Leveraging FP&A to Navigate Investor Slowdown

Most every company with revenue has something they would call FP&A, but taking it beyond the spreadsheet? will be the difference between surviving and thriving in a challenging economy.

By now you have probably read the Sequoia memo, the WSJ articles and countless others. “Hunker down”, “get to cash flow positive, however you can”. Businesses that for years have been working to build that rockstar product, being told to take a sharp left, stop innovating, you already know it sells, put a tourniquet on and stop the bleeding because there is no more investment coming.

Companies with mature FP&A processes can methodically pick apart a business and skim off bits of fat, avoiding the muscle tissue. That said, most of the companies getting these talks are venture and private equity backed, and without the army of FP&A resources and fancy FP&A systems, they’re left with a spreadsheet and an overworked analyst pressured? to make business altering decisions.

Now is the time to course correct. Here’s how:

Use Your CRM System RELIGIOUSLY:?

First things first, if you aren’t getting cash from investors, your only source is customers. You need to make sure your sales team is consistently updating their pipeline, and It’s? regularly inspected by leadership, as much as once or twice a week. You’re going to want to build out a standard set of reports for these reviews, something that can show the pipeline in summary anddetail, with comparisons against budget, detail on how deals have moved, etc. Build the cadence, hold your sales reps feet to the fire like your business depends on it because it does! Focus on realistic deal stages, constantly run scenarios to see what happens if nothing new closes, only high probability deals, etc.?

Now unless you paid an arm and a leg for a complex implementation of SFDC, your CRM system is likely to only provide you bookings data. That’s a good start, but ultimately we care about cash in the door, and in many cases you’re? going to need to understand revenue to get to cash flow.?

Feed Your Revenue Data Into an Integrated Financial Model

Now that you know your topline, it’s time to think about expenses. From a forecasting perspective revenue should be seen in two main buckets: revenue driven and non-revenue driven. This isn’t a statement on GAAP classifications (if so, it would be incorrect), it’s a way to orient yourself when trying to do planning for the purposes of projecting your bottom line and cash balances.

For revenue driven costs (everything from labor to service T&M work to AWS costs to host your growing customer environment to raw materials for manufacturers) you need formulas that take your revenue data, combine it with other key inputs (i.e. existing capacity, target utilization rates, etc.) to build out an estimate of go-forward revenue related costs. One of the biggest challenges with this process is thinking through what’s truly tied to revenue. Things that are seemingly a given, such as? existing spend for production environments, are easy to overlook, even if they might be underutilized. To avoid cutting into the bone a break from that mentality’s needed, putting all your cards on the table.

Then there’s your non-revenue driven spend. Items like non-delivery employees, marketing events, T&E, etc. Many of these should be formulaic, Such as cutting down the size of your team will impact your cellphone bill. Other costs, such as? office rent, might not have as direct a correlation you need to be careful to not make formulas where, in practice, they don’t make sense. For example, just because you terminate 10% of your workforce in your NYC office doesn’t mean the landlord will give you 10% off your office rent. Managing that balance is critical to building a tool that provides meaningful financial projections. Forthe non-formulaic items you should? confirm that you have up-to-date? information, such as from connections to authoritative information systems in your company like an ERP, to be able to use your model to make real-time decisions. It’s going to be difficult to decide who to cut if your employee roster is six months old.

Balance Sheet & Cash Flow

As with costs, the balance sheet is a combination of bottoms-up builds and formulas. For accruals hitting the P&L confirm? they’re flowing through the balance sheet for payoff in the appropriate month. Accounts receivable and payable can either be bottoms-up or formulaic depending on the diversity of payment terms with your customers and vendors. There are some accounting nuances for aspects like depreciation waterfalls and retained earnings which? may seem academic but are important to think through and get right. The balance sheet should be your checklist, making sure you’ve thought through everything and your model is flowing correctly.

Once you have the balance sheet sorted hooking up a cash flow should be a piece of cake!

Bringing it Together with Scenarios

Now that you have your various revenue scenarios, cost equations, and fixed costs sorted out, it’s time to bring them all together. Remember those different pipeline stages? Run your model through each of the scenarios, making decisions on what to do if those play out. Not selling any more deals? Your commission expense and revenue driven costs will be lower, perhaps? enough to squeak by. If not, what are some areas to cut? Maybe there’sdelivery capacity that can be reduced or you can dial back non-essential travel. What if you sell everything in your pipeline, can you press the bet, spend a bit more on SEO and CPM to get ahead of the competition? By thinking through the what-ifs now you’ll? be ready to act when the time comes.

Converting This Advice to Reality

At this point you may be asking how am I supposed to do all this? Linking systems, updating assumptions, generating reports, … this is impossible! The good news is it doesn’t have to be. At Stella, we have developed a tool that seamlessly integrates into your systems to convert your bookings to revenue, build pipeline cadence reports to manage your sales calls, produce forecasted P&L, balance sheet and cash flow that updates real time. Better yet, we have a team of experts to help think through those complex formulas and data connections, making setup a breeze empowering you to make decisions critical to your business’ success or survival in this economy.

Want to learn more? Check us out at stellasolutions.net. Let’s move your business from surviving to thriving!