Make sure you understand what lies underneath the data you use to make big decisions.
You’ve heard it many times and in many different contexts: garbage in, garbage out. This universal truth can have serious consequences for CEOs of young companies when it comes to financial reporting. The devil is in the database that provides the data that affects the numbers you rely on to take all kinds of decisions – from sales forecasting to modeling to pricing.
Sound financial planning requires data science to ensure data definition, design and governance support data analysis and ultimately, reporting. A CFO must understand more than their ERP (Enterprise Resource Planning) system such as Quickbooks or NetSuite. They must understand numerous data sources, how they relate to each other and how to reconcile them, because at the end of the day, a spreadsheet as a reporting tool will only be effective with proper data definitions and a solid database design.
Good CFOs start with design
To do proper reporting for bookings, revenue and SaaS metrics, it is critical to first design the data sources. I can’t understate the fact that database design is a critical step of any serious financial planning and analysis (FP&A) that can provide executives the knowledge then need to make decisions about their startup. If the data is poorly structured, incomplete, or inaccurate, the tools for analysis (i.e. a spreadsheet, Looker, SaaSOptics, etc.) will be at best limited in their usefulness; at worst, it will provide wrong information that can lead to poor decisions.
The Devil is in the Data
For example, let’s focus on SaaS bookings – whose reporting often seems to be controversial within the organization. To design an accurate spreadsheet to reflect sales, your CFO needs to determine, first, what is the definition and data source for a booking. For many startups, the data source is the Salesforce.com opportunity (either maintained there or replicated in an ERP system such as Zuora or SaaSOptics or held in a reporting database such as Redshift). The key here needs to be a total agreement on the database object or table that defines the booking. If you select the Salesforce opportunity, and export to Excel, then you can setup the opportunity to include the data element (field on record) for type with the possible values of (new, expansion, renewal or churn) and then use that data element or column in Excel to filter or build a report or a pivot table.
Another approach for designing the bookings database for SaaS could be to use a more granular level of detail, such as a contract or a subscription. Then, if the team needs to query the contract, they need to determine what is the definition and data source for a contract. In most Salesforce configurations, there is not a contract object – this is where sound design comes handy. Your CFO can create a contract object in a subscription management solution such as Zuora, SaaSOptics, and even on an Excel spreadsheet.
If you are creating reports based on the contracts or subscription, then you will need to ensure that your data table includes the following: a) common reference such as a customer ID, b) unique contracts or subscriptions id, c) subscription data such as start date, end date, item, amount, etc. With this data table, you can apply logic to determine if new, expansion or renewal. For example, if there is a subscription with a customer ID and new prior subscription (use start and end dates) with the same customer ID, then the subscription is new. If the start date is coterminous with the end data of a subscription with the same customer ID, then it is a renewal.
If there is a period with no revenue but revenue in the same period, then the amount of the previous period is churn. It should be obvious that a proper data structure will make the logic easier and you didn’t ask about re-activations (contract ends, there is a lag period, contract begins at a later period….is this churn, new, renewal or none of the above such as re-activation).
CFOs should offer Strategic and Tactical Skills
In a technology startup, CFOs are needed for many strategic efforts such as long-term planning, raising capital, assessing buy- and sell- side acquisitions, and hiring top talent. However, at times, many startup CFO’s must also lead data design and analysis. Often times, it is data and financial insight that helps to ensure success in the strategic efforts.
Photo courtesy of Christopher Michel.