In the article, “Five venture capital trends for start-ups to follow in 2022” the #3 trend certainly resonates with Compass East as we provide scalable finance and accounting services for VC/PE backed B2B SaaS and Healthcare companies!
The term “Fractional CFO” certainly sticks out. In our experience, there is a lot of confusion in the market on what a Fractional CFO does and the actual finance and accounting issues they solve. In a high-growth situation, they can be valuable by parachuting in, helping founders develop a financial growth story with financial projections, cash forecasts, and use of funds models to pitch for investment. Very rarely, however, are they going to fix the underlying finance and accounting infrastructure issues that create inaccurate data and the long-term issues that will persist once their contract is up.
At Compass East, we take a bottom-up approach to solve the same issues of “accuracy, visibility, and efficiency” highlighted in the article, but we focus on treating the disease, not the symptom!
Typically in a high-growth setting, there are major underlying issues, things like:
– Chart of Accounts not grouped appropriately to develop SaaS KPIs
– Revenue recognition and deferred revenue issues
– Manual invoicing or bill pay processes that don’t scale
– Unreconciled transactions
– No clear month-end close process or Controller review
Bad data in = bad data out. We solve the data problem first. It is the only way to get to the point where we trust the accuracy of the financials and have a repeatable/sustainable process to deliver that data. ONLY THEN, can we be effective in providing the “Fractional CFO” role, by systematizing and providing monthly KPI dashboards, cash forecasts, budget variance, board reports to investors, and true strategic advisory to guide major growth decisions. In our experience when models and forecasts are built-in Excel, while very useful in the short-term, they are very rarely updated, break easily, are hard to interpret for non-finance professionals, and aren’t updated with actual financial data. By implementing the software, systems, and reporting tools up front, Compass East creates a scalable technology ecosystem to deliver and update models and forecasts on a monthly recurring basis.
Focus on treating the disease to alleviate the symptoms!
If you want to learn more, we are writing extensively on this via our F&A Playbook. Chapter 3 addresses how we think about FinOps and how companies should be thinking about addressing this problem!
