Over the last two years, many SaaS companies have found themselves relying more and more on the CFO to navigate uncertain times. This trend looks set to continue through 2022 as businesses encounter new challenges and CFOs take a more strategic role.
Another trend is inflation. According to the OECD, inflation in 40 countries is now at a 25 year high - so most CFOs won’t have ever dealt with this before. Wage inflation could have a major impact on the tech sector.
A third trend for 2022 is a continuation of the huge growth in mergers and acquisitions. These are fed by the need to drive growth and consolidation as the world emerges from the Covid pandemic. Many SaaS businesses will be either part of or impacted by these deals in 2022.
Trend #1: The Strategic CFO Takes Center Stage
“In times of crisis when a rapid response is needed, the CFO moves to the center.” - Steve Gallucci, Global and U.S. CFO Program Leader at Deloitte.
Over the pandemic years, businesses had to change the way they operated. They had to be able to make difficult and complex decisions fast. They had to rip up budgets and start again. Instead of avoiding risk, they have needed to quantify it. Increasingly, business leaders turned to the CFO for guidance.
The strategic CFO moved from asking questions like “how much will that cost?”; or “what will the effect of that be on margin?”; to questions like: “how can we innovate to get ahead of the competition?” and “where are our best opportunities to grow?”
Ankur Agrawal, a partner in the New York office of management consulting firm, McKinsey, said their research showed that the CFO took a greater role in “managing uncertainty, and articulating the situation to the board, investors and other owners.”
Last year, CFO’s interactions with their companies’ CEOs on issues like strategy, performance, organizational transformation, and M&A activity increased by more than 20 percent, according to McKinsey research, reported in the publication “Strategic CFO”.
Tip: Democratize the Data
One way for CFOs to make sure that they can spend more time on strategy and less on complex spreadsheets is to open up the financial black box. Share the numbers that people need to make better-informed decisions more quickly.
If you democratize the financial data instead of keeping it locked away, people across the business can draw on that. That helps everyone to become more agile and resilient in the way they operate. Instead of answering endless queries, the commercial CFO can focus on the bigger picture.
Trend #2: Wage Inflation and the Battle for Talent
‘Reflecting on the challenges of return-to-work—hybrid or otherwise—and the Great Resignation, the number of times CFOs cited talent/labor and related issues heavily outweighed other priorities for 2022. “Retention, retention, retention” was a resounding refrain” - Deloitte’s fourth-quarter 2021 “CFO Signals” Survey
One of the major ways that inflation affects SaaS businesses is through increased resource costs. We have heard a lot recently about the “Great Resignation”. The battle for tech talent is tough at the best of times and high inflation is likely to involve even more upward pressure on salaries.
CFOs have a part to play in making sure the business takes account of inflationary pressures in workforce planning and finds ways to mitigate them. The CFO can ensure that the business understands the commercial implications of a range of choices.
Tip: Look for Creative Ways to Innovate Your Working Model
If you approach this issue with a retention mindset, you will avoid some short-term fixes that can cause more problems down the line. Rushing out to the market and offering high salaries may be unsustainable - remember that existing employees will want to be remunerated at least as well as new hires.
Talk to employees about the other things that they value at work, like opportunities to shape their own career development and direction, perhaps offering training and qualifications alongside the opportunity to gain new experience.
Trend #3: Bigger Fish are Hunting Smaller Fish (a.k.a. The M&A explosion)
“There is a mass reorganization of business going on out there…Companies are attempting to position for growth,” - Alison Harding-Jones, head of M&A for EMEA at Citigroup
In 2021, global mergers and acquisitions soared to their highest level since records began, at almost $6 trillion, the Financial Times reported.
The Deloitte CFO survey, reported in the Wall Street Journal, shows that almost 70% of CFOs said their organization plans to pursue M&A and joint venture opportunities in 2022.
CFOs have to think through the risks and opportunities involved in being acquired, acquiring competitors - or of missing out. A merger that takes place in your sector might impact your business even if you are not part of it, by creating a new market leader. And each organization can only participate a limited number of times in M&A.
The CFO has to be in a position to share data on their own business with potential acquirers, or to do the due diligence on a potential acquisition, working out the two businesses to join up in a way that will provide better value for customers and so drive improved performance.
Tip: Start by Maximizing Alignment Within Your Own Business
How aligned is your own business? The CFO is one of a small number of people who are genuinely in a position to see the bigger picture. They can establish if people really share the same understanding of what the company’s objectives are, what the strategy is and what each team can contribute.
A business that is strongly aligned, where people have financial and operational transparency and can make good decisions quickly, is in a better place to participate in either a successful merger or acquisition.
A study by the Harvard Business Review found that mergers have a high failure rate and often don’t reach the expected benefits in the anticipated time frame. One of the biggest issues is difficulty aligning the two businesses. If each is internally aligned in the first place, it is easier to ensure a smooth transition which drives enhanced performance across both businesses.
CFOs at SaaS companies have faced some difficult times over the last two years. 2022 will be no different. But with creativity, an innovative mindset, and a collaborative approach, they will rise to the challenge. As a whole, the sector will continue to surprise with its resilience and growth potential.