Leading Culture Change in Software Organizations: Delivering Meaningful Results Early
Delivering Value with Financial Performance: Leading FP&A Practices of High-Growth Companies
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Transcript of Delivering Value with Financial Performance: Leading FP&A Practices of High-Growth Companies
Delivering Value and Financial Performance -Leading FP&A Practices of High Growth Companies
Presenters
Eileen Tobias, Sr. Director Financial Planning & Analysis, NetSuite
Eric Zimmerman, Financial Planning & Analysis Manager, Infusionsoft
© 2014 Proformative
Agenda
2
• FP&A – Challenges Today
• Planning - Business Strategy and Value Creation
• Planning Cycles
• Designing an Effective Process
• Process Overview
• KPI Framework
• How Cloud Helps
• Key Takeaways
© 2014 Proformative
NetSuite: World’s #1 Cloud ERP
3
Top 10 Cloud Companies
to Watch
#1 Cloud ERP Suite Industry Recognition
Fastest Growing
Top 10 FMS Vendor
3rd Year RunningBest Financial Management
Best Cloud Infrastructure
World’s most deployed cloud ERP
Used by 20,000+ organizations
Fastest growing top 10 ERP
Used across 100+ countries
Founded 1998
Publicly traded on NYSE: “N”
Offices in 10 countries
2,400+ employees
$414.5M revenue FY13 (34% Growth)
Background Performance
© 2014 Proformative
FP&A – Challenges Today*
4
• Confronting Global Change - not fully equipped to analyze and deal with new business risks leading to forecasting and transaction processing errors.
• Strategic Initiatives – FP&A is increasingly is tasked with contributing to organizational strategy, as well as meeting demand for operational insights.
• Getting Insights - data is not translated into information quickly enough to be useful to business units.
• Single View - information is not sufficiently detailed to be meaningful. A unified view to data and information is essential to gain visibility to financial and operational performance.
• Closing and Reporting - takes twice as long for an average company vs. a world-class enterprise.
• Lacks a Standard Discipline - example standard chart of accounts, common processes, globally mandated standards, common data definitions etc.
• Information Gathering Process necessary to generate timely, relevant insights can be extremely challenging.
• Inefficient Budgeting & Forecasting - iterative processes that frequently yield inaccurate results.
• Internationalization - diverse business structures, assorted systems and processes
*Rethinking the FP&A Operating Model – FTI Consulting
© 2014 Proformative
Planning - Business Strategy and Value Creation*
5
Basic Practice Progressive Practice Benchmark Practice
Process Characteristics
• Annual plan with no long-term forecast
• Strategic initiatives not quantified
• Strategic planning is short-term and reactive to immediate problems
• Annual plan with re-forecast during year, long-term forecast independently managed
• Strategic initiatives are prioritized and approved annually, but not translated into targets
• Strategic planning focuses on improving current operations
• Long-term forecast integrated with annual plan, budgets, and revised interim forecasts
• Strategic plan and strategic initiatives are core inputs into planning process
• Strategic planning focuses on realizing a 3-5 year vision that addresses most critical market and organizational challenges
Business Integration
• Planning is a nuisance: Business ignores targets, participation is a necessary evil to avoid corporate retribution
• Planning is tolerated: Finance establishes a plan and everyone accepts the need to complete an orderly and accurate process
• Planning is core: Planning process is critical to governing business decisions, goal setting, and performance management
Value Finance Brings
• Finance acts as the steward for the process to assure some minimal level of accuracy amid business pushback
• Finance strives to be an efficient process operator to minimize pain and assure accuracy
• Finance is a strategic player that uses the planning process as a catalyst for achieving performance goals
*Rethinking planning, budgeting and forecasting - A Deloitte perspective
© 2014 Proformative
Leading Practices in Planning Cycles*
6 *Rethinking planning, budgeting and forecasting - A Deloitte perspective
© 2014 Proformative
Planning, Budgeting and Forecasting - Principles
7
• Our Philosophy
• Fund top line growth while maintaining profitability and generating cash
• Focused and valued externally on revenue growth
• Forecast used to manage the business
• Robust feedback loop between Finance, Executive team, and business owners
• Top-down approach
• What do we forecast?
• Revenue, Expenses, Deferred Revenue, Operating Cash Flow
• Rolling eight quarter view updated monthly
• P&L forecasts saved as different versions in Financial Planning module
• Forecasts that are unique to SaaS companies
• Deferred Revenue
• Customer-level revenue forecast by month
• Churn
• Headcount – expense lever
© 2014 Proformative
Planning & Forecasting – Designing an Effective Process
8
Integrated Planning Capabilities
Forecast Inputs and Outputs
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Budgeting and Forecasting Calendar
9
• Annual planning done Q3 / Q4 for the next fiscal year• Targets are locked down for operating, quota-setting, and other
compensation purposes• Completed and reviewed by Board in December• Final version completed and approved in January
• Rolling forecast updated monthly• Eight quarter view• Reviewed with CFO and Executive team• Each forecast is saved and documented
• Multi-year planning done annually• Completed each year during Q3 and reviewed with the Board• Multi-year planning at a software company is used as a framework
for broader strategic discussion on competition, new markets, verticals, etc.
© 2014 Proformative
Customer Level Revenue Forecasting
• Revenue visibility and predictability creates unique forecasting environment
• We typically have a high degree of visibility into next year’s recurring revenue
• Tight ranges for revenue outlook and expectations of a high level of precision
10
© 2014 Proformative
Measuring Actuals vs. Forecast
• Actuals compared against P&L forecast
• Ability to measure against multiple forecast versions
• Results incorporated into the current forecast
• Analysis done for Income Statement, Deferred Revenue, Cash Flow, and other key metrics (Bookings, Churn, PS attach rate, Hiring)
• Monthly results and forecast update reviewed with Business Partners, CFO, and Executive team
11
© 2014 Proformative
Benchmarking
• We compare our financial performance with other public SaaS companies
• Informs our short-term and long-term target operating models
32.6%
0%
10%
20%
30%
40%
50%
60%
70%Revenue YoY Growth
Peer group average = 28.3%
44.6%
0%
10%
20%
30%
40%
50%
60%
70%S&M as % of Revenue (TTM)
Peer group average = 36.6%
12
© 2014 Proformative
Analysis and Reporting
13
• Dashboards
• Management reporting for Executive and Board reviews
• Predictive analytics– Sales coverage– Cohort analysis
• Focus on metrics that matter for our industry– New customer acquisitions – Annual recurring revenue– Cost of customer acquisition– Retention– Lead conversion rates– Average selling prices– Sales rep productivity
© 2014 Proformative
How FP&A Benefits from the Cloud
14
• Distributed Team
• Facilitates off-shoring / shared services
• Supports flexible schedules / team in multiple time zones
• Real time view into centralized data
• Single system, single database
• Browser access, visibility from anywhere
© 2014 Proformative
Key Takeaways
15
Discipline:
• Get into a routine of updating forecasts at regular intervals
• Develop a set of relevant metrics and review with regular frequency
• Use dashboards to monitor real-time results and KPI’s on a regular basis
• Strive to turn most ad hoc requests into recurring analysis– Typically if a question is asked once, it gets asked again
Flexibility:
• Ensure you have the right team and tools to facilitate fast answers
• Update forecast models for changes in the business
• Make sure mindset is in synch with business environment– Be ready to switch from cost control mode to investment mode and back
again
• Be open to new ideas and approaches
© 2014 Proformative
Agenda
16
• About Infusionsoft
• FP&A Challenges
• Budget Cycle
• Key Objectives
• Forecast Inputs
• Calendar
• FP&A Lessons Learned
© 2014 Proformative
• Infusionsoft is the leading sales & marketing software for small businesses, designed to help them get organized, grow sales & save time.
• 20,000 customers around the globe• Explosive-growth (+45% annual revenue growth)• $59M in revenue in 2013 • 60K+ users• 440 employees
• Headquartered in Chandler, AZ
Infusionsoft at a Glance
17
© 2014 Proformative
• Culture Change:
• Staff Changes: finding, training and motivating the right employees
• Software Changes: moved from Excel based to Cloud based forecasts
• Influence Changes: true business partners to add increased value to the team
• Business Changes: How to account for acquisitions, headcount growth, new
products, and organizational changes
FP&A Challenges for Infusionsoft
Old NEW
- Annual focus + Rolling refresh
- Few involved + Cross-functional owners
- Finance mandate + Finance partnerships
1818
© 2014 Proformative
“Infusionsoft way” of forecasting -world class & continuous improvement
Improve the forecast relevance iteratively
Create a flexible, unified quarterly cadence to enable timely course corrections
Investment in upfront process, resulting in back-end time savings
Focus on the right areas at the right time.
Trained focus on sustainable growth
Deliver results. Do what we said we would do.
Budget Cycle Key Objectives
1919
© 2014 Proformative
Budget Cycle- Not all forecast inputs are alike
Economic Relevance
Variability Speed of Impact
Update Frequency
Revenues High High High Weekly
Headcount High Low Medium Monthly
Events High Low Medium Quarterly
Advertising/Marketing
High Medium High Quarterly
Commissions High Medium High Quarterly
Capital High Medium Medium Quarterly
All other Expenses
Low Medium Medium Annually
2020
© 2014 Proformative
Budget Cycle- High-level Calendar
Quarter Start Month Forecast Horizon Deliverable
Q1 February Current +3 Qtrs Review Q1 goal attainment, make updates to budget if outside guardrails.
Q2 May Current +6 Qtrs Review Q1 actual, Q2 goal attainment and First look into next year. Update current if needed
Q3 August Current +3 Years Review 1H performance adjust 2H if needed and 3 Year Long Range Plan
Q4 November Current +4 Qtrs Review current Quarter adjust if needed and set annual budget for next year
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© 2014 Proformative
• Culture Change: Cross-functional buy-in: no more “Those are finance’s numbers”
• Staff Changes: Adding staff is much more fun then cutting staff
• Software Changes: Better transparency & accuracy through integrated, cloud-based planning tool
• Influence Changes: Connecting strategy to daily business operations is the essence of planning
• Business Changes: FP&A processes need to be flexible and allow for the only inevitable of
business….Change.
FP&A Lessons Learned
2222