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Building your ideal finance tech stack - the do's and don'ts for SaaS firms

David Appel Profile picture for user David.Appel August 9, 2021
Building a finance tech stack for a growing SaaS business is a marathon not a sprint. David Appel of Sage Intacct shares his expertise with five lessons for success.

Hand touching screen with icons thrown out from screen, SaaS finance tech stack internet of things concept © JoeZ - Shutterstock
(© JoeZ - Shutterstock)

Within a fast-growing SaaS business, the finance team can face unusual challenges. They are under pressure to quickly close the books, support the different billing scenarios of a subscription-based business, track deferred revenue, and generate SaaS-specific metrics like customer acquisition cost, annual recurring revenue, and customer lifetime value. That means the “finance tech stack” – the integrated collection of software applications – can play a pivotal role in your success.

Unfortunately, creating the ideal finance tech stack isn’t as simple as flipping a switch. Hidden barriers and missteps can lead to messy integrations that delay closing the books and complicate reporting packages. Here are some of key lessons for your consideration as you undertake your implementation.

Key focus areas by business stage

Before we dive into the lessons, it’s important to consider where your company is on its journey. That’s because, depending on your business/funding stage, your tech stack focus and needs will vary. A seed company with $3 million raised has significantly different needs than a pre-IPO firm that’s raised $75 million or more.

  • Seed – you’re focused on product market fit, so accounting is often simply payroll and accounts payable.
  • Series A – as you prove the revenue model, the emphasis is on the order-to-cash billing and cash-collection processes, with basic revenue recognition, expense management, SaaS dashboards, and reporting.
  • Series B – now’s the time to demonstrate a recurring revenue model with the ability to upsell and renew customers and maintain growth rates. Finance must support more complex processes for subscription management, revenue recognition, metrics reporting, and commissions/expense management.
  • Series C–F – after proving the model, the challenge is to professionalize finance and build on what works. Think budget vs. actuals, forecasting/variance, and reconciliations.
  • Sale or IPO – the company takes a capital-efficient model and expands to adjacent markets and/or geographies. The emphasis is on stronger, standardized controls, regulatory compliance, reporting, and international consolidations.

Lesson 1 – start simple, scale big

The mantra is: “Start Simple, Scale Big” as you grow and face additional complexities. Start with core financials, subscription billing, revenue recognition, dimensional reporting, SaaS metrics, project tracking, and electronic payments. Be prepared for the time investment – months or even a year – that you’ll need to build out those and other capabilities with people, process, and technology.

A unified cloud financial management platform can accelerate this deployment. Look for a foundation that enables you to start quickly and scale big, and layer on additional process automation as you increase the number of sales, invoices, revenue schedules, payables, and consolidations.

As you grow, you're better positioned to sensibly build atop your tech stack, incorporating new processes like budgeting and planning, fixed assets, global consolidations, and audit and compliance. Give careful consideration to this ecosystem and how they all tie together.  The more separated these solutions are, the more the responsibility for integration falls on your shoulders, which can delay your close process.

Lesson 2 – the five steps of growing the finance tech stack

Generally speaking, leading SaaS companies follow five key steps as they evolve the business:

  • Integrate quote-to-cash – companies that integrate their CRM system with their cloud financials can see QTC processing time decline by as much as 99%.
  • Establish contract-based billing – companies can grow revenue through new pricing models and commonly see cash flow increase by 20%.
  • Automate end-to-end revenue management – automating revenue management along with other accounting tasks commonly allows customers to calculate ASC 606 deferred revenue across the customer lifetime at the push of a button.
  • Create real-time SaaS and GAAP dashboards  with timely, accurate board-level metrics, you can make better decisions about product investments, hiring, acquisitions, churn strategies, and more.
  • Forecast revenues, cash, and expenses – the ability to forecast key metrics helps you anticipate where the business is going and pursue strategies to hire, acquire, and scale.

Lesson 3 ‐ learn from what your SaaS peers use

In its latest research (based on 279 respondents across 25 countries), the SaaS CFO found that QuickBooks is the most widely used core accounting system – with 36% of respondents (down from 44% in 2019) using it. The top four core accounting systems — QuickBooks, Sage Intacct, Xero, and Oracle NetSuite — have 84% of market share. Unsurprisingly, use of QuickBooks and Xero drops off dramatically as companies get above $10 million in revenue and growth outstrips previous accounting capabilities.

Lesson 4 – integrate what matters

Invoicing, revenue recognition, and a CRM that integrates with your core accounting platform are especially critical.

  • Invoicing – more than two-thirds (68%) of respondents to the SaaS CFO’s survey report using the built-in invoicing of the top four core accounting systems, but others opt for a third-party solution such as Chargebee for product-led growth. Whatever approach you choose, remember that growth brings new complexities to subscription billing around revenue recognition and pricing models. Invoicing becomes more complex with more steps, and you’ll need processes and sophisticated automation to handle it.
  • Revenue recognition – spreadsheets continue to dominate in revenue recognition – they’re used at 39% of SaaS companies (down from 46% in 2019). Other firms use the built-in rev rec capabilities of the core accounting platform or opt for a third-party solution. Spreadsheets, of course, signal a great potential for improving the efficiency, reporting, and accuracy of your rev-rec processes.
  • CRM integration – more than half (52%) of the survey respondents use Salesforce for their CRM, and another 24% use HubSpot. The key is not just to use a CRM, but to integrate it with your core accounting system to streamline and accelerate the order-to-cash cycle and improve reporting and SaaS metrics. Effective integration makes finance and accounting so much more efficient. 

Lesson 5 – avoid the pitfalls

  • Define success – the frenetic pace at fast-growing SaaS companies can make it difficult for finance leaders to define what financial management success looks like. Don't make that mistake. Take the time to fully map out where you are, what you need, and your target outcomes. For instance, an acute pain point in manual invoicing processes might not require “an invoicing solution.” Be sure to perform a thorough analysis of your process details and what you want to solve, so that any software selection will align with those needs.
  • Get user buy-in – another mistake is failing to get buy-in from users on changes in the finance technology environment. Engage users at the start to gain their front-line insights on what’s not working. This can also smooth the adoption cycle once your implementation gets underway. Strong leadership is essential to drive change in technology and processes.
  • Remember data migration – be sure to develop a sound plan to migrate legacy data to any new system. Think through the decisions you want to make from that data in a new environment. This decision-making is often overlooked, yet it should be a well-defined target to make the most of a new platform.

The outcomes for SaaS companies

With the ideal tech stack in place, finance leaders at fast-growth SaaS companies can achieve results that help them outperform their peers in key ways:

  • Reduce quote-to-cash cycles by up to 99%.
  • Shorten the close by up to 80%.
  • Increase operational cash flow by up to 20%.
  • Reduce forecast variance by up to 90%.
  • Close ASC 606 revenue recognition at the push of a button.
  • Raise funding in up to 60% less time because of clean financials in the data room.

Ultimately, SaaS firms find that a thoughtful tech stack lays the foundation for future growth and becomes a critical requirement on the path to an IPO. By accelerating processes and elevating the speed and quality of reporting, firms can meet the stringent requirements and expectations of auditors, regulators, and investors.

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