SaaS Finance a complete CEO handbook
In recent years there has been a surge in the SaaS economy. Customers are increasingly adopting the subscription-based pricing model to satisfy growing IT needs—despite limited IT budgets particularly for SMBs and startups. According to Gartner, the Global SaaS industry is forecast to grow to $195bn in 2023 from $167bn in 2022.
In all this expansion, one major challenge remains, that is how software providers manage their business processes and capture, share, and use financial metrics. When developing a SaaS business, many companies utilize spreadsheets, disconnected systems, and other manual processes to manage their business. These companies also tend to take the same methods and principles used to maintain a traditional software business and implement them in the SaaS business. The result is sub-optimal and does not accurately offer insights into the state of the business. Considering all this, one question pops up, that is - when should a SaaS business start worrying about a robust financial and accounting system? At an early stage, or when they grow into an SMB, or as an enterprise business? The answer is, from the absolute beginning. No matter what stage a business is in, it has to keep track of the cash inflows and outflows. That makes accounting essential.
The most basic needs are clerical and can be met with technical training, but the more advanced needs to understand the business deeply, add a strategic component that is best met by specialists with extensive business experience. It first requires understanding which roles, needs, and paths the business is likely to encounter. Eventually, most successful businesses will outgrow their initial accounting staff and need greater depth as the number of dimensions in the financial function increase.
If they understand what their eventual needs will be in advance, there are many ways that businesses can take risks and get what they need, when they need it, without financially overcommitting. Developments in collaborative technology tools has made it easier for businesses to hold off on hiring full-time finance resources while still having access to a worldwide pool of highly talented individuals. Businesses can now engage fractional CFO’s and advisory Boards and get around to hiring a full-time CFO later, while still meeting their needs for more sophisticated financial leadership.
In all this expansion, one major challenge remains, that is how software providers manage their business processes and capture, share, and use financial metrics. When developing a SaaS business, many companies utilize spreadsheets, disconnected systems, and other manual processes to manage their business. These companies also tend to take the same methods and principles used to maintain a traditional software business and implement them in the SaaS business. The result is sub-optimal and does not accurately offer insights into the state of the business. Considering all this, one question pops up, that is - when should a SaaS business start worrying about a robust financial and accounting system? At an early stage, or when they grow into an SMB, or as an enterprise business? The answer is, from the absolute beginning. No matter what stage a business is in, it has to keep track of the cash inflows and outflows. That makes accounting essential.
The most basic needs are clerical and can be met with technical training, but the more advanced needs to understand the business deeply, add a strategic component that is best met by specialists with extensive business experience. It first requires understanding which roles, needs, and paths the business is likely to encounter. Eventually, most successful businesses will outgrow their initial accounting staff and need greater depth as the number of dimensions in the financial function increase.
If they understand what their eventual needs will be in advance, there are many ways that businesses can take risks and get what they need, when they need it, without financially overcommitting. Developments in collaborative technology tools has made it easier for businesses to hold off on hiring full-time finance resources while still having access to a worldwide pool of highly talented individuals. Businesses can now engage fractional CFO’s and advisory Boards and get around to hiring a full-time CFO later, while still meeting their needs for more sophisticated financial leadership.
Three broad categorization of the finance and accounting function in an organization:
- Strategic Finance
- Tactical Finance
- Operational Finance