delivering value with financial performance: leading fp&a practices of high-growth companies

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

© 2014 Proformative

Agenda

2

• 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


NetSuite: World’s #1 Cloud ERP

3

Top 10 Cloud Companies

to Watch

#1 Cloud ERP Suite Industry Recognition

Fastest Growing

Top 10 FMS Vendor

3rd Year RunningBest Financial Management

Best Cloud Infrastructure

World’s most deployed cloud ERP

Used by 20,000+ organizations

Fastest growing top 10 ERP

Used across 100+ countries

Founded 1998

Publicly traded on NYSE: “N”

Offices in 10 countries

2,400+ employees

$414.5M revenue FY13 (34% Growth)

Background Performance


FP&A – Challenges Today*

4

• Confronting Global Change - not fully equipped to analyze and deal with new business risks leading to forecasting and transaction processing errors.

• 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.

• Internationalization - diverse business structures, assorted systems and processes

*Rethinking the FP&A Operating Model – FTI Consulting


Planning - Business Strategy and Value Creation*

5

Basic Practice Progressive Practice Benchmark Practice

Process Characteristics

• Annual plan with no long-term forecast

• Strategic initiatives not quantified

• Strategic planning is short-term and reactive to immediate problems

• 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

Business Integration

• Planning is a nuisance: Business ignores targets, participation is a necessary evil to avoid corporate retribution

• 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

Value Finance Brings

• Finance acts as the steward for the process to assure some minimal level of accuracy amid business pushback

• 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 *Rethinking planning, budgeting and forecasting - A Deloitte perspective


Planning, Budgeting and Forecasting - Principles

7

• 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?

• Revenue, Expenses, Deferred Revenue, Operating Cash Flow

• Rolling eight quarter view updated monthly

• P&L forecasts saved as different versions in Financial Planning module

• Forecasts that are unique to SaaS companies

• Deferred Revenue

• Customer-level revenue forecast by month

• Churn

• Headcount – expense lever


Planning & Forecasting – Designing an Effective Process

8

Integrated Planning Capabilities

Forecast Inputs and Outputs


Budgeting and Forecasting Calendar

9

• 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.


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


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


Benchmarking

• We compare our financial performance with other public SaaS companies

• Informs our short-term and long-term target operating models

32.6%

0%

10%

20%

30%

40%

50%

60%

70%Revenue YoY Growth

Peer group average = 28.3%

44.6%

0%

10%

20%

30%

40%

50%

60%

70%S&M as % of Revenue (TTM)

Peer group average = 36.6%

12


Analysis and Reporting

13

• 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


How FP&A Benefits from the Cloud

14

• 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


Key Takeaways

15

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


Agenda

16

• About Infusionsoft

• FP&A Challenges

• Budget Cycle

• Key Objectives

• Forecast Inputs

• Calendar

• FP&A Lessons Learned


• 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

Infusionsoft at a Glance

17


• Culture Change:

• 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

FP&A Challenges for Infusionsoft

Old NEW

- Annual focus + Rolling refresh

- Few involved + Cross-functional owners

- Finance mandate + Finance partnerships

1818


“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.

Budget Cycle Key Objectives

1919


Budget Cycle- Not all forecast inputs are alike

Economic Relevance

Variability Speed of Impact

Update Frequency

Revenues High High High Weekly

Headcount High Low Medium Monthly

Events High Low Medium Quarterly

Advertising/Marketing

High Medium High Quarterly

Commissions High Medium High Quarterly

Capital High Medium Medium Quarterly

All other Expenses

Low Medium Medium Annually

2020


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

2121


• 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.

FP&A Lessons Learned

2222

Delivering Value and Financial Performance -Leading FP&A practices of High Growth Companies

Thank You For Attending

delivering value with financial performance: leading fp&a practices of high-growth companies

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targets strategic planning

accurate process planning

strategic initiatives

managed strategic initiatives

cloud companies

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