Sanctioning The Benefits Of Agile Finance To Bring Finance Transformation

The migration of businesses towards subscription business mode has been rising at a greater pace, which makes their valuation necessary. Growth has been a major factor in determining the value of a SaaS company. The rate of growth allows investors to gauge the potential of a company and how it stacks up against its competitors.

As per a report published in the year 2022, a company's ability to consistently grow at a high rate is an indication of its Annual Recurring Revenue (ARR). A significant proportion of the valuation of a company is related to the estimate by which a company can remarkably increase its growth rates. Companies with high growth rates are also often able to attract more investment, which can further drive up the valuation.

The eclipse of this growth would, however, be the ongoing recession period, which is seizing the greater opportunities for businesses to grow. SaaS companies are feeling the pinch, as the need for the combined revenue growth rate and profit margin to be equal to or more than 40% is felt. Companies that rely on subscription-based revenue models are particularly affected by the downturn in the economy.

With the increasing downturn rate and interest rates, SaaS (Software-as-a-Service) companies are turning to CFOs (Chief Financial Officers) to help them navigate the rapidly changing technological landscape and build long-term success. It is advisable for every business with less than a 40 % margin to consult a CFO so that they may not come across cash flow or liquidity issues. For sustainable growth and profit rates, it is becoming mandatory for businesses to develop and execute Agile Finance functions to optimize the company's capital structure and ensure that it is in compliance with all relevant regulations.

What Is Agile Finance?

The rising trend of the digital economy has upsurged the adaptability of these modern technologies by businesses. Many business leaders intend to leverage the benefits of these new technologies and advance the growth of their businesses. Also, the need for the adaptation of changing finance model has never been felt more than ever. It is crucial to get a hold of success in the digital age, where not moving at the digital pace would shift the growth gears of your business in reverse.

Agile Finance, an entirely new concept in the finance industry, is a methodology that involves technologies and skills to get Finance to a new level of digitalism. The concept signifies the need for companies to become more efficient, effective, and responsive to shifting market dynamics.

Agile Finance Model is an approach to Finance that focuses on helping companies respond quickly to the changing and evolving customer and business needs while maintaining a focus on profitability. It makes companies capable of being more agile in their approaches to financial management, such as budgeting, forecasting, and reporting.

Characteristics of Agile Methodology In Finance

It is true that the need to be agile has been felt, and the companies which still haven't would surely start thinking of making this agile finance transformation. However, it is worth mentioning that the methodology has become increasingly popular in the finance industry, especially for projects that involve frequent changes and require quick turnaround times.

Following practices need to be followed by businesses to set them on the path to being agile -

1: Adopt a Strategic Approach to Finances-

For an organization to become an agile finance organization, the adoption of a strategic approach to finances is required to help them make decisions and manage its finances more efficiently.

2: Utilize Automation-

The important basic need to being agile lies at the core of bringing digital revolutionization to the business sectors. Thus adopting automation should be a crucial practice that every company should follow.

Automation helps businesses streamline their financial processes, save time and money, and reduce errors. These automated tools help businesses identify and manage financial risks, build financial models, and track performance.

3: Leverage Data Analytics And Focus On Forward Looking Analysis-

Data analytics helps businesses gain insights into their financial operations and make smarter decisions. Companies should use data analytics to understand their financial health and make decisions about investments and other financial activities which focus on increasing revenue and improving resource allocation in the times to come.

4: Increase Revenue Visibility and Predictability-

Increasing visibility into financial operations by agile-driven organizations in the unsettled market atmosphere is necessary for sustainable growth. This can be done by using reporting tools and dashboards to help businesses to monitor their financial performance more closely, get a better understanding of their financial situation, and to take corrective action when needed.

The thorough analysis of the financial data helps businesses make predictions about their future performance and make the necessary adjustments to ensure their success. This enlightens and reduces the risk associated with making investments and other financial decisions.

5: Develop a Flexible Budget-

One critical practice which often is ignored by businesses during their agile finance transformation is to develop a flexible budget that can easily be adjusted to accommodate changes in their financial situation. Having a flexible budget allows businesses to adapt quickly to changes in the market or other external factors.

Benefits Of Agile For Finance

Driving agility within an organization might seem a big and arduous task in the beginning; however, the adoption of it can have a long-lasting impact.

As per the latest reports by Business Agility Institute, the major benefits of agility operating organizations can be categorized into three categories -

  • Organizational benefits
  • Commercial benefits
  • Workforce-related benefits

Agile finance services are an invaluable tool for businesses that help them understand the picture in a more elaborated manner. It provides a comprehensive view of the entire financial landscape, enabling businesses to make more informed decisions and take better-informed actions. These financial insights are actually needed to make the right decisions along with ensuring the efficient running of the business as much as possible.

Tools At Your Service To Handle Revenue Management

In times of economic downturn, it becomes mandatory for businesses to create a robust revenue management infrastructure, which is capable of saving CFO's time, enabling them to create strategies to increase revenue, achieving momentarily growth, and experimenting with other monetary activities.

This makes building a command center to handle recurring revenue necessary, as it would always take into account all the operational activities.

Smooth Billing

The basic principle of any business is to charge customers for the services they use and generate revenue. The efficiency and seamlessness of this procedure are crucial for subscription businesses in order to ensure customer satisfaction and loyalty.

The dependency of Subscription businesses on recurring billing shows how impactful billing and invoicing can be, and if the process is not managed properly, it leads to a variety of issues, including customer dissatisfaction and loss of business.

This is the reason why it is crucial to introduce automation to your subscription business's billing engines, which eliminates manual processing and errors, increases efficiency and accuracy, and saves time and money while increasing efficiency and accuracy.

Flawless Payment Processing

Payment processing is a critical component of any subscription business. Often after the billing of customers, prioritizing error-free payment processing is essential to ensure customer satisfaction. Customers always want a hassle-free payment method.

As inaccurate payment processing leads to a number of issues, including customer frustration, and payment declines, eventually leading to loss of revenue. This leads to a loss of loyalty and customers canceling their membership.

Ensuring error-free payment processing as you scale your business is important to ensure the solutions suit the specific need of your business along with customers receiving the services they have paid for. If payment processing fails, customers may not receive the services they were expecting.

Customer loyalty and satisfaction may suffer as a result. Incorrect payment processing can impact a business's reputation, which can be avoided by offering a different range of payment methods via credit cards, debit cards, digital wallets, bank transfers, and checks.

Keep Your Accounting Game Strong

During the agile finance transformation, it becomes highly recommendable to have a solid accounting mechanism. Implementing automation to this significant procedure relieves the burden from the finance teams at times of recession, downgrades, upgrades, and cancellation of subscriptions, which otherwise can create complexity and be a difficult task to manage.

Systematic Revenue Recovery

For any business operating in a turbulent market, recovering even a single penny is paramount to the growth and sustainability of a business. Like any other business, revenue recovery is an essential part of running a subscription business.

It is important for businesses to have efficient revenue recovery strategies in order to maximize profitability and ensure that customers continue to pay for their subscriptions. Having effective revenue recovery strategies enables businesses to identify and recover lost subscriptions, as well as to reclaim late payments in order to avoid losing out on potential income. Only having account receivable (AR) software can allow businesses to identify and address any issues causing customers to not renew their subscriptions while plugging the revenue leakage.

By tracking customer behavior and payment patterns, businesses can gain valuable insights into customer preferences and rectify the strategies to attract more subscriptions and increase their customer base.

Revenue Recognition

Subscription businesses might struggle with recognizing revenue because of the downgrades, changing service plans, customer churn, recession rate, and cancellation of subscriptions. This is proof that revenue recognition is essential for subscription businesses, as manual recognition can be a nightmare for businesses.

It is the process by which a company accounts for its revenue and the associated costs. It is critical for businesses to accurately report their financial performance, as this information is used for making decisions and providing investors with information about the financial health of the company.

This makes compliant revenue recognition important for subscription businesses as it allows them to accurately report their revenue and associated costs. The information is used to determine the pricing of their services, manage their cash flow, and make strategic business decisions.

A Compliant revenue recognition helps subscription businesses stay in compliance with the Generally Accepted Accounting Principles (GAAP) and plan for their future. It allows them to forecast their expected revenue, anticipate cash flow needs, and determine appropriate pricing strategies. Additionally, it helps them assess their financial performance and make decisions about investments and marketing strategies.

Authentic And Reliable Reporting Engine

While having tools concerned with every possible pain point a subscription business can have, the need for CFOs to have a truthful and reliable software alibi cannot be discarded, a strong reporting tool that underlies and provides a true picture of the crucial information like recurring revenue lifecycle, customer lifetime value, churn, average revenue per customer, etc., is essential for subscription businesses to achieve success.

These reports provide insights into customer behavior, product performance, and financial position, which are essential for making informed decisions and optimizing operations, allowing companies to identify areas of improvement, recognize areas of success, and take corrective action as needed.

In addition, a strong reporting engine helps subscription businesses manage their customer base, as well as alter the financial forecasts which comply with the changing scenarios. This helps subscription businesses ensure they are able to meet their financial obligations and remain in good financial health.

Let us move together!

If your business is ready to make an agile finance transformation, then prepare yourself for the story business environment, which is erratic in nature. Make your journey to agility a success and emerge stronger by shaking hands with us.