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How the SaaS finance leader’s role must change in 2023 planning

Anrok | Streamlined sales tax for SaaS

Michelle Valentine

Michelle is the CEO and co-founder of Anrok. She was previously a product manager at Airtable and venture capitalist investing in early stage enterprise software at Index Ventures. Michelle started her career at Goldman Sachs’ Investment Banking Division.

It’s that time of year again: the annual planning cycle is upon us. And as the economy and fundraising environment cools, it’s more important than ever to have a detailed plan to execute with intentionality.

This planning cycle is different. There’s the old way and the new way to plan.

The old way of planning was a relic of abundance. Capital was cheap and the next fundraise was around the corner. Teams were free to hire as they wished and dictate their spend. Finance was the glue, picking up the pieces and magically foisting the plan together. The new way is where finance takes the driver’s seat in planning.

Finance takes the wheel

Unlike previous years, functional teams within startups are faced with real constraints, and it’s up to finance to set those constraints. Finance provides the scaffolding for the teams to each build their plans.  

While complexity of planning differs depending on your company stage, a good general formula to follow is:

  1. First, craft the narrative—for the next quarter, year, and two years—with the CEO.
  2. Next, outline and group your company’s operating functions to determine which teams need to be planning in conjunction with one another.
  3. Finally, get the teams to define goals that roll up to the unified plan.

If you’re a finance lead at a SaaS company, try this approach to get the inputs you need and build the financial model and scenarios right the first time. Then, think about how to minimize the risk in your model (more on that below).

Start with the narrative

Regardless of what size of company you are, you need to have an overarching narrative for where you’re headed. This should be the starting point of any planning cycle. It might make a quantitative finance leader uncomfortable at first, but it is important to point the teams in a shared direction before jumping into the numbers.

A narrative should include clear vision for the future and concrete milestones to get there. 

The vision statement should summarize the highest-level outcome the company wants to create in 1–2 sentences. 

Milestones should be broken up into time-based chapters, ideally covering where you’ve been, the next quarter, the next year (i.e. 2023), and the next two years. For each of these chapters, have the CEO describe what will be built, how you’ll go to market, why you will win, and potential risks. With a strong vision and well-defined milestones, teams can work backward to develop focused plans for the upcoming year.

At Anrok, our company narrative going into 2023 is organized like this: 

An outline of a company narrative

Define the operating groups

The main operating groups at a SaaS startup are typically finance, sales, product, engineering, design, and marketing. Each of these groups is interdependent with the others, and some need to define their goals and operating cadences in conjunction with one another. 

For example, sales targets cannot be set without hiring plans, but hiring plans cannot exist without sales targets and revenue estimates to balance against. This is why certain groups (like sales and finance, in this case) need to have a synced operating rhythm, where goals are set and revised based on performance. 

The marketing plan also affects sales, but marketing also needs to be in lock-step with the product team in order to effectively drive acquisition and adoption. In this sense, product initiatives and engineering targets will define your marketing plan as much as sales targets will. 

Each of these groups will of course need to set its own functional team goals, but finance must be the connector to make sure they all fit together. 

Set accountable goals

When it comes to setting goals for each function, standardizing the way in which the team sets goals will help build the financial model. As a finance leader, you should help other functional leads set clear goals that keep them accountable to company metrics. 

A clear goal has the following ingredients:

  • A target that you want to reach
  • A baseline that identifies where you are today
  • A trend that describes anticipated velocity
  • A time frame that keeps the team accountable

Finance should push sales, marketing, and product development to have goals that fit this framework and that can be measured regularly over the course of the year. 

Checking in frequently to see if you are pacing to hit your target is important so that you can adjust any dependencies in the plan as needed. At Anrok, we check in on sales and marketing targets weekly, and adjust the financial model every quarter, or as-needed if we see unexpected performance. 

De-risk your plan

Of course, even the best-laid plans are full of risks, especially in times like these. Interest rates - which is arguably the most influential factor in average software valuation multiples - continue to increase as the Fed tries to manage the highest inflationary environment of the last 40 years. The most savvy finance leaders are extending runway via prudent planning to avoid raising at the trough of the market.

For 2023 planning, it’s more important than ever to identify the risks in your plan and address those that you can easily mitigate. Depending on your company stage, you can do some quick and dirty “t-shirt sizing” (small, medium, large) of the risk and the corresponding cost to mitigate it, or you can start to actually quantify risks in terms of dollars. 

Risks to your plan could include people risks, financial risks, and reputational risks. As a finance leader you should understand all the monetary liabilities that may exist, including things like—our favorite topic here at Anrok—your sales tax exposure

When your company narrative, operational targets, and business risks are mapped out with a financial framework in mind, your 2023 plan will be more accurate. Your board will thank you. 

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