SaaS Brief

Managing Churn and Cash Flow in Your Subscription Model

 Sage Intacct’s virtual Modern SaaS Finance Summit moved into its third week with a focus on managing churn and cash flow. This panel tackled issues that are especially critical right now around customer-by-customer account evaluations, automation efficiencies and billing model adjustments. You can access the video and register for other summit sessions here.

David Appel, Head of Software and SaaS at Sage Intacct, moderated the panel with:

  • Andrew Dailey, Managing Director, MGI Research- an advisor with over twenty-five years of diversified technology & financial services experience and C-Suite engagement
  • Peter Perrone, CFO, AtScale- an operational CFO who brings a new approach to the finance function for data-intensive companies; and
  • Ashmi Shah, Head of Finance, Talix- a leader with expertise in building Finance & Accounting departments in high-growth companies.

Securing Your Business and Securing Cash Flow Now: Develop a Realistic Plan that Maps to Several Potential Business Scenarios

This is the time to do a detailed financial planning analysis (FP&A) of different business scenarios and projections that will drive how you secure your cash flow over the next three months. Our panel is facing the same challenges as you and shared their strategies. Andrew Dailey explained how he’s doing his analysis; “First - how do we secure our people? Second, how do we secure cashflow? Third, how do we secure our suppliers, and then, fourth, how do we take care of the demand side of the picture? As it relates to securing cash flow, I think everyone's going through the same process. . . building scenarios and cash flow projections over the next 30, 60, 90 days and what's formulating a plan that we can put in place to play off of those different scenarios.”

Ashmi Shah spent the last few weeks running five different scenarios to forecast her enterprise healthcare SaaS company, Talix. She emphasized the importance of maintaining enough cash to get through the end of next year, especially in light of the high level of financial uncertainty. She said that; “Securing new customers may not be as much of a challenge as the uncertainty of the second half of the year. So, try to forecast the second half impact on your overall plan for the year. Going through the entire P&L and then your entire forecast in terms of identifying nice-to-haves and must-haves. And, as we all know, our people are the number one priority; making sure our people are whole.”

Customer-by-Customer Evaluations: Invest in Customer Modeling Specific to Your Business and Be Proactive with Customers to Reduce Churn in a Volatile Market

Your customers’ ability to pay is essential and you need the right systems to accurately model the direct impact it will have on your cash positions. Peter Perrone describing how to create useful subscription billing models. He recommended finance executives invest in customer modeling; “Whether you're a B-to-B company with a small set of customers like AtScale on the order of one hundred, or you have thousands or even millions of customers- you have to figure out a way that you're going to model either individual customers or a cohort of a customers in a way that you can very quickly change the assumptions and see the direct impact on cash receipts.”

The best positioned companies have the visibility into their customers in a way that they can adjust their initiatives from “logo chasing” to world-class customer success and retention. Peter explained how AtScale approaches this to reduce churn; “We model [customers] individually in terms of their renewal rates and other characteristics. Then we can very quickly make very customer-specific changes or macro changes and see the sensitivity flow through to the cashflow statement. I'm sure everybody on this call has done this many times manually with Excel. In a time like this where you need rapid iterations and scenarios, the payback for us and the confidence it gives us in our scenario output is very high and I'm pleased that we made that investment in Sage Intacct. . . It really pays off.” He also added that AtScale makes sure to pay extra attention to their customers and their needs, as well as connecting with them remotely.

Automate for Efficiencies: Leverage Tools that Help Automate Revenue Recognition, Forecasting and Expenses

For many companies, it will be a challenge to manage multiple one-off agreements with customers and difficult to scale as the economy moves into the recovery phase. Automating forecasting will remove manual processes and inaccuracies. Rethinking the order-to-cash process and adjusting to today’s business reality is critical. For Ashmi, it’s a game-changer; “I can report on all of the different product lines with multiple different dimensions. I think that's been extremely important. Building a forecast model to be able to understand the different levers of the company and coming up with a bottoms-up model.”

This is also a time to find ways to make your company more efficient and automation can help you be fluid and flexible. When you put the right platform in place, then you can move as the market moves.

Ashmi described the value of automation; “Without an automated system, it can completely throw off your forecast and create a manual mess. We invested in and rely a lot on our automated billing because we have so many different components and variable billing terms. If we had delayed billing, that results in delayed cash. And right now, when cash is top of mind, getting really agile supports [the business].

 

A Great Subscription Billing System Can Help Your Business Adjust to the Impacts of COVID-19

Andrew Dailey provided some expert advice based on more than 50 CEO briefings he’s done on COVID-19; “There are two critical pieces for early stage companies and certainly pre-IPO companies: the first - a solid finance foundation with a modern financials system in place. . . You can't be doing things off of spreadsheets and you need consistent processes. Once that's in place, the second thing is to really model your use cases. Also, what are the forward-looking use cases. . . what are going to be the billing requirements and the monetization requirements for that future business.”

Peter added what he’s learned; “It's important for finance and back-office to realize that this is a company-wide set of issues and to collaborate. You have to collect usage, so it’s a product and logging issue. You have to have entitlements within the product and feature gates. So, it really is holistic, and I've made a mistake or two in thinking [billing] is very back-office-centric when in fact it is not. It's holistic throughout the company.”

Look Forward to Emerge Stronger

While we’re all (understandably) focused on the shorter-term implications of COVID-19, it’s important to also have a vision going forward. Ashmi shared hers: “Even though we're going through a pandemic, we still need to focus on how we build a company to scale. Because we will get out of this. And when we get out of this, we need to be able to hit the ground running. So, to continue that momentum, we [need] the right tools in place. . . Look at this as an opportunity to increase efficiencies across the board. In our company we're starting to implement a lot of different things to get us to that next level.

This is just an excerpt of this great conversation. The full session includes proactive steps to take and ways to evaluate potential government relief. Go here for the video and register for the Summit.

 

 

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