Shape up your FinOps Before 2022
Shape up your Financial Operations Before 2022
When it comes to shaping up your Financial Operations, you may think you need a shiny new tool, an additional member on your team, or even more hours in the day.
In reality, one simple discipline can take your Financial Operations from good to great—with no additional cost or headcount.
What’s the secret? Be consistent.
When you’re focused on consistency in your financial operations, you’ll not only maintain compliance with standards, but you’ll set up your team to breeze through audits, develop trust with investors, and even make smarter business decisions.
The biggest challenge is knowing where to start.
Follow these 4 steps to shape up your Financial Operations before 2022.
Step 1. Optimize your chart of accounts
Your chart of accounts is the foundation upon which all metrics are built upon. You cannot have meaningful and consistent financial reports unless your data is segmented appropriately from the very beginning. General ledgers weren’t built with SaaS companies in mind, and your QuickBooks or Xero Chart of Accounts is no exception.
Start your journey to consistency by ensuring your chart of accounts is segmented to track your key business insights. It should be set up so you can easily answer questions like, “what is our small business vs. enterprise revenue over the last 24 months?”
This quick crosscheck will yield better reporting, clearer insights, and save you a ton of work down the road.
Step 2. Document your policies
To ensure consistency, you and your team need to know how your company accounts for both revenue and expenses. So what’s the best way to accomplish this? You guessed it, documentation.
Well-documented revenue recognition and commission policies give your team a guide to ensure consistent application of FASB guidelines (specifically ASC-606). Maintaining compliance will give your entire organization confidence in the metrics and numbers your team produces. Plus, documenting your policies will give you a confidence boost when the auditor strolls through your door.
Step 3. Standardize your SaaS metrics
Calculating SaaS Metrics can feel like you got dropped into the wild west—there are seemingly endless possibilities and no defined rules.
This disparity means it’s crucial to standardize and enforce consistency in your own calculations. Your team should clearly understand the “how” and the “why” behind your SaaS metric calculations.
Establishing consistency here will give you numbers you can rely on, saving you the headache of your CEO, board, or investor finding discrepancies in your numbers down the road.
Step 4. Prepare for your audit now
Practice makes perfect.
Rather than scrambling and stressing over your audits once a year, prepare in advance by adding a pinch of consistency to your routine maintenance steps.
When closing the books, make sure you’re doing so with detailed schedules. Cross-check yourself and ask, “can I pull the details behind this number?” (For example, if you say revenue for the last quarter was $3.5 million, can you provide a schedule showing the revenue by customer, contract, and item supporting that summary number?) If the answer is no, now is the time to change that.
In conjunction, ensure you can easily provide copies of contracts, addendums, SOWs, POs, vendor contracts, invoices, batch deposit support, bank statements, time entry reports, and any details behind the percentage-of-complete revenue. Nothing is off the table.
Consistently checking your trail all throughout the year will ensure smooth audits down the road.
Templates to help you achieve consistency:
To streamline your journey to consistency, we’ve developed this free, actionable checklist to guide you through implementing consistency in your Financial Operations. With this checklist, you’ll get access to our:
- SaaS-specific chart of accounts template
- Revenue recognition policy template
- Expense policy template
- Foundational SaaS metrics template
- Revenue modeling playbook
- Audit guide
- KPIs for SaaS companies