I have created budgets for a lot of SaaS and non-SaaS startups and am sharing the budget template. If the company is mature enough you will need to use a system like Adaptive or Hyperion. However, the below google template can be used as a good starting point to create your budget for most of the startups. Please feel free to copy, modify and use.
Link to the Master SaaS budgeting spreadsheet
I created a SaaS pricing deck for one of my entrepreneur friends a while back. Updated it with changes and putting it here.
Anything that can be measured is a metric. KPI’s or Key performance indicators, are a subset of metrics and are, as the name suggests, key indicators of performance.KPI's should be religiously and objectively tracked. One should put a quarterly, yearly and multi-year target on the KPIs.
Each department or sub-departments can have their own KPI’s. However, at the executive level there should be a maximum of 5 KPI’s. Departmental KPI’s should be understood in the context of the executive KPIs. Executive KPI’s should be tightly aligned with company’s goals and strategy.
KPI’s should be easily understood across the company so everyone is aware of the progress and the effort needed to get to the promised land and beyond. KPIs should be used in the forecast process so we can keep a close tab. KPI’s can also be used a compensation tool so the incentives are properly aligned.
What is a cap table ?
Simply put, a cap table is a point in time ownership report. A cap table captures all transactions / option and warrant grants since the beginning of the company.
A company’s capital structure (excluding debt) usually consists of preferred shares, common shares, warrants and options.
Preferred shares are reserved for investors. Depending on the number of rounds Preferred shares are divided into different classes Preferred A, Preferred B, Preferred C and so on.
Warrants are usually given to investors (mostly debt) to be converted into one of the Preferred share classes.
Common Shares are also divided into classes let's just call it Common A and Common B, one of which is reserved for founders. The other class of Common Shares are for option conversion.
Options are common stock options granted to employees (ISO’s) and consultants(NSO’s). If the value of options granted to an employee is greater than a $100K, then those options will be classified as NSO’s.
The company’s outside counsel is usually responsible for managing the cap table. Software such as Solium or eShares is used.
What is the use of cap table ?
The most common use is it gives you the ownership details.
However, there are plenty of other uses
Most investors ask for Cap table along with an investor deck. This gives investors an idea of the capital structure and how they can fit in. On the other hand, it gives the founders an idea of how the capital structure will look if they raise a certain amount.
Most companies register themselves in Delaware to save on corporate taxes. Companies, however, have to pay franchise taxes in Delaware. These taxes are calculated based on authorized shares. See here
Companies issue stock options to its employees at board meeting every quarter. The stock options are valued by a valuation firm in a 409(a) report.(see my previous post on Option valuation). Companies are required to do a 409(a) valuation every year.
Stock options are compensation similar to salary. Per US GAAP (ASC 718, previously FAS 123R), the company is required to record stock compensation in the financials. This requires an up to-date cap table. Softwares such as Solium or eShares can calculate it for you.
Warrants are also compensation or contra-debt and need to be valued every year.
IRS filings (Form 3921)
Companies are required to report all stock option exercises with the IRS(Form 3921). See here . Softwares such as Solium or eShares can file it for you electronically. All you need to get TCC from IRS.
Before I start on the role of FP&A, let me add a little bit of history to the Finance organization. Traditionally, Controllers have risen to the CFO roles and the focus has primarily been on closing the books. Accounting typically looks at past events and is concerned with GAAP and tax compliance, FP&A on the other hand is concerned with future events with a good grasp of past events. Most business leaders see FP&A professional as someone, who comes out of the woodwork once a month and hammers them with a performance report. FP&A has been relegated to the role of creating budgets and providing reports but that is changing fast.
FP&A personnel also need to work in changing the mindset of CEO’s and management. However, it still remains the prerogative of the CEO and CFO to decide FP&A’s role.
FP&A cannot be thought of just financial instead it should is both financial and strategic.
These are the overarching goals of an FP&A organization
These are some of the ongoing responsibilities of an FP&A organization.
Creating Strategic Plans Let's start here. FP&A is responsible for creating budgets, long-range strategic plans and reporting. However, for most organizations the buck stops here and the rest is ignored.
Business Partnership FP&A through its in-depth knowledge can work with business leaders and enable them to reach their short-term strategic and operational goals.
Business Analysis FP&A should work seamlessly with the business, charting the risks and opportunities to shape the firm’s strategy
A fully integrated FP&A is one in which every functional leader works with the FP&A organization in understanding repercussions of every major step.
Please look at my previous post How to prepare the Budget / Operating Plan ? for creating Bottoms-up plan.
So what is top-down planning and why is it important ?
Top-down planning is for creating the 3-5 year plan. It does not involve every functional leader but only a few select in the management. It is important so we can fund long-term expenditures and raise capital accordingly. What are the steps ?
One of my previous managers said “Operating plans become outdated as soon as we finalize it”. She was kidding but there is some truth to it. One cannot think of annual plans as static but as ‘ever-growing’ to address the changing market conditions, strategies and risks. The operating plan should be refreshed quarterly.
The steps need not be as comprehensive as preparing the annual plan but it nevertheless needs to reflect the changed circumstances.
During your monthly/quarterly “budget versus actuals” meeting with the department heads, discuss how their department’s objectives and hence spending has changed. Incorporate those changes into the revised plan.
Dont just throw away your old plan because it is a good tool to refine your next year’s plan.
As we approach another year-end, I have been inundated with calls on how to prepare next year’s plan. Please note that guide below does not include everything so modify accordingly.
Here is the cheat-sheet
Start with preparing the “best-guess budget” before you embark on the exercise. This seems counterintuitive but if you have been at the company you know the trends. If you are new get the actuals from accounting and do your best. This is so you can intelligently guide the department heads.
Company Goals: Understand the company’s goals and how it translates into each department’s goals: The idea again is to have a simple overview of what the next year looks like.
Set up a simple model. Budgeting for most departmental heads is a chore. Keeping the model simple is the key. Add actuals to the sheet too, so the departments have an idea. Divide the model into quarters instead of months.
Send the model. Use a collaboration tool like Google Sheets to send each department head a sheet to enter a few days prior to your meeting. Here is a sample.
Meet & Greet. Set up a meeting with department leaders: S&M, Product(R&D) and G&A
Sales & Marketing: First and foremost comes the S&M leadership. The idea is to start from revenue and figure out how we will get there. What is needed in Headcount, Marketing and other spend to get to the projected Sales. For eg. How many MQL’s are needed to get to the sales number and what is the cost of getting those MQL’s. What do you need in Customer Success to support the growth in Customers ?
Product : Second comes the Product department . Does the Product roadmap include everything that the sales need? What is needed in terms of Headcount, Software, hosting and others to achieve the Product roadmap.
G&A: Armed with the S&M and R&D info, you will need to understand what is needed on the G&A side in terms of Headcount and other spend categories.
Iterate: There will be plenty of iterations before everyone agrees. Every company/department is different and you need to navigate the waters accordingly.
Bring it all together. Model everything to get a P&L, BS and Cash flow statement. There are number of tools like Adaptive Planning and Anaplan to capture all this. If you are a small company then you may want to start with excel.
You will find that not one size fits all, so modify accordingly.