How Strong Financial Leadership Helps Reclaim the Future

Finance teams

In good times or bad, cash is king and burn multiple is the north star of SaaS. Learn how financial leadership steers the company towards a bright future.

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Chloé Giraut
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Priyaanka Arora
June 30, 2022
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11
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How Strong Financial Leadership Helps Reclaim the Future

Summary

The role of the Finance function has been sidelined for far too long.

Finance has traditionally played a support role in the business, but this role is transforming rapidly. CFOs work side-by-side with the CEO to tackle a tough economy and craft a vision for the future.

FP&A managers and their teams are adding new skills to their knowledge base, including business analysis, data science, and strategic partnership. Finance is quickly evolving into a reliable business partner to lead the company towards steady growth and profitability.

In this article, Chloé Giraut, Head of Finance at Pigment, shares her thoughts on the priorities, technology, and financial metrics that make up strong financial leadership. She also shares key lessons learned from past and current market downturns, and the role of Finance in reclaiming control over the future.

How to grow into a Financial leadership position

A CFO, Head of Finance, or Finance Director has much say in the direction of the company, and is a much sought after position in Finance. In addition to strong technical skills and knowledge of the Finance domain, the Head of Finance needs to display

  • Strong risk assessment skills
  • Situational awareness and superior judgment
  • Ability to rapidly adjust processes and strategies 
  • Motivational skills and the ability to rally up a team

Finance teams wear multiple hats, so it helps to be a generalist especially when eyeing leadership positions. Chloé shares,

“This is how I got into leadership: by building a team, learning to be a manager, and by making people grow with me.”

Chloé quickly grew from an internship followed by a portfolio manager role at Goldman Sachs in London, to excelling at Head of Finance roles in the startup ecosystem. At each of her roles, she built the foundation for rigor, data analytics, and intellectual curiosity.

“It was important for me to understand how the world works from a business and economic standpoint.”

Chloé enjoyed crucial leadership milestones, including leading a company through fundraising and scaling a team of just one Finance manager to a robust team of 14 senior and junior professionals. The key to these achievements was to build credibility early on as a leader in the role.

Essentially, Financial leadership is largely about “learning it by doing it" and "leading by example”.

An integrated planning solution to cut data prep time by 80%

One of the main pain points for Finance teams everywhere is timely and accurate access to data. Downloading datasets from multiple sources and struggling to import it into a rigid spreadsheet model is hard. Imagine doing all of that just to find your data is already outdated!

"I wanted so badly to implement an EPM solution. I wanted to be in a product-led company where the product was targeted at people like me"

Chloé could identify strongly with the pain points experienced by Pigment customers. When she joined Pigment and started building her team, she ensured that the team made full use of the Pigment platform for planning, forecasting, and financial analysis.

With an integrated planning solution, Finance teams can:

  • Build formulas and models that don’t break with the slightest change
  • Run models in significantly less time
  • Develop a 360𝆩 view of the business
  • Run comprehensive multiple what-if scenarios to answer questions on the fly
  • Collaborate with cross-functional teams and align the whole organization

With huge targets to achieve and so little time to execute, every minute gained from offloading manual processes and data reconciliation helps.

Key priorities of a Finance team

In most B2B SaaS companies, the Finance team has a few key priorities:

Daily operations

In the short term, Finance teams focus on how to efficiently run the daily operations of the company. This includes everything related to payments - salaries, bills, and taxes. Teams work on time-sensitive and protected data with the appropriate tools to ensure the smooth running of day to day operations.

The team should also be prepared to anticipate frictions that take place on a daily basis, such as: how to manage large numbers of service providers, how to handle multiple currencies, and how to efficiently track cash collection when you have an ever-increasing customer base.

Scaling and cash optimization

As a long term priority, the Head of Finance builds a plan to scale the function and well as grow the employee base of the company overall. This requires planning ahead for the right processes and tools to streamline headcount planning for optimal growth.

Another key long term priority is cash optimization. As Chloé mentions,

“Cash is king, today.”

Beyond pure cash flow management, the modern Finance head needs to develop asset management skills. Basically, deciding what to do with cash - invest it by taking risks and hedging them, keep it aside as a cash deposit, or even buy crypto?!

Building a foundation of financial KPIs

For Finance teams at SaaS companies, building a strong foundation of financial KPIs leads to more accurate performance measurement, faster forecasting and reporting velocity, and proactive action to prevent missed targets.

These financial metrics (unit economics) include CAC (Customer Acquisition Cost), LTV (Customer Lifetime Value), Payback Period, and more. What’s important is to understand how each metric fits in the end-to-end company lifecycle and helps meet organizational goals on growth and profitability.

How a Finance team’s priorities change during market downturns

In business, priorities change all the time, every day.

Whether it’s a pandemic, recession, war, or market crashes, the business needs to constantly respond to external factors, and the Finance team is the driving force behind change management.

During a market downturn, many companies show an increased focus on cash production, rather than recruitment. This could include activities such as planning for or seeking additional rounds of fundraising, implementing pricing changes, or creating alternate streams of revenue.

Handling shifting priorities means that the Finance team needs to think ahead of time to implement new processes. Teams need to be highly flexible and adapt to the changing situation.

“We are support functions, and we’re here to support the company’s needs. If priorities shift, we just execute to make sure the business adapts as quickly as possible to the new normal.” - Chloé Giraut, Head of Finance at Pigment

All in all, change is not a new concept to Finance folks, and leaders take it in their stride as an opportunity to bring positive transformation to the company.

An alternate approach to massive layoffs

It’s difficult to ask employees to be more productive when they’re already at full speed. When asked about the large number of layoffs we’ve seen in the past couple months, Chloé answers:

"Some companies burn way too much cash in general because they don’t have a pragmatic hiring plan, and the only solution they find is then to reduce speed by laying off.”

Chloé shares how cash sobriety can be reached through means other than layoffs. A market downturn doesn’t necessarily require a 20% payroll layoff. Instead:

  • Change your recruitment plan to focus on revenue generation rather than support functions
  • Collaborate cross-functionally on different scenarios to adjust spend
  • Pause investment efforts to focus on GTM spend to accelerate growth

Companies executing massive layoffs have likely overspent for too long. Layoffs are a sign of the wrong approach to recruitment, leading to over recruiting and fear of being unable to raise funds again.

The key financial metrics to focus on during economic downturns

For hyper growth and mature companies, it’s best to balance both growth and profitability. Sacrificing one for the other will lead to either reduced runway, or reduced market presence and competitive advantage. And your metrics should reflect that.

Here are five key financial metrics for leaders to focus on during periods of economic uncertainty:

  1. ARR Growth: the percentage of recurring revenue growth as compared to the previous year. Monitor ARR Growth as it ultimately drives valuation and your ability to be profitable.
  2. Customer Acquisition Cost (CAC): the average cost of acquiring one additional customer through Sales & Marketing spend. Contrary to popular belief, downturns can be a great time to boost CAC to drive revenue. Balance with LTV to ensure efficient spend and ROI.
  3. Payback Period: the duration (usually months) of return on CAC. In SaaS, payback period is generally 12 months and needs tight monitoring to ensure profitability.
  4. Gross Margin: revenue minus cost of goods sold, as a percentage of revenue. High gross margin indicates efficient use of resources.
  5. EBITDA Margin: EBITDA as a percentage of revenue. This metric is key for more mature companies tightening costs and maintaining profitability.

While tracking these metrics, look out for early warning signs of problems hidden within averages of data. If this was useful, check out five more efficiency metrics, including the crucial Burn Multiple, to track during tough times.

Must-have tools in a Finance team’s tech stack

Tools are a great way to quickly free up resources and bandwidth to focus on strategic tasks. With the right tech stack, finance teams can eliminate manual work such as data exports and imports, for critical tasks such as budgeting and forecasting.

  • Pigment for financial planning and analysis that’s more dynamic and scalable
  • Treasury management systems such as Agicap to track cash balance and allocation in real time
  • ERP solutions for day to day operations management
  • Spending solutions such as Spendesk to gain productivity and save time on manual AR/AP tasks
  • Billing tools - including Pigment - to issue and track invoices and save time to focus on what matters

Common mistakes made by CFOs that exacerbate the market downturns

Although it would be wrong to rest the blame for economic downturns solely on CFOs, there are a few common mistakes committed during better times that create complexities during tough times. These include:

  • Raising money without a real objective for the raise
  • Not knowing exactly what to do with raised capital
  • Raising excessively just to overspend
  • Thinking you need to fuel growth only through external funding

Chloé highlights the importance of a profitable business model:

“The purpose of any company should be to become profitable and to be independent and autonomous.”

As shared previously, one of the key ways to achieve profitability is by recruiting revenue generating functions to absorb the different cost lines of the company.

If you could change one thing about how companies are handling downturns

Fear is natural. Moderate levels of fear can keep decisions in line with reality. However, there is nothing to be gained from panic that causes fear in other people as well.

Chloé encourages companies and people to avoid distracting noise about the end of the world:

“I'm tired of people spreading fear amongst the Finance population. The world is not going to end, we've faced much worse.”

She states that the current situation is scary, but shouldn’t make you lose focus.

“Invest in the right process and tools to stay in control of your business. Understand any dollar that's coming in and out. That requires a lot of focus.”

And it’s up to the Finance team to help the company focus on sustainable growth and hitting milestones:

The role of Finance teams during market downturns

When a company is just starting out, the Finance team focuses on raising VC money in a high-risk, high-reward environment. At this stage, it’s important to

  • Choose the right founding team that have full knowledge of and full faith in the company
  • Find the right people and pay them well, motivate them, and retain them

Most serious recruitment mistakes are made at a more mature stage when the company is generating revenue. This leads to losing people and spending excessively to replace lost headcount.

In the hyper growth phase, there is much more external pressure and more scrutiny on costs and revenue. In this phase:

  • Pay more attention to granular details of the cost base
  • Work towards every dollar of spend generating 2X or 3X returns
  • Maintain strong unit economics

Economic downturns have happened in the past and will continue to happen in the future. Finance leaders and teams play a crucial role as business partners to guide the company through these downturns and prepare for better times.

Focusing on scenario planning, improving forecasting accuracy, comparing actuals vs forecasts, maintaining a single source of truth, and implementing an integrated business planning solution leads to more control over the future.

Economic downturns are always followed by huge periods of innovation and opportunities for unparalleled growth. Financial leadership is successful when it keeps the company afloat and steers towards brighter times.

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