In many ways, Software as a Service (SaaS) companies offer valuable insights that can be applied to organizations in other industries, such as manufacturing, healthcare, energy, transportation, financial services, or even the nonprofit sector. SaaS challenges us to rethink how we view and account for everything from quote to cash, procure to pay, business forecasting, revenue recognition, cash runway, and more.
With their roots in leading technology, embrace of advanced metrics, and use of data-rich business models, SaaS companies are trailblazers in finance innovation. From their early days of startup funding to scaling up for an IPO, SaaS businesses have mastered the art of simplicity, using frictionless financial automation to achieve rapid growth.
With SaaS, we also see the rise of new or enhanced financial methods and metrics such as customer acquisition cost (CAC), net revenue retention (NRR), customer lifetime value (CLTV), and churn rate. These provide a comprehensive view of the organization’s financial health and growth potential, making them essential for strategic planning and decision-making.
But what’s the right strategy for applying these advantageous techniques and metrics outside the walled garden of the SaaS business model? Let’s start by exploring four key strategic imperatives that apply across sectors:
- Expand the CFO role – As the role continues to evolve, CFOs must adopt solutions that move beyond financial reporting and into the higher-value world of strategic business advisory capacities. This expansion requires a deeper focus on data management, business intelligence, and collaboration across departments.
- Leverage AI effectively – It’s inarguable that AI is essential in any forward-thinking finance strategy. The short-term key is to deploy it in areas where it can deliver immediate returns (think: data entry, anomaly detection, or report generation). This approach will lay the foundation for AI to play a more strategic role, freeing finance to focus on higher-value activities.
- Address labor shortages with automation – With qualified finance talent in short supply, CFOs are looking to apply automation in AP/AR processes, cash management, and reconciliations. Not only does this increase efficiency, it can boost employee satisfaction across the team.
- Tackle the data quality challenge – As companies grow, maintaining clean, consistent data across multiple systems and entities becomes increasingly difficult. Ensuring accurate, auditable, and secure data is critical for scaling effectively.
The new tech stack – enabling both automation and insight
To meet these new demands, companies must rethink their reliance on traditional ERP systems. SaaS companies have revolutionized how businesses think about technology infrastructure, particularly in finance. Their ability to scale quickly while maintaining operational efficiency offers valuable lessons on building a tech stack that drives both automation and strategic insights. With their lengthy deployment cycles, inflexibility, high costs, and highly complex processes, legacy ERP systems are ill-suited to agile, fast-growth organizations. They struggle to keep pace with the changing financial and technological needs of SMBs.
By leveraging a SaaS-inspired approach, businesses across industries can modernize their financial operations and achieve similar success. Let’s take a quick look at the next-generation tech stack for finance:
- Robust general ledger – It’s essential to build a GL that streamlines financial management by providing accurate, real-time tracking of accounts, budgeting, and reporting, thereby enhancing decision-making and compliance.
- Flexible billing processes – One of the hallmarks of the SaaS industry is its ability to support flexible billing models – from subscriptions, tiered services, flat rates, minimums, overages, discounts, rollovers – or combinations of those options. Your tech stack must keep pace with your business.
- Sophisticated revenue recognition model – Even in 2024, finance departments still cling to the trusty spreadsheet for complex tasks – such as revenue recognition. SaaS companies have pioneered revenue-recognition software, and those capabilities are now a must-have in almost any industry.
- Comprehensive reporting – Today’s CFOs are expected to provide board-level summaries and accurate details about the entire business –from finances, product investments, hiring, acquisitions, churn strategies, and more.
- Multi-factor forecasting – Finance teams must offer more than retrospectives. If conditions change, your team is expected to produce accurate and automated forecasts. Your tech stack should support robust “if-then” forecasts for a full range of scenarios and produce contingency plans and course corrections that keep you optimally positioned.
Shipium, a SaaS-based enterprise shipping platform provider, serves as an example of how adopting a modern finance system can transform operations. By implementing Sage Intacct, Shipium reduced its monthly close time from weeks to just hours and achieved greater accuracy in cash forecasting, with a variance of only 1.2% from its operating plan over a full year. This shift enabled Shipium to automate invoicing and enhance visibility into key metrics, allowing the executive team to make more informed, data-driven decisions and focus on strategic growth.
Scaling up – the finance maturity model
Next, let’s quickly see what SaaS finance strategies look like within almost any small, high-growth business. SaaS business models offer an excellent template for a “finance maturity model” for these companies. Depending on your location on the growth continuum, here are the milestones to plan for.
- Seed capital – Startups use funding to determine the product/market fit, find early (and enthusiastic) customers. Finance goals are basic: manage cash and payroll and ensure the burn rate will carry the company through to the next round.
- Series A – In this phase, the company is proving its revenue model and aiming to double its size within 12 months. The finance team focuses on automating cash flow and billing as the company finds and develops a profitability model.
- Series B – Here, the organization works with repeat customers and proves the scalability of its revenue model. Finance is comfortably handling contract amendments, sophisticated revenue-recognition, and period-closings. Forecasts are more detailed and accurate
- Series C through F – In these phases, the company grows to about $100 million in gross profit (the key metric) through a business model that is predictable, profitable, and repeatable. Finance has evolved into a complete FP&A team
- IPO or sale – Proceeds from this round help expand the product line and fund acquisitions. The company enters adjacent product markets and geographies. At this stage, of course, net profit is the ultimate yardstick.
SaaS companies have redefined how we think about finance, and there is plenty to learn from their many success stories. By adopting a modern tech stack and applying key metrics, CFOs and controllers across industries can keep their “eyes on the prize” as they transition from tactical operations to strategic leadership and scale their businesses from seed financing to IPO.
