Arsenal of the next-gen CFO?

Dear Readers,

India has more than 100 Unicorn startups, whose business model is based on the tech layer. I often think about the working style of the next-gen CFOs who are leading such companies.

The key driver behind the financial software evolution is the change in the CFO’s focus and prioritisation – from being an accountant that focuses on closing the books to a strategic business leader that supports the CEO and the company in scaling the business efficiently. To do so, the CFO needs to focus less on the bottom of his/her priorities pyramid (time consuming, repetitive tasks) and more on the top of the pyramid, which includes strategic thinking and data driven decisions, by leveraging technologies that enable automation and analytics – which brings us to the next section, technological advancements.

However, the technology enabling CFOs and finance teams has lagged. Most finance workflows, such as annual planning, quarterly actuals reporting and reconciliations, tend to be managed within disconnected spreadsheets with no automation or collaboration capabilities. Excel has continuously proven its staying power due to its flexibility, robust calculation functionality and ease-of-use, generations of financial analysts and accountants have trained to become power users. But as spreadsheets have absorbed additional workstreams, it has become increasingly clear that this type of software was not designed to handle every task within the broader finance organisation. In situations where financial data for reporting resides across several systems or where multiple stakeholders must collaborate in real-time to execute multi-step workflows, spreadsheets fall short in empowering finance professionals to efficiently execute on their primary responsibilities. All of this has exacerbated numerous key process gaps within the finance workflow.

Now there's an explosion of next-generation software tooling focused on improving the productivity of finance professionals, unifying financial and operational data into a self-serve experience and providing deep, real-time visibility across ongoing business activities. Here are the core phases of the annual finance workflow.

Forecast & Budgeting:

The first order of business for finance at the beginning of the fiscal year is to prepare and set the operating plan for the coming year. Finance professionals collaborate closely with Go-To-Market (GTM), Product & Engineering and Administrative teams (e.g., HR, Legal, etc.) to determine the most accurate top-line forecast and the required spend across the business to achieve the revenue target.

Execution & Control:

Once the annual plan has been locked in, it’s time for the business to execute. As functional teams spend against plan, finance acts as the steward of cash, keeping the business in line with approved budgets, while allowing for deviations only when absolutely necessary. GTM teams focus on acquiring new customers and growing ACV within their existing base, which then translates into revenue that finance teams must track to understand how the business is trending towards its top-line plan.

Outcomes & Measurements:

Once the fiscal period comes to a close, accounting workstreams intensify as the business must reconcile spend and close their books to enable financial and tax reporting. In addition to reviewing accounting line items to understand business performance, finance teams also must prepare and review advanced analytics outputs explaining various Key Performance Indicators (KPIs) across the business that are not tracked under traditional accounting standards. Here is the the next-gen finance tech stack.

FP&A

FP&A tools enable finance organisations to run highly-flexible scenario analyses and build continuous financial forecasts to set revenue and spend guard-rails for the upcoming fiscal period(s). Companies like Anaplan and Adaptive Insights (Workday) initiated the first wave of modernization in this category, breaking the planning function out of manual, disconnected spreadsheets and moving it into their cloud-hosted systems-of-record.

Today, many of the next-generation FP&A tools seek to advance these capabilities further with improved data aggregation, collaboration features and better UI/UX. Given spreadsheets are the most commonly used tool amongst finance professionals, many modern FP&A software vendors look to leverage Excel (or a spreadsheet-like interface) as the core workspace within their platforms.

Cash Flow Management

Cash Flow Management tools integrate with a company’s bank accounts and financial tools to track cash inflows and outflows in real-time, and provide visibility into the business’s cash position. With the advent of open banking APIs, a new class of automated cash flow management platforms have emerged that aggregate bank transaction data and intelligently present key metrics around cash to treasurers, finance professionals, accountants and other key stakeholders.

Headcount

For most companies, particularly in SaaS, headcount drives upwards of 70-80 per cent of total operating spend–that’s more than enough to warrant close attention by finance. Headcount planning tools help organizations set realistic hiring plans that address strategic and operational needs while keeping headcount-related spend (e.g., payroll) within budget. Common features offered by these platforms include org charts, diversity reporting, compensation management and more. ChartHop and Knoetic are two companies to watch in this space.

Billing & Accounts Receivable (AR)

Anyone in SaaS finance will agree that calculating a seemingly straightforward metric like ARR is a far cry from a simple exercise. Given the complexities in SaaS contract terms, recurring billing scenarios and GAAP revenue recognition standards, next-generation billing and AR platforms have emerged to offer organizations a central command center through which to manage their customer subscriptions, issue invoices and accurately track ARR/revenue. Furthermore, the rise of usage-based pricing models has created increasing billing infrastructure complexities and challenges.

Spend Management & Accounts Payable (AP)

As organisations execute against their operating plan during the fiscal year, departments must unlock spend within their approved budgets to invest in their respective initiatives. To ensure all spend remains within plan and also within compliance with corporate policies, many businesses turn to advanced spend management platforms that control spend (via corporate cards), automate expense tracking, systematize approval workflows and streamline bill pay.

FinOps and Cloud Optimisation

Mass cloud adoption has been well underway. According to Gartner, more than 70% of companies have migrated “at least some workloads” to the public cloud. But as cloud utilisation has increased, so too has cloud spend. And organizations are beginning to appreciate the sheer scale of their overspend in this area.

Well, the idea behind sharing my views and observations is to support the whole ecosystem, as I understand the right feedback should reach the right people. I am planning to send ETCFO world every week from next Friday. Do let me know what you think about it.

Like always, I am adding here the top five stories of the week that you shouldn't miss. If you have any thoughts or feedback, please feel free to share them with me at amol.dethe@timesinternet.in.

1. Joint audit may not improve quality: Global accounting body ACCA chief

2. Risk mgmt important in a recession, CFOs should continue investing: Mukesh Butani

3. CFO was the fall guy in Nykaa's bonus issue fiasco, new-age firms should display good governance: Shriram Subramanian

4. India's Q2 GDP growth rate moderates to 6.3%

5. November GST collection stands at Rs 1.45 lakh crore, witnesses a surge of 11% Y-oY

Happy Reading, Happy Weekend

Editor,
Amol Dethe
ETCFO