Delivering Value with Financial Performance: Leading FP&A Practices of High-Growth Companies

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Information about Delivering Value with Financial Performance: Leading FP&A Practices of...

Published on February 18, 2014

Author: Proformative



The FP&A organization along with the rest of finance is undergoing a transformation, with increasing responsibilities and their accompanying challenges, all of which have to be undertaken with limited resources. FP&A leaders, like their peers in other finance groups, are being asked to elevate their focus and extend their reach across the organization, while still delivering on traditional blocking and tackling activities. Hear from FP&A leaders who have created significant company value while navigating high growth business environments. Learn how best practices – on KPIs, planning cycles, rolling forecasts, and other techniques – have enabled high performance, both for their functions and for their overall business.

Speakers: Eileen Tobias, Sr. Director of FP&A, NetSuite
Eric Zimmerman, Manager of Financial Planning and Analysis, Infusionsoft

Presentation delivered at ProformaTECH 2014 -
Track: Operational Advantage | Session: 4

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

& 23 © 2014 Proformative

Thank You For Attending Delivering Value and Financial Performance Leading FP&A practices of High Growth Companies

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