Establishing a SasS business requires navigating several complex financial issues. Many SaaS companies realise the requirement for a CFO during their initial funding rounds.
Balancing operational responsibilities while creating financial documentation for potential investors, like simplifying the chart of accounts, offering management accounts for assessment, and improving spending processes, becomes difficult.
The CFO’s position has evolved for many years and is undergoing even more significant shifts. The modern CFO needs to handle corporate strategy. They should also monitor past and future trends while seeking traditional financial tasks.
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In this blog, we will explore the role of the modern CFO in SaaS business.
Table of content
What does a SaaS CFO do?
A chief financial officer (CFO) is a top-level executive who supervises an organisation’s finance function. The CFO is responsible for handling the company’s finances, which include tracking cash flow, making plans for the future, and determining areas of financial strength and weakness.
A CFO is responsible for many things. These include hiring and managing the accounting and finance team, keeping an eye on expenses and revenue, managing financial planning and analysis (FP&A) operations, recommending mergers and acquisitions (M&A), obtaining funding, and more.
Key functions of a CFO for a SaaS business
1. Improve the operational efficiency of existing revenue streams
SaaS businesses rely on optimised revenue systems for maximum efficiency and profitability. It is the responsibility of the SaaS CFO to find and close revenue leakage areas.
They look for any possible inefficiencies in the current revenue cycles. If they identify one or more problems, then they start working on a solution to raise those revenue streams’ overall effectiveness.
They also consider additional strategies to help the business achieve operational efficiency. Other responsibilities of CFO include automating billing, reporting, and payments, etc.
It is best to automate as many routine tasks and functions as possible. In this way, the group can continue to concentrate on more important issues—maintaining a high cash flow level and minimising revenue leakage.
2. Capital distribution
Managing capital allocation is a crucial responsibility for the SaaS CFO and is vital to the company’s success. They will plan and execute capital allocation based on strategic financial planning, analysis, and budgeting priorities.
One of the objectives in this situation is to boost returns on smaller investments.
The CFO knows exactly where the money is coming from and what capital funding sources are available. They frequently deploy techniques called Capital rationing, and also monitor the returns on internal investments, direct resources toward high-growth sectors, and regularly review the company’s capital allocation plan.
They also pay state payroll taxes and sales-derived taxes by maintaining track of VAT. Overall they are crucial for any company anticipating staying in good standing with the government and they engage in new business dealings with the right organisation.
3. Increase SaaS’s income sources
Identifying new revenue sources and developing scalable processes is the responsibility of a SaaS CFO to position the company for future growth. Every representative of a SaaS company wants to see higher retention rates.
It is the responsibility as CFO to determine how to bring in greater revenue for the company. One revenue-growth strategy is targeting the current clientele with cross- and upsells.
The SaaS CFO’s responsibilities vary from evaluating various discount schemes to determining whether premiums affect working capital when generating new revenue sources.
4. CFO’s for tax preparation
While CFOs typically aren’t tax experts, they might collaborate with others to help your business identify all of the deductions for which it is eligible. The cost to acquire a client decreases as expenses are subtracted.
Hiring a CFO with flexible pricing might be advantageous because of the possible increase in CFO involvement during tax season.
5. Acquisition costs
A CFO’s duties go beyond basic bookkeeping, though, as they have to estimate financial projections, considering factors like customer lifetime value (LTV) and acquisition cost (CAC).
Even though CAC and CLV are frequently used as marketing KPIs, CFOs also frequently use them in their daily operations. In any analysis of a company’s growth, CLV (also referred to as LTV) and CAC are essential components.
The Chief Financial Officer projects revenue and cash flow using CAC and LTV. CAC and CLV can assist in evaluating business trends and developing channel strategies.
6. Accounting duties
Accounting isn’t the most exciting job for the modern CFO, but it’s necessary. They must guarantee timely and accurate accounting, regardless of whether the SaaS company employs a bookkeeper or an accountant or outsources to an accounting firm.
With an increase in ARR (annual recurring revenue), accounting becomes more and more necessary. Thus, the accounting function and its associated responsibilities should never be undervalued.
SaaS CFOs need to ensure that all accounting responsibilities are handled appropriately, even though most will probably be assigned to other staff. This is especially important if the accounting firm your business hired has limited or no experience with SaaS.
Of course, you could avoid this issue by working with a company specialising in SaaS or having previous experience working with SaaS companies.
7. Building a finance team
One of the most important elements of your financial operations is a SaaS CFO. As your business expands, you’ll need employees to track accounting and SaaS metrics.
By utilising data analytics, your finance team can pinpoint areas that require improvement and effective customer targeting and revenue retention tactics.
Frequently asked questions
What is the CFO’s involvement in SaaS pricing and revenue models?
The CFO plays a crucial role in SaaS pricing and revenue models by assessing and optimising subscription pricing strategies, ensuring alignment with financial goals, and analyzing the impact on overall revenue.
They contribute financial expertise to balance profitability, customer value, and sustained growth in the evolving SaaS landscape.
How does the CFO support SaaS business scalability and expansion?
The CFO of a SaaS business helps it grow by smartly managing finances.
They ensure the company has enough money for new projects, keeps costs in check, and makes wise investments. This financial wizardry supports the business as it gets bigger and better.
What is CFO strategy?
CFO strategy involves aligning financial decisions with overall business objectives. It includes optimising financial processes, managing risks, and providing insights for strategic planning.
CFOs play a vital role in enhancing financial performance, ensuring compliance, and driving long-term success through effective financial management and decision-making.
Hire CFO in UK
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Final thoughts
The ideal CFO applicant for your company will have a solid understanding of the important responsibilities at every growth stage and extensive knowledge of the SaaS growth model. It is crucial to decide whether to promote someone to the position of CFO or hire a new one.
The CFO of a saas business serves an important role in enhancing the company’s financial profitability, growth, and sustainable cash flow by offering access to the capital markets.
By leveraging a deep knowledge of financial and business management, strong leadership, communication skills, and an understanding of SaaS best practices, the SaaS CFO can help steer the organisation successfully through changing economic conditions and support strategic growth initiatives.
