Marc Linden, SVP and Head of Business Operations and Finance at Sage Intacct, recently moderated a panel with a number of experts to discuss the role of the CFO, global trends, challenges, and opportunities in the space. Be sure to read this post for interview-style highlights of the session with Alan Hurwitz, CFO at Continuity; Doug Boughton, CFO at Smith System Driver Improvement Institute, Inc.; and Tauni Manasse, CFO at LeaseLabs.

Marc Linden: I’d like to welcome everyone in the audience. Panelists, thanks so much for joining.  Let's start with question number one: When you get asked by the CEO or the board, "Where are we with cash now and where we expect to be in the future?" what tools do you use to answer this question?

Alan Hurwitz: We are using the tools historically on all the information that we can get on the GAAP accounting information out of Sage Intacct, obviously. We've been on Sage Intacct for a couple of years and we haven't gotten to the point yet where we're using the statistical capabilities, but I'm looking to get that going.

We also have Salesforce so we can be pulling in other non-GAAP information related to sales performance, which is a key factor in understanding where cash is going to be in the future.

For now, I've been using Excel, and I just can't wait to get off of Excel.

Marc: What's the time frame that you're looking at when you're doing your cash projections?

Alan: I run my cash projections over 36 months and, obviously, you need to know more about what's happening in the next 6 to 12 months than you do at 36 months. Job #1 is driving the cash. Because priority #1 for all of us is, “Don't run out of money.”

We're constantly focusing on what are the KPIs or the drivers in that financial model that could cause us the risk of surprise in terms of cash flow at some point in the future. That risk gets higher as you go up in time. So that's why I am always running the 36 months.

Marc: Doug, can you discuss as well?

Doug Boughton: Of course; my name is Doug Boughton, and I’m the CFO at Smith System Driver Improvement Institute, Inc. in Arlington, Texas. We're a B2B services company and we’ve been on Sage Intacct for four years.

Being private equity-owned, we’ve been asked us to supply a 13-week forecast. I double that, just to make sure I don't have anything on the horizon that's going to surprise the key stakeholders. Covering our payroll as a services industry, covering our debt, and ensuring we're right in line with all the bank covenants, so 13 weeks is the key. And we marry that up with our annual forecasting process.

Marc: Do you do full balance sheet cash flow plans along with your annual planning?

Doug: With the annual plan, yes. And sometimes I'm asked to modify that on a quarterly basis.

Marc: Tauni, do you do anything different?

Tauni Manasse: We also have to look at our collections. We have high volume, very low dollar customers. The concentrated amount of our receivables with a couple big customers have to be monitored very carefully.

We're new to Sage Intacct, but we've integrated with a Sage Intacct partner to get more visibility and automation in our collections. And that's helped our cash flow, and also helped us be able to predict as well. We run a short-term cash forecast cast separate from the long-term model.

Marc: That's kind of a best practice. Unless you're cash-rich, then the short-term doesn't really matter. So how real time is your cash balance in Sage Intacct? If you went and looked right now, do you have confidence you have a real number?

Alan: Ours is real time. We're a 24 hour business and we have a lot of credit card processing that gets posted usually by 10:00 AM, and we're pretty accurate.

Marc: Great. I’d love to hear how you respond to the CEOs saying, “How are we doing against our future goals?” Especially as it pertains to the number one market all CEOs care about, which is top line. Whether it's bookings or revenue, it doesn't matter. What do you do? What are you looking at? Where are you getting data from? How are you playing it? Tauni, you want to start off?

Tauni: So primarily, Salesforce. We don't have the Salesforce Sage Intacct integration yet, but I'm very much looking forward to that. We do a lot of our kind of top line forecasting in Salesforce.

Doug:  We're Salesforce customers as well. Bookings for future classes is very key to us, truth be told. Training days, try to break everything down to the equivalent of one day unit. But looking out into the future, it’s more murky and cloudy than it's ever been. We're trying to find other ways to project our future. But Salesforce is our lead, and we are integrated, and love it.

Marc: So how are you doing KPI measurements in Salesforce? Is that where you're tracking that? Are you bringing the information to Sage Intacct to track performance against sales goals? Alan?

Alan: I don't know how all you think about it but I have a problem trusting my sales team to give me the best information. What I rely on is the order entry; what we're booking. I'll look back and try to understand the flow of how it went from a demo, for example, for our clients or for our prospects, and how those turned into orders, and what those time frames are.

We're working very diligently to try and really understand what the funnel metrics look like.

Marc: Tauni or Doug, do either of you get directly involved in the forecasting and the top line?

Doug:  Absolutely. The results are owned by the sales company, but I work as CIO as well. And they rely on the information from us. It is shared across management, but they deeply rely on the data being accurate.

Marc: This is a topic that's really important to me. I think that there's a major shift in the role of CFOs and their roles. I think what's happened, especially here in cloud businesses, is the ownership for that short-term and long-term sales revenue planning, is shifting to the CFO. Putting that together and making sure you have a plan that sits together is the CFO's role. Very non-traditional. And the epitome of that is the analytics team that drives all the revenue forecasting, and works for the CFO, which is increasingly common.

Anyways, awesome discussion. Question number three: Answer through personal perspective but CEOs always ask, "What's the best way for us to measure more business?"

I’d love for you to just relate a little about how you measure it, what your KPIs are, how many you deal with, what do you think the right answer is, and how many you should have, and a little bit about how you're tracking.

Doug: For our part as equity stakeholders, it's free cash work. That's the only KPI they seem to care about. Until we're in forecasting phase, then they want to know that we've done all the work below it. But our biggest KPI, I mentioned earlier, is training days. We can forecast them how we want, and ask for the salespeople. But until we bring them in, they're not real. As we lose our distance into the future of being able to project those, it's becoming a more risk profile type analysis.

Marc: Do you have a separate set of measurements that help drive the business forward? Because that's a bit of a backward-looking measure, right? It's a residual measure, for sure.

Doug: It is. Our forecast, generally, is driving cash flow. Easy enough to try to have that conversation with a private equity firm, very hard to have it with management and say, "How are we going to make that happen?"

Tauni: I've been there a little less than a year. Before I started, they only looked at net one month closed of a contract. They were signing people up for annual contracts and all they were measuring was, "What was the net?" And they were assigning some cost to it. That's all they looked at. We've expanded that, and it has helped us be able to put up dashboards and measure, "What is the annual impact?" Looking at it from a sales perspective all the way through cancellation rates and applying that now, and it's been very helpful.

Alan: We look at the leading indicators and the trailing indicators differently. And I think this is such an important topic, because this is where you get the meeting of the mind with the executive team and then ultimately with the board, when you understand where the uncertainties are in each set of those KPIs.

If the assumptions in the funnel metrics are driving those revenue assumptions as bookings and the dollars that are going to come from that, the billings and the revenue, then-- if you have a large number of KPIs, it's very difficult to have any kind of meaningful conversation and really get to where the risks are inside of those.

We look at conversion from a demo as a leading indicator. We look at average contract value, but even more importantly, the total contract value, which is an indicator then, for us, of what the potential lifetime value is of these new customers that we're bringing on. It helps us predict, then, what the future's going to look like. And we're started extending our contract terms.

Typically, they were one year and then made them three years. And now we're edging our way closer and closer to five-year contracts, which in our industry is not unheard of. The longer your contract terms are, the fewer clients you have to renew in any given year. It feeds itself in terms of your ability to predict 12, 24, 36 months.

Marc: If your CEO asks you, "How many should we be looking at?" What do you think the right answer is? How many KPIs should you be looking at?

Alan: I think five's the right number.

Marc: Do you bake it into comp plans? Or executive compensation variable structures?

Doug:  Cash flow has been their measure. We set our own term goals and things, and look at cash management as well as good balancing management. Sales leadership is targeted on their best predictability of sales versus their actual achievements.

Marc: Is there a tie between comp plans and the KPIs? We've reduced it to one measure. Now it's specific to SaaS business. Net changes we're seeing are holistic view against measured components. That's a holistic view of new bookings, de-books, add-ons, renewals, cancellations, upgrades, downgrades, all the way through. It's one measure. It's shared across the company and it's baked into every variable plan we have.  From sales comp plans, milled rep plans, all the way up to executive comp scheme.

We don't even really look at revenue except as a residual to predict cash. And the reason for it is in-- I think you've all kind of said it indirectly, it's tied to what every mission, the fundamental goal, of the company is. And in our case it was drive growth. It's the perfect measure for drive and growth. There's no place to hide it.

Doug: I think everything evolves over time. One of the metrics that we started looking at-- because again working with financial institutions and only in the US, we had maybe 15,000 potential customers. For us, our end price value is closely tied to momentum that we can build in the land drive. An important measurement for us is the local account. We look at annual contractor revenue and the local economy changes.

Marc: You've said you use dashboards, but what reporting KPIs do you use with your CEO? Do you have a formal review of these things and how do you structure that?

Doug:  We do it monthly because our venture investors have this very cool SaaS dashboard that a lot of companies fell for. We ended up with 12 board meetings a year out of it.

Marc: I think we can all acknowledge that CEOs are always looking forward. They're asking, "What's the next level? What are we going to do next?" Sometimes it's an experience where's there's 50 things we are going to do next this week.

This has been a super enlightening discussion of how to answer questions like that from a strategic and intelligent point of view, with data sets to back it up. This is an important topic for this audience in general because we're all growth-orientated organizations.

I want to thank everyone for joining today to listen, and especially to our panelists for participating. Thank you, all.

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