more on precision around six, eight, 12-month forecasting. Precision is that 85% to 95% confidence interval that these numbers are going to be right,” Chris said. “Don't spend your time, energy, effort or resources focusing on precision when there's so much change. Be directionally accurate, inform accuracy, develop MVPs to have that agility and get that feedback both externally and internally from the business around your scenarios. That to me is how you win.” 2. Document Your Strategy and Assumptions But even if you end up making assumptions that are wrong in the long run, your strategy may still have merit. That’s why it’s important to document your assumptions and strategy as you go, the panelists said. That way you can better understand where you went wrong.  “Everything you're doing is a major shift to try to change where we’re headed, and so number one, just write that down. What are we assuming?” Steve said. “And then when you write that down, know that you're going to be wrong. That's almost the hardest part. I'm writing it down, but I know there's an extremely high probability I'm going to be wrong. I just don’t know if I’m going to be long or short—and the agility you require for long is different from the agility you need if you’re coming up short.” Once you see how things are lining up, you can start to adjust those assumptions—whether they’re long or short—and determine where you need to pivot. By writing down your assumptions and documenting your strategy, though, you’ll already have a starting point for achieving that. You can also better communicate your evolving plan to the stakeholders involved. 3. Put in Place an Agile-Based Rolling Forecast  The lesson so far is not to get too tethered to your plan, even once you’ve put it into action—but to document everything so that you’re ready to pivot when the market changes. But on top of that, “you need a way to replan and communicate that to everybody to keep everybody moving in the same direction,” Steve said. That starts with an agile-based rolling forecast. Yet a lot of people have “misconceptions” about rolling forecasts, Steve added during the “Lessons from SaaS Leaders” panel.   “With the rolling forecast, a lot of people think, ‘I don't need a budget, I'm just going to do a rolling forecast,’” he said. “The problem is what we ask budgets to do is very different from what a forecast can do. Budgets basically say, ‘Here's our goal,’ and it incentivizes people to reach the goal and to develop action plans to reach the goal. It coordinates and puts that all together and then tracks to see if it’s actually happening. Forecasts should only do one thing—the only thing forecasts should do is tell us what we think is going to happen.” In finance, then, rolling forecasts are as close as you’re going to get to that crystal ball. Your forecast will let you adjust your budget and plan based on new information and changes in the market as they happen.  “To me, there are three questions being answered,” Chris added. “The budget answers, ‘What are we going to do?’ Actuals answer, ‘What did we do?’ And the forecast says, ‘What are we going to do about it?’ That’s literally the three questions that are being answered.”  4. Keep a Close Eye on Your KPIs For Chris, there are just a handful of critical KPIs you need to follow if you want to know how your business is doing. While there will be other metrics you may want to track, these six KPIs will let you “intimately know” your business at any given time—and fuel your forecasting, planning and growth efforts. For Chris, those KPIs are: Leads  Leads to Opportunities Opportunities to Closed Business Closed Business to Project Projects to Revenue Revenue to Revenue Retention “We ingrain and integrate those six KPIs in any decision that we make,” said Chris. “So if a business partner came to me and said, ‘Chris, you need to increase our headcount. We need to hire more salespeople.’ Okay, let's go look at the North Star. How are we tracking leads to opportunities to close more? How is that performing? Are we below the budget? Are we behind it? Are we ahead of our forecasts? Then we make that part of our decision-making process.” Aso critical, especially during times of economic change? Keeping a close eye on your cash KPIs and cash flow forecasting. In fact, that’s even more important today than it was a couple years ago, according to panelist Harjot Ghai, Chief Operating Officer at Delbridge Solutions. “Cash is very important,” he said. ”Obviously interest rates are rising around the world, and especially for SaaS companies, a lot of them are raising equity or they have cash coming in and they grow their company a certain percentage every year—not necessarily being profitable, but they’re growing the company. And having cash in the bank and having cash flow forecasting is very important.”  5. Leverage Drivers To Streamline Your Process Following the right KPIs is just the start, though. In order to know how and when to pivot, you have to be able leverage your business drivers to act quickly and realign your business goals. By tracking your drivers, you can determine the best way to streamline your process throughout your mid- to long-term planning, to help you reach your objectives.  “You can use drivers and populate the different assumptions and … calculate the actual output, the actual expenses and revenues based on those drivers,” Harjot said. “The other way is doing more of a top down, and actually inputting data at a higher level, but then basically seasonalizing the data or pushing the data down to a lower level based on prior actuals, or based on last year’s forecast or last month’s data.” If you’ve planned in enough detail in the short time, and your inputs out of your finance and operations teams are 100% accurate, you’ll have drivers that will help you build momentum through the periods of change. And you’ll be more confident that you aren’t spending too much time on a plan that you’ll eventually need to course correct anyway. 6. Embrace Technology Finally, staying agile and accomplishing all of the above are a lot easier when you have the right technology to help you. The right planning solution will make it easier to keep track of data and monitor your KPIs, allow you to make changes to your plan when you need to and help you determine when your assumptions are wrong.  “You can have a great business process, but you really need a solution to take it to the next level and make it efficient,” Harjot said. But even more than that, in today’s remote and hybrid workforces, technology plays a huge role in helping finance teams work together toward their goals and communicate around their planning needs.    “With the changing environment, a lot of people are not in the office on a daily basis,” Harjot added. “People are working remotely in different locations, they’re working in a hybrid mode, and in order to do this more efficiently and effectively, you really need to implement a solution that allows collaboration. We can't just walk over to somebody's cubicle like we used to and ask a question. We need a solution where we can chat with each other, make comments and collaborate.” Conclusion As an industry, SaaS is used to navigating change and being ready for whatever comes next—prepared to make a positive out of whatever negative comes their way. As the economy continues to shift, those are good attributes to have. But to be ready for those changes, you still need to have the right processes and tools in place. Leading SaaS finance professionals know how to make opportunities out of those challenges. And they know how to best go about it. Now hopefully, these lessons from our SaaS financial leader panelists will help you do the same.  

Is your business efficient at generating profits? Is performance improving or getting worse? How can you tell? Profitability analysis. While the C-suite might focus on net profit margins, as finance professionals, we understand that profitability analysis is more than a barometer of an organization's performance.  It influences decision making and drives future profits when done correctly. How can you be sure that your profitability analysis processes are efficient and accurate?  Inefficient data processes cost U.S.-based businesses billions each year, and poor data quality costs companies $3.1 trillion each year. Improve your organization's profitability analysis and data collection processes so your company doesn't become a statistic.  💡Key Takeaways: Not all revenue is created equal. Focusing on revenue growth alone only gives you a bird's-eye view of your company's financials, restricting insights into the overall competitive landscape. Create maximum value by gaining insights into where profits are won and lost by harvesting the power of data by using a central repository for all your company records and datasets. Benchmark your organization's current standing by comparing margin ratios, such as net sales, net incomes, revenue, operating income, taxes and other additional expenses.  While sales teams want to celebrate every closed sale, only finance professionals know the true value of every deal using profitability analysis. Over 25% of business leaders state that insufficient technology makes embracing these advancements risky, while 39% recognize the need to embrace automation. Tips on Improving Your Profitability Analysis Processes Most organizations will often only focus on revenue growth when developing sales objectives (setting quotas or measuring performance, for example). However, not all revenue is created equal.  When competitive landscapes shift, consumer demands change. As your organization seizes new opportunities, using profitability analysis could help decipher specific results and deliver insights to the C-suite.  Instead of depending on a bird's-eye view, or worse yet, a gut intuition, of the company's financials, C-suite executives and managers can get fact-based answers about the profitability of each specific buyer, customer group, product, market and service line.  1. Harness the Power of Data FP&A forums are teeming with finance professionals complaining about how time-intensive profitability analysis is and how challenging it is to compile accurate data. If you attempt to perform data-rich calculations with Excel spreadsheets alone, you won't be able to process your profitability analysis accurately. You first need a foundation for data for your sophisticated operations. That requires exchanging manual data entry processes and the time associated with these tasks for a comprehensive digital solution to create a single source of truth (SSOT).  According to PwC's 2021 Finance Effectiveness Benchmarking Study, when you harness the power of technology-based central repositories to collect and store data, finance professionals can spend 20% more time on analysis and less time gathering and validating data.  Bottom line, if you are not using a comprehensive, yet simple-to-use financial analytics tool to track metrics to improve profit margins, setting that system in place is step one. 2. Benchmark Current Standings Healthy profit margins depend on various internal and external factors. Benchmarking current profits allows you to ensure performance is consistently improving proactively by capturing profitability ratios.  Internally, you will need to compare segments and profit margins to past periods within the company. Externally, you can assess average margins and ratios in your industry. Elements of an organization's profit margin ratio include: Net Profits Net Income Cashflow Revenue Cost of Goods Sold (COGS) Operating Income Operating Expenses Taxes Additional Expenses (i.e. repair costs, loan repayments, etc.) Obtaining accurate benchmarks shouldn't require days of digging, either. s A benchmarking tool that uses CapEx software allows you to target key insights from specific datasets for improved analysis. 3. Know the Cost of Each "Win"   Not every newly closed deal is a win to celebrate. Known as customer profitability analysis, finance professionals can evaluate the true value of a new customer and how profitable each "win" actually is to the organization.  Assess marketing strategies, cross-channel engagement, time spent on closing and the entire customer journey to gain these insights.  However, you cannot gain these insights by studying expense and income statements or attempting to apportion operating and other fixed costs. It takes profitability analysis and the willingness to dig deeper to see how changes can strategically drive cumulative profits. 4. Establish a Schedule for Performing Profitability Analysis How often your team performs profitability analysis depends on several factors, including industry type, the scope of the report and the period of the assessment. Most organizations conduct annual analyses.  However, while challenging, some metrics require more frequent review. A profitability analysis tool will help streamline this process to simplify the assessment process.   Challenges With Adopting Efficient Profitability Analysis Processes       In June 2021, we conducted the Vena 2021 Benchmark Survey and published the results of our findings. We spoke to 175 finance professionals, operations specialists, and business executives from organizations around the world.  While 39% recognized the need for companies to embrace automation, 33% argued disconnected data and over 25% stated that insufficient technology makes embracing these advancements risky.  Furthermore, integration might create issues with the company's IT infrastructure, causing the IT department to delay adoption. As a result, some finance and operating teams continue to fall behind in long-range planning and forecasting, and 15% have no strategy whatsoever.  Accurate Profitability Analysis Requires Metrics You Can Trust      From the beginning, one primary purpose an organization strives for is to make profits. It's arguably the most critical factor in successful commerce.  Understanding profitability requires an innovative finance reporting tool that harnesses the power of Excel, taking data from on-premise data centers and cloud-based servers and securely storing it in one central repository. Get all the data you need from one place for more accurate reporting.  Connect finance with sales more effectively by applying financial metrics to support a more strategic sales planning process.  

Black Friday and Cyber Monday are almost here. The two biggest shopping days of the year are just around the corner. For consumers, it’s a great opportunity to save big—and for businesses, it’s a chance to drum up sales and finish the year on a high note. And although inflation has led to higher prices among most goods and services in 2022, this year’s Black Friday and Cyber Monday are still poised to be huge revenue-generating opportunities for businesses. With 88 million consumers spending a cumulative total of $8.9 billion during Black Friday 2021 in the U.S. alone, it is once again expected that Black Friday and Cyber Monday will be big events—despite inflation and economic downturn.  To capitalize on consumers’ willingness to spend over the American Thanksgiving weekend, businesses need to be prepared. And leading the charge to help their organizations succeed are FP&A teams. So we’ve put together this blog to help finance teams like yours best prepare for Black Friday and Cyber Monday 2022. We’ve got tips, best practices, free Excel templates and more so let’s get started. When Is Black Friday 2022? This year, Black Friday will take place on Friday, November 25. As is tradition, Black Friday in 2022 will occur on the day after U.S. Thanksgiving, which is Thursday, November 24. For many, Black Friday marks the beginning of the holiday season—although you may have heard Mariah Carey’s “All I Want for Christmas is You” at least a dozen times by the time Black Friday rolls around. Since retailers typically discount their products and services heavily on Black Friday, it can be a great opportunity for consumers to complete a lot of their holiday shopping ahead of time—and save money while doing so. Or you can wait until December 23 to do all your shopping and hope that Amazon Prime follows through on its “next-day delivery” guarantee (warning: this can cause a lot of stress). We recommend the former. When Is Cyber Monday 2022? Cyber Monday will take place on Monday, November 28 this year. Cyber Monday falls on the Monday following U.S. Thanksgiving and although its roots aren’t as old as Black Friday (the term Cyber Monday was first used in 2005), it has quickly become one of the biggest shopping days of the year. Similar to Black Friday, Cyber Monday is both a great opportunity for businesses to boost their bottom line and for consumers to save on products and services.  So what is the difference between Cyber Monday and Black Friday? About 72 hours, for one. But in reality, the events are quite similar in that businesses typically discount their products and services heavily on both days. Historically, the main difference between Black Friday and Cyber Monday has been that Cyber Monday sales were typically only available online, not at brick-and-mortar stores. But with most businesses giving consumers the option to purchase products online, there is very little difference between Black Friday and Cyber Monday in 2022. Why Black Friday and Cyber Monday Are Vital for Your Business Black Friday and Cyber Monday are important for businesses because they are golden opportunities to cash in on the buying frenzy. Consumers are eager to spend during Black Friday and Cyber Monday, the two biggest shopping days of the year. To illustrate just how big Black Friday and Cyber Monday are, check out the following stats: In the U.S. alone, consumers spent $10.7 billion during Cyber Monday in 2021 In 2021, American consumers spent $8.9 billion on Black Friday In the U.K., consumers spent a total of 9.42 billion British pounds over the course of Black Friday weekend The average discount during Cyber Monday 2021 was 26% So if you work in the finance department at a company that will be participating in Black Friday or Cyber Monday deals, it’s important to be able to plan for the potential impact that sales can have on your bottom line. To that extent, there are two important tools to have at your disposal: 1. Scenario Analysis Performing scenario analysis (also referred to as what-if analysis) allows your finance team to model different scenarios so that you can understand the impact of these scenarios on things such as revenue, expenses and cash flow. For example, you could model 3 different scenarios: Scenario 1: You discount your products by 25% on Black Friday and Cyber Monday and expect to see a 250% increase in sales. Scenario 2: You discount your products by 40% on Black Friday and Cyber Monday and expect to see a 300% increase in sales. Scenario 3: You discount your products by 60% on Black Friday and Cyber Monday and expect to see a 400% increase in sales. Each of these scenarios will have a different impact on your bottom line and with scenario analysis tools, you’ll be able to project how each scenario will affect your business so that you can make the best possible decision. 2. Revenue Planning Planning your revenue for the next month, quarter and year is a crucial part of just about every FP&A team’s job. After all, revenue is a key indicator of an organization's financial health—and understanding your revenue metrics in detail allows you to make decisions around product lines, marketing spend, hiring and much more.  And whether you’re in the sports industry, retail sector or any other business that expects to participate in Black Friday and Cyber Monday, it’s important to have revenue planning tools that can bring data from all your sources together to give you a complete picture of all your revenue sources. Tip: To stay agile, be sure to implement rolling forecasts as opposed to the older, more traditional static forecast model. FP&A Tips To Prepare Your Business for Black Friday and Cyber Monday So how can your finance team help prepare your organization for Black Friday and Cyber Monday? We’ve put together a list of tips and best practices for FP&A teams—and included free Excel templates to help with your planning:  1. Project Your Revenue As was mentioned earlier, it is important for FP&A teams to track, project and report on revenue. Missing revenue targets are not good for any business, especially those that are publicly traded where not hitting quarterly or yearly revenue targets likely means a decline in share value and increased scrutiny on the company’s leadership team. FP&A teams need to be able to project revenue with confidence, not just for events such as Black Friday or Cyber Monday, but for every month throughout the year. To help you, we’ve created an Excel template for revenue projections that you can download today for free. 2. Create a Detailed Expenses Budget From increased marketing spends to additional advertising dollars, your organization is likely planning to spend money on promoting your Black Friday and Cyber Monday deals. To keep track of everything, you’re going to want to create a detailed expense budget. Doing so will ensure that you know exactly how much money you’re spending and where the money is being allocated. This will help you calculate things such as ROAS (return on ad spend) and understand which marketing levers you pulled generated the most revenue and best ROI. Download our free Marketing Campaign Report Template for Excel today to track the performance of all your ad campaigns. 3. Plan for Staffing Costs While most companies focus on expenses for marketing and advertising for Black Friday and Cyber Monday, they sometimes forget about the increase in staffing costs during these busy shopping periods. Maybe you need to hire additional staff to work your retail stores or hire an additional developer to ensure your website is ready for Black Friday and Cyber Monday. Whatever the case may be, engaging in workforce planning allows you to understand how your labor expenses, among other costs, will affect your business’s bottom line. If you’re looking to manage all your labor expenses in one place, download our free Workforce Planning Excel Template today. 4. Prepare for Multiple Outcomes Hope for the best, prepare for the worst. It’s a good mentality for FP&A teams who are in charge of helping guide the business into the future. While Black Friday and Cyber Monday can be a huge boom to an organization's revenue, it’s also important to prepare for a scenario in which your sales don’t quite hit expectations. As discussed earlier, this is where scenario analysis comes in handy. Modeling out best- and worst-case scenarios helps your business stay agile and prepared for whatever the outcome may be. Get your free What-If Analysis Template for Excel so that you can forecast your financial future with confidence. The Biggest Retail Event of the Year Is Nearly Here In summary, Black Friday and Cyber Monday are the two biggest shopping events of the year and by incorporating these best practices and taking advantage of our free Excel templates, your FP&A team will be able to prepare your business to the best of your abilities. Whether it’s projecting revenue and marketing expenses or modeling different scenarios, finance teams should be at the heart of every business’s strategy for Black Friday and Cyber Monday.