Published on February 18, 2014
Delivering Value and Financial Performance Leading FP&A Practices of High Growth Companies Presenters Eileen Tobias, Sr. Director Financial Planning & Analysis, NetSuite Eric Zimmerman, Financial Planning & Analysis Manager, Infusionsoft
Agenda • FP&A – Challenges Today • Planning - Business Strategy and Value Creation • Planning Cycles • Designing an Effective Process • Process Overview • KPI Framework • How Cloud Helps • Key Takeaways 2 © 2014 Proformative
NetSuite: World’s #1 Cloud ERP Background Performance Founded 1998 World’s most deployed cloud ERP Publicly traded on NYSE: “N” Used by 20,000+ organizations Offices in 10 countries Fastest growing top 10 ERP 2,400+ employees Used across 100+ countries $414.5M revenue FY13 (34% Growth) #1 Cloud ERP Suite Industry Recognition Best Financial Management Best Cloud Infrastructure 3 © 2014 Proformative Fastest Growing Top 10 FMS Vendor 3rd Year Running Top 10 Cloud Companies to Watch
FP&A – Challenges Today* • • Strategic Initiatives – FP&A is increasingly is tasked with contributing to organizational strategy, as well as meeting demand for operational insights. • Getting Insights - data is not translated into information quickly enough to be useful to business units. • Single View - information is not sufficiently detailed to be meaningful. A unified view to data and information is essential to gain visibility to financial and operational performance. • Closing and Reporting - takes twice as long for an average company vs. a world-class enterprise. • Lacks a Standard Discipline - example standard chart of accounts, common processes, globally mandated standards, common data definitions etc. • Information Gathering Process necessary to generate timely, relevant insights can be extremely challenging. • Inefficient Budgeting & Forecasting - iterative processes that frequently yield inaccurate results. • 4 Confronting Global Change - not fully equipped to analyze and deal with new business risks leading to forecasting and transaction processing errors. Internationalization - diverse business structures, assorted systems and processes © 2014 Proformative *Rethinking the FP&A Operating Model – FTI Consulting
Planning - Business Strategy and Value Creation* Basic Practice Progressive Practice • Annual plan with no longterm forecast • • Strategic initiatives not quantified • • Strategic planning is shortterm and reactive to immediate problems • • Planning is a nuisance: Business ignores targets, participation is a necessary evil to avoid corporate retribution • Finance acts as the steward for the process to assure some minimal level of accuracy amid business pushback Process Characteristics Business Integration Value Finance Brings 5 © 2014 Proformative Benchmark Practice Annual plan with re-forecast during year, long-term forecast independently managed Strategic initiatives are prioritized and approved annually, but not translated into targets Strategic planning focuses on improving current operations • Long-term forecast integrated with annual plan, budgets, and revised interim forecasts • Strategic plan and strategic initiatives are core inputs into planning process • Strategic planning focuses on realizing a 3-5 year vision that addresses most critical market and organizational challenges • Planning is tolerated: Finance establishes a plan and everyone accepts the need to complete an orderly and accurate process • Planning is core: Planning process is critical to governing business decisions, goal setting, and performance management • Finance strives to be an efficient process operator to minimize pain and assure accuracy • Finance is a strategic player that uses the planning process as a catalyst for achieving performance goals *Rethinking planning, budgeting and forecasting - A Deloitte perspective
Leading Practices in Planning Cycles* 6 © 2014 Proformative *Rethinking planning, budgeting and forecasting - A Deloitte perspective
Planning, Budgeting and Forecasting - Principles • Our Philosophy • Fund top line growth while maintaining profitability and generating cash • Focused and valued externally on revenue growth • Forecast used to manage the business • • • Robust feedback loop between Finance, Executive team, and business owners Top-down approach What do we forecast? • • Rolling eight quarter view updated monthly • • Revenue, Expenses, Deferred Revenue, Operating Cash Flow P&L forecasts saved as different versions in Financial Planning module Forecasts that are unique to SaaS companies • • Customer-level revenue forecast by month • Churn • 7 Deferred Revenue Headcount – expense lever © 2014 Proformative
Planning & Forecasting – Designing an Effective Process Integrated Planning Capabilities Forecast Inputs and Outputs 8 © 2014 Proformative
Budgeting and Forecasting Calendar • Annual planning done Q3 / Q4 for the next fiscal year • Targets are locked down for operating, quota-setting, and other compensation purposes • Completed and reviewed by Board in December • Final version completed and approved in January • Rolling forecast updated monthly • Eight quarter view • Reviewed with CFO and Executive team • Each forecast is saved and documented • Multi-year planning done annually • Completed each year during Q3 and reviewed with the Board • Multi-year planning at a software company is used as a framework for broader strategic discussion on competition, new markets, verticals, etc. 9 © 2014 Proformative
Customer Level Revenue Forecasting • Revenue visibility and predictability creates unique forecasting environment • We typically have a high degree of visibility into next year’s recurring revenue • Tight ranges for revenue outlook and expectations of a high level of precision 10 © 2014 Proformative
Measuring Actuals vs. Forecast • Actuals compared against P&L forecast • Ability to measure against multiple forecast versions • Results incorporated into the current forecast • Analysis done for Income Statement, Deferred Revenue, Cash Flow, and other key metrics (Bookings, Churn, PS attach rate, Hiring) • Monthly results and forecast update reviewed with Business Partners, CFO, and Executive team 11 © 2014 Proformative
Benchmarking • We compare our financial performance with other public SaaS companies • Informs our short-term and long-term target operating models 70% Revenue YoY Growth 70% 60% 60% 50% 50% 40% 32.6% Peer group average = 28.3% 40% 30% 30% 20% 20% 10% 10% 0% 12 S&M as % of Revenue (TTM) 0% © 2014 Proformative 44.6% Peer group average = 36.6%
Analysis and Reporting • Dashboards • Management reporting for Executive and Board reviews • Predictive analytics – Sales coverage – Cohort analysis • Focus on metrics that matter for our industry – New customer acquisitions – Annual recurring revenue – Cost of customer acquisition – Retention – Lead conversion rates – Average selling prices – Sales rep productivity 13 © 2014 Proformative
How FP&A Benefits from the Cloud • Distributed Team • Facilitates off-shoring / shared services • Supports flexible schedules / team in multiple time zones • Real time view into centralized data • Single system, single database • Browser access, visibility from anywhere 14 © 2014 Proformative
Key Takeaways Discipline: • Get into a routine of updating forecasts at regular intervals • Develop a set of relevant metrics and review with regular frequency • Use dashboards to monitor real-time results and KPI’s on a regular basis • Strive to turn most ad hoc requests into recurring analysis – Typically if a question is asked once, it gets asked again Flexibility: • Ensure you have the right team and tools to facilitate fast answers • Update forecast models for changes in the business • Make sure mindset is in synch with business environment – Be ready to switch from cost control mode to investment mode and back again • Be open to new ideas and approaches 15 © 2014 Proformative
Agenda • About Infusionsoft • FP&A Challenges • Budget Cycle • Key Objectives • Forecast Inputs • Calendar • FP&A Lessons Learned 16 © 2014 Proformative
Infusionsoft at a Glance • Infusionsoft is the leading sales & marketing software for small businesses, designed to help them get organized, grow sales & save time. • 20,000 customers around the globe • Explosive-growth (+45% annual revenue growth) • $59M in revenue in 2013 • 60K+ users • 440 employees • Headquartered in Chandler, AZ 17 © 2014 Proformative
FP&A Challenges for Infusionsoft • Culture Change: Old NEW - Annual focus + Rolling refresh - Few involved + Cross-functional owners - Finance mandate + Finance partnerships • Staff Changes: finding, training and motivating the right employees • Software Changes: moved from Excel based to Cloud based forecasts • Influence Changes: true business partners to add increased value to the team • Business Changes: How to account for acquisitions, headcount growth, new products, and organizational changes 18 © 2014 Proformative 18
Budget Cycle Key Objectives “Infusionsoft way” of forecasting -world class & continuous improvement Improve the forecast relevance iteratively Create a flexible, unified quarterly cadence to enable timely course corrections Investment in upfront process, resulting in back-end time savings Focus on the right areas at the right time. Trained focus on sustainable growth Deliver results. Do what we said we would do. 19 © 2014 Proformative 19
Budget Cycle- Not all forecast inputs are alike Economic Relevance Variability Speed of Impact Update Frequency Revenues High High Weekly Headcount High Low Medium Monthly Events High Low Medium Quarterly Advertising/Mar keting High Medium High Quarterly Commissions High Medium High Quarterly Capital High Medium Medium Quarterly All other Expenses 20 High Low Medium Medium Annually © 2014 Proformative 20
Budget Cycle- High-level Calendar Quarter Start Month Forecast Horizon Deliverable Q1 February Current +3 Qtrs Review Q1 goal attainment, make updates to budget if outside guardrails. Q2 May Current +6 Qtrs Review Q1 actual, Q2 goal attainment and First look into next year. Update current if needed Q3 August Current +3 Years Review 1H performance adjust 2H if needed and 3 Year Long Range Plan Q4 November Current +4 Qtrs Review current Quarter adjust if needed and set annual budget for next year 21 © 2014 Proformative 21
FP&A Lessons Learned • Culture Change: Cross-functional buy-in: no more “Those are finance’s numbers” • Staff Changes: Adding staff is much more fun then cutting staff • Software Changes: Better transparency & accuracy through integrated, cloud-based planning tool • Influence Changes: Connecting strategy to daily business operations is the essence of planning • Business Changes: FP&A processes need to be flexible and allow for the only inevitable of business….Change. 22 © 2014 Proformative 22
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Thank You For Attending Delivering Value and Financial Performance Leading FP&A practices of High Growth Companies
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