Financial ManagementBest Practices
Vince Zumbo, Chief Financial Officer
Patrick Burns, Vice President, Product Management
Vince Zumbo - Bio
Career Experience: Joined Autotask January 2011• Several venture backed technology companies• Software, SaaS, telecommunications; semiconductor and systems
integration• Sourced over $65M in venture capital and bank financing• Successful M&A and IPO experience
Chief Financial Officer
Financial Management – Best Practices
Goal:Provide ideas and processes that will enhance the way you financially manage your business
Area of Focus:Business planning & control
Understanding facts (KPI’s) and cause & effect relationships
Rolling forecasts to gain visibility and align resources
Financial Management – Best Practices
“…business is simply prioritization with limited resources”
- Mark Cattini
How Do You Manage Your Business Today?
Do you have a formal planning process?Do you know what the drivers are behind
historical trending and forward looking plans?Do you know if resources aligned with your
revenue & profitability goals?Do you know which employees are more
effective than others?Do you know which customers or sources of
revenue are more profitable than others?
How many of these can you answer “yes”?
Plan ProcessTeam
CollaborationRevenue Sources
Expense baseCash Flow
IntroduceRewards System
for Value Creation
Financial Management Components
Business Plan Elements1.0 Executive Summary
1.1 Objectives1.2 Mission1.3 Keys to Success
2.0 Company Summary2.1 Company Ownership2.2 Company History (for ongoing companies) or Start-up Plan (for new companies)2.3 Company Locations and Facilities
3.0 Products and Services3.1 Product and Service Description3.2 Competitive Comparison3.3 Sales Literature3.4 Sourcing and Fulfillment3.5 Technology3.6 Future Products and Services
4.0 Market Analysis Summary4.1 Market Segmentation4.2 Target Market Segment Strategy4.2.1 Market Needs4.2.2 Market Trends4.2.3 Market Growth4.3 Industry Analysis4.3.1 Industry Participants4.3.2 Distribution Patterns4.3.3 Competition and Buying Patterns4.3.4 Main Competitors
Business Plan Elements
5.0 Strategy and Implementation Summary5.1 Strategy Pyramids5.2 Value Proposition5.3 Competitive Edge5.4 Marketing Strategy5.4.1 Positioning Statements5.4.2 Pricing Strategy5.4.3 Promotion Strategy5.4.4 Distribution Patterns5.4.5 Marketing Programs5.5 Sales Strategy5.5.1 Sales Forecast5.5.2 Sales Programs5.6 Strategic Alliances5.7 Milestones
6.0 Web Plan Summary6.1 Website Marketing Strategy6.2 Development Requirements
7.0 Management Summary7.1 Organizational Structure7.2 Management Team7.3 Management Team Gaps7.4 Personnel Plan
8.0 Financial Plan8.1 Important Assumptions8.2 Key Financial Indicators8.3 Break-Even Analysis8.4 Projected Profit and Loss8.5 Projected Cash Flow8.6 Projected Balance Sheet8.7 Business Ratios8.8 Long-term Plan
Business Plan Elements
8.0 Financial Plan8.1 Important Assumptions8.2 Key Financial Indicators8.3 Break-Even Analysis8.4 Projected Profit and Loss8.5 Projected Cash Flow8.6 Projected Balance Sheet8.7 Business Ratios8.8 Long-term Plan
Our area of Focus today…
Business Planning
Important AssumptionsTiming – when do you do your
planning process Calendar year or fiscal year
Prioritization of initiativesRun rate business vs. new businessCompetition and cyclical variations
in your business modelUtilization % of your services
personnelFixed and variable cost structure
Calendar or Fiscal Year?
Have the Plan Completed by January 1
Assuming a Calendar Year
Business Planning
Important AssumptionsTiming – when do you do your
planning process Calendar year or fiscal year
Prioritization of initiativesRun rate business vs. new businessCompetition and cyclical variations
in your business modelUtilization % of your services
personnelFixed and variable cost structure
New Service Offerings?New Sources of Revenue?
New Markets?Number of new customers
signed up?New or increase size of the
bank line?List them out and Prioritize!
Business Planning
Important AssumptionsTiming – when do you do your
planning process Calendar year or fiscal year
Prioritization of initiativesRun rate business vs. new businessCompetition and cyclical variations
in your business modelUtilization % of your services
personnelFixed and variable cost structure
What is your customer mix in your plan? What
% are new customers vs. existing?
What are you going to change in your business
to change your mix?
Business Planning
Important AssumptionsTiming – when do you do your
planning process Calendar year or fiscal year
Prioritization of initiativesRun rate business vs. new businessCompetition and cyclical variations
in your business modelUtilization % of your services
personnelFixed and variable cost structure
How does competition impact your plan?
-Pricing?-Geographies?
Services?
Business Planning
Important AssumptionsTiming – when do you do your
planning process Calendar year or fiscal year
Prioritization of initiativesRun rate business vs. new businessCompetition and cyclical variations
in your business modelUtilization % of your services
personnelFixed and variable cost structure
What is your employee utilization rate ?
What should it be?What are your Benchmarks?
Business Planning
Important AssumptionsTiming – when do you do your
planning process Calendar year or fiscal year
Prioritization of initiativesRun rate business vs. new businessCompetition and cyclical variations
in your business modelUtilization % of your services
personnelFixed and variable cost structure
Fixed Costs (e.g.):-Rents-Utilities-Insurances
Variable Costs (e.g.):-People costs-Travel-Marketing costsOtherwise known as controllable costs…
Revenue Model Components
a) Run rate business vs. new businessb) Recurring vs. One Time Feesc) Cyclical variations in your monthly
modeld) Attrition or Churn e) Pricing and Discount Strategy
a) Base run rate of existing + new labor + any increase pool
b) Fringe benefit rates c) Employee turnoverd) Utilization %e) Sales costs & commissionsf) Marketing promotionsg) Travelh) Facility costsi) Utilities and insurancej) Legal fees
Cost Model Components
Summary Financial P&L ModelRevenue
Billable hours Managed Services
Maintenance
Cost of Sales
Direct labor 3rd Party
Maintenance Agreements
Software licenses
Operating Expenses
Marketing Sales G&A
EBITDA
Sources of revenue
Fixed & variable costs with direct relation to
revenue generation
Expense base of fixed andvariable expenses and indirect labor
Gross Margin
Indirect Labor
Fine Tuning Will Be Required
• Are we capital efficient?
• Have we prioritized?
• Are we profitable?
• Have we prioritized?
• Sources of Revenue
• Predictability• Competition
• Are we burning cash or generating cash? Cash
Required or
Generated
Revenue
CostProfitability
Mitigate the Risks
Assess the Risks
Summary Financial Cash Model
Cash Balances
CapitalEquipment
Accounts Receivable
DSO = Business Health
Cash Flow from Operations
Plan ProcessTeam
CollaborationRevenue Sources
Expense baseCash Flow
IntroduceRewards system
for value creation
Real time KPI Review
Cause & Effect What's working and what's not?
Financial Management Components
Top Ten Key Performance IndicatorsAll Compared to Plan AND to Prior Year Results1. New Business Bookings MRR
2. Net Business Bookings (after attrition)
3. Recurring Revenue (Invoiced customers)
4. Gross Profit Margin
5. Operating Expenses
6. EBITDA
7. Headcount
8. Utilization Rate
9. Cash Balances & Debt Ratios
10. Accounts Receivable DSO (AR/Revenue X # of days)
Other KPI’s You Need to Consider…
Revenue and Cost per Employee
Cost of Customer Acquisition
Months to Break Even on Sales and Marketing Costs
Average Revenue/Billings per Customer
Attrition value and % of Recurring Revenue
Current Ratio
(Current assets/current liabilities)
Customer Survey Results
Average Selling Price
ROI on Sales and Service Personnel
Break Even Point in Revenue
Plan ProcessTeam
CollaborationRevenue Sources
Expense baseCash Flow
IntroduceRewards system
for value creation
Real time KPI Review
Cause & Effect What's working and what's not?
“What if” AnalysisOther markets
New Sources of Revenue
Other Funding Sources
Rolling ForecastingSpending Resource
AlignmentReassess Cash
Financial Management Components
The “Plan”is Fixed
“Planning” is an on-going
process
Rolling Forecasts & Continuous “Planning” Are Essential to Sound Financial Management
• Are we capital efficient?
• Have we prioritized?
• Are we profitable?
• Have we prioritized?
• Sources of Revenue
• Predictability• Competition
• Are we burning cash or generating cash? Cash
Required or
Generated
Revenue
CostProfitability
Mitigate the Risks
Assess the Risks
Summary Dos & Don’ts
Do a Financial Plan & create a culture of financial management
Do know your KPI facts vs. plan and prior year
Do continuous planning through rolling forecasts
Don’t put the plan in a draw to be forgotten after completed
Don’t fail to act on what your KPI’s are telling you
Don’t manage your business without a sound financial roadmap
PERFORMANCE DASHBOARDS
Patrick Burns Vice President,
Product Management
Performance Dashboards
Access to KPI’s and trending data
Pre-configured but customizable
Flexible analysis features
Extensible to multiple data sources