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"It's the unknown unknowns that will get you" – Peter Nesbitt on challenges facing SaaS CFOs

Teampay COO Peter Nesbitt has implemented finance processes at Bitly, Unified, and Teampay, and set up powerful communities that help finance peers connect and share knowledge. We sat down with him to dig into his experience and understand more about the changing role of SaaS finance teams, the challenges they face and most importantly, how to overcome them. Let’s get into it.

Sales and finance operations: The unexpected growth blocker

It was at Bitly where Peter first learned the importance of managing operational processes effectively – before they become growth blockers later on. 

He told us how, initially, revenue recognition was managed manually on spreadsheets. It’s an approach many start with. Though manual, it can work when in early stages of business but as you scale it causes a number of issues that ultimately impact your business’ growth.

“As soon as you grow to hundreds or thousands of customers, managing these processes manually means that you can only realistically be 60% confident in your numbers – it’s a lot of work, for unreliable data.”

This is a problem that keeps compounding as a business scales further. Especially as manual revenue recognition usually means there are issues with sales operations, like invoicing and contract processing too. All of these processes involve tools – tools that need to be used correctly by your team and integrated to avoid data silos. 

 “You need to think of the upstream processes. If these don’t happen, none of the downstream activities can happen either. So, if sales reps aren’t logging deals or attaching contracts in Salesforce, or revenue isn’t recognized correctly - your invoices then aren’t sent correctly and the ultimate result is that you don’t collect cash.”

An example of this Peter has seen in practice was a business in which the data showed day sales outstanding (DSO) to be 180 days. On cleaning up the data, DSO was actually just 30 days. Why did this happen? Because bad processes relating to contracts and invoicing meant that there was at least a month of revenue that was a year or two past due – this skewed the average time to collect payment from customers. 

Another company spent 6 months cleaning up revenue data – only to find it actually had half the amount of revenue it thought it did. That’s a huge discrepancy in the data versus the business’ reality that would impact everything from forecasts and budgets to the business’ overall growth. 

While dangerous enough as you scale, inaccurate data can (and will) cause huge problems later when you look to raise funds or sell a business. 

“You can’t show numbers to potential investors or buyers when you don’t have confidence in them. They will ask you for contracts and invoices to make sure everything adds up. If you don’t have them, or the data is wrong, it will impact your valuation and ability to get a deal done.”

In Peter’s experience, when businesses seek to improve these processes later on in their journey, it can take up to a year to get revenue data in a place where the team is 95% confident with it. And it’s a process that involves implementing a number of tools and hiring a small team to manage sales operations.

“This is where the role of Head of Finance comes in. Their real job is to be responsible for the numbers. Putting processes in place to make sure there’s accurate data and a true picture of revenue.”

Understanding compliance

Another increasingly complex part of a finance team's role is to understand compliance, globally. According to Peter when it comes to compliance, there are two angles to consider: Selling to international customers and hiring a global team.

You can sell software anywhere in the world but can you get paid and can you pay other people compliantly?

Selling to international customers

If you’re selling to international customers, you need to localize your product and go-to-market strategies. This includes things like local languages being used in your product, across your terms and conditions, and other communications. 

Beyond language localization, SaaS leaders also need to understand local data privacy regulations and the types of communication you can send to customers in different countries. 

“There’s a lot to consider. Even down to the types of email you can send to customers – the rules around that aren’t the same. What you can send to customers in the US is different from what you can send to customers in Germany.”

According to Peter, part of managing compliance is considering the risks when it comes to things like international payments.

“You could set up invoicing in local currencies but you need to make sure that you can be paid in that currency. If not, is there a foreign exchange risk? And who is taking that risk on?”

In addition, Peter finds that sales tax compliance, the associated work and potential risks are often overlooked. Speaking specifically to US businesses looking to go international – the feeling is often that US sales tax is so complex that international regulations won’t be as difficult to manage. 

“Most US heads of finance understand local sales tax but not international – and while different, it can still be very complex. It’s something you need to know and get ahead of to avoid getting in trouble with local authorities.”

Hiring a global team

A lot of the detail when it comes to managing compliance is dependent on whether or not you are registered to do business in these countries. This is usually only the case if you have hired employees in that region. Something that is increasingly likely with the move to remote working and a global talent shortage, making recruitment more competitive than ever. 

“I speak to companies now that have 50 employees from 14 different countries. This is something that in the past would only have been seen in a Fortune 500 company.”

The kicker for finance teams is that whether you’re a company of 50 or 5000, the compliance aspect is still the same. 

And there’s lots to think about. It’s everything from what are the leave and absence policies in these regions (and how they differ) to understanding pensions, compensation and benefits. 

Peter is seeing an uptick in the number of companies using Professional Employer Organizations (PEOs), sometimes known as Employer of Record services like Remote.com and Papaya Global. Here, the PEO holds the liability at the legal entity level – helping SaaS businesses to stay compliant, without huge investments in-house.

Changing expectations about new hires

Managing the complexities of compliance often means having a more mature finance team earlier in your Saas business’ journey. Right now though, this is more difficult due to the knock-on effects of the influx in funding to smaller startups.

“We’re seeing businesses raise $100 million at Series A. The usual Head of Finance candidates for this stage of business would not have experience handling this much funding.”

The increase in funds has also started what Peter explained to be a surge of hiring at the startup level. This means that those hiring need to shift their expectations of candidates and be realistic about the experience that’s out there. 

“I used to look for candidates that satisfied 80% of a job spec, now I have to aim for 60% because there just aren’t enough people with the right level of experience.

“It’s going to come as more and more SaaS companies IPO but it will take time for that experience to filter down into the market.”

For finance leaders, Peter explained that, for now, it means identifying your knowledge gaps and accepting them. You don’t need everything in house – you can find consultants or vendors that have the expertise to advise or in some cases manage processes completely – taking them off your agenda so that you can continue to grow while remaining compliant.

The importance of community

What one piece of advice would Peter give to CFOs and Finance leaders? Build up a brain trust of peers to learn from and share knowledge with. 

“I believe that everyone starts out with the best of intentions, and a plan to get ahead early. But it’s what you don’t know you don’t know that will get you – and that’s where community is really important.”

This is why Peter has created and is active in a number of networks for finance leaders, including the Controllers Collective and a FinOps Pavilion slack community. ”It’s important to have someone to call when you don’t have the answers. Even if you don’t need that network today, you will need it in your future”.

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