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. The Paddle team 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.”
Managing global sales tax and compliance in SaaS
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?"
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.
“There’s a lot to consider. Even down to the types of emails 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.”
At Paddle, we help over 3,000 software companies navigate the technical and financial intricacies of selling globally. If you’re worried about the scalability of your current payments infrastructure and financial operations, reach out and speak to one of our experts. Visit paddle.com for more information.