Kevin Appleby is joined by David Appel from Sage Intacct to discuss reporting for a SaaS business.
5 Stages of SaaS business growth
David Appel discusses with Kevin the 5 stages a SaaS business will go through, also what they need to accompany them:
- At this stage the simple goal is to create product market fit.
- The next stage is for you to prove you can sell your product and hire reps. Here, David explains, the focus needs to be on billing and cash flow. The metrics are around customer acquisition and sales efficiency.
- This is when you want to prove your net renewal model. This means you can hold and upsell the customers that you have. David indicates this is why more mature finance leaders are hired here. There needs to be a large focus on tracking performance obligations and contract obligations, tying every upsell back to them. As this continues, the finance function becomes more complicated.
- Make it predictable and scalable. This is when you will start to hire a more skilled finance team.
- This is the big outcome. It will be a strategic exit or IPO where the company will go global. Due to the higher stakes, there is a lot of additional pressure and scrutiny.
With a SaaS business, recurring income makes meeting shareholder expectation easier.
What’s the typical time-scale between more basic (receipts in shoe box) to thinking about the big outcome?
David explores how SaaS businesses are getting faster and faster at this transition. However, investors always want it to go faster.
For the top 10% who get there, it can be 6-7 years. Others can take 15, and up to 20 years. This can be down to the markets moving and customer sentiments changing. David suggests you have to be lucky to have everything fall your way.
There is a lot of change as a lot of different things happen to finance.
How often do folk scaling realise systems aren’t good enough?
Classic process optimisation means you can break it down. There is such a cultural component to this. Is everyone clear on the simple mission of the company? And what role each has to achieve that? That’s critical to truly being able to scale.
Kevin adds importantly to what David says by pointing out: you have to think like a business of the size you want to reach. The systems you put in now will fit your company when you get where you want to be.
What metrics are key from CFO’s point of view?
Each one is different at a different stage. David indicates towards using your resources around you like mentors and advisors as no one can do it all themselves. Someone will have been where you are and worked their way through it.
David discusses 3 metrics:
- Velocity. This is the pace your going at. You could calculate it by using your revenue growth or your net dollar retention. There are many ways of calculating this but investors want transparency.
- Profitability. You need to look at what your customer acquisition cost is. An understanding of the lifetime value of a customer is vital.
- Capital efficiency. You want to know how much money you are bringing in against how much it is costing you. What is your net new ARR (Annual Recurring Revenue) divided by your net burn?
What Sage does
David works for the successful company Sage, majoring in the Intacct Product. He briefly tells us the benefits of using them which include:
Helping you through the stages you will go through and helps you close.
Not only do they help you close, it will be a quick close, possibly as quick as 5 days.
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