The Financial Planning & Analysis teams, which own and drive the tactical finance initiatives for SaaS businesses, are not only concerned with crunching numbers but also offer a comprehensive grasp of how the company functions. Due to the FP & A team's extensive understanding of your company's systems and procedures, business leadership is better able to deeply understand past business performance, why it happened, and what should be done differently in the future using a number of performance measurement metrics that are financial and SaaS business-specific.
For a SaaS business to have the right tactical finance approach, it would involve several tools that every Business Leadership should have in their arsenal which are:

• The business's blueprint (Annual Operational Plan) needs to be precise and consistent with its overall goal.
• The financial model needs to be kept up to date to track budgetary variances.
• The organization needs to determine whether it is going ahead or behind budget and change management strategies as necessary.
• The decision-makers need to be provided with reliable information to make informed decisions.
• The stakeholders need to be provided with the whole picture of the company's success.
• The company needs to use customer cohort analysis to understand genuine consumer demands and trends and capitalize on revenue opportunities.
• The leaders need to have a list of management priorities that are appropriate for making educated judgments.

An annual operational plan is an essential document because it serves as a guide for developing your company each year. A financial planning and budgeting plan must provide answers to several essential questions, including projected revenue growth, changes in MRR each month, the number of customers added, dropped, upgraded, or downgraded, the actual cost of sales, contribution margins, gross margins, and unit economics (LTV, CAC metrics), and anticipated costs for product development, sales & marketing, administrative costs, and overheads. This model needs to be in line with the objectives set by the Board and leadership teams as well as the organization's overall business goals.

It is essential to understand how real business transactions convert into KPIs and trends for recurring revenue, how the actual performance of the company compares with the budgeted performance, and whether the actual performance of the company compares with the plan. Hence, updating the financial model to reflect actual business performance numbers would give a realistic view of the direction in which the SaaS business is heading.

It is crucial to understand the margin for revenue, subscriptions, and services, the cash burn rate, and how long the cash runway is expected to last. Leaders need to plan and have a general sense of when to start fund-raising conversations. Also, the bulk of SaaS businesses receives an initial large cash influx from annual purchases. However, this must be split out over the life of the agreement and recorded as revenue once a month. Hence customers' upfront payments need to be recognized monthly in line with revenue recognition principles by creating a Deferred revenue liability. While this is under the purview of operational finance teams, tactical finance teams need to make sense of such unique situations and offer the true reflection of the recurring revenue, and gross profits and separate them from other professional services revenue.

Decision-makers require information to make informed decisions. MIS reports include the reasons for your existing MRR and ARR, the income split between your subscription model and services model, your new MRR, how much it has increased, and much more. This report is produced each month and improves communication both inside and outside of the company.

In conclusion, tactical finance teams in SaaS businesses play an important role in the success of a SaaS company. Several tools are needed to ensure that the company is on track, including a precise annual operational plan, an up-to-date financial model, an understanding of whether the company is going ahead or behind budget, and the provision of reliable information to decision-makers. Click Here to read our publication to know more.