Successful businesses become successful in the first place because their whole team is working toward a single goal. While success is influenced by a variety of factors, effective collaboration within the organization is one aspect that can be controlled and optimized.
For instance, the roles of Revenue and Finance teams are critical in achieving financial targets. Their work, both separately and collectively, helps ensure the organization continues meeting revenue goals and sustaining its operations.
A lack of alignment can cause a host of issues impacting business decisions, the accuracy of forecasts, and overall efficiency of revenue generation and recognition.
In this blog, we'll dive deeper into why alignment between these two groups is vital to the health of your organization and explore three downfalls of poor alignment.
Why is Alignment Between Revenue and Finance Important
When you say “alignment” in business terms, the other words alongside it are usually “sales” and “marketing”.
While these two groups get singled out for their internal collaboration, working with other departments in the organization can have just as detrimental an effect.
For example, more businesses are trying to structure their billing in order to fit their customers' needs. Usage-based billing or a larger variety of subscription tiers are two such ways they might make their pricing more tailored to their budget and needs. Without a solid relationship between these two teams, it’s likely that these sorts of billing structures will wreak havoc when it’s time to close the books.
As one Controller told Place, “The sales team is all over the place with their contracts, so I have to go through each new one with a fine-toothed comb to figure out when to send the first invoice and what the payment terms and frequency are, and who the billing contact is.”
Without a clear line of communication and plan for maintaining alignment, each function may view the other as causing them more work than necessary because of their actions.
Poor Alignment Can Cause Ongoing Issues
When Finance and Revenue aren’t on the same page or even in the same book, it does a lot more than make for a potentially contentious working relationship (which is important to pay attention to).
When the call drops between these two functions, there are significant issues that can and will arise and impact revenue generation processes.
Here are three such issues:
Inefficiency - Time spent on non revenue generating activities
In an average business, most departments are working with anywhere between 40-60 tools each. Even accounting for crossover (one tool being used in multiple departments) we’re still talking about a considerably sized tech stack.
Since Revenue and Finance are dealing with the same pool of data, both teams should be looking at the same customers, the same contracts, and the same bookings. The reality is that most teams are juggling spreadsheets, multiple systems, and having to manually re-enter information in multiple systems.
The more people and more data sets you’re dealing with, the more time your team is going to waste keeping them up to date. That can add up to 25% of their time each week if not more dealing with data collection and data entry.
The more manual input your teams have to do, the more mistakes will inevitably pop up. Then, your teams are going to have a well-seeded doubt in the accuracy of the data.
Skepticism - Lack of trust in data
There's a principle in data quality known as the 1-10-100 rule, which was initially developed to illustrate the escalating costs of poor data quality.
In essence, the rule states that it costs $1 to double-check a record, $10 to correct an existing error, and a whopping $100 for doing nothing about the issue.
However, this rule doesn't fully account for the considerable amount of time wasted on step one: verifying data, which can further exacerbate the problem.
A significant contributor to poor data quality is the misalignment between Finance and Revenue teams. This lack of cohesion often results in a familiar scenario where each department questions the accuracy of the data provided by the other. This skepticism can lead to delayed decision-making, inefficient processes, and ultimately, reduced profitability
Uncertainty - Cash Flow issues and difficulty projecting
Ineffective collaboration between Finance and Revenue teams is a major contributor to revenue leakage, which can have significant repercussions on an organization's financial health.
Revenue leakage refers to the loss of potential income stemming from inefficiencies, gaps, or discrepancies in a company's processes, systems, or operations. These losses can arise from factors such as inaccurate billing, undercharging, uncollected payments, or missed sales opportunities.
When Revenue and Finance teams aren't working well together, it becomes challenging to create accurate billing schedules and establish reliable revenue goals and financial projections. As a result, this misalignment can lead to the formation of unrealistic objectives and budgets, further exacerbating cash flow issues.
Moreover, unclear or inaccurate financial projections can hinder a company's ability to secure funding or attract investment. Potential investors may doubt the organization's ability to manage its finances effectively.
Revops Is A Key Player In Increasing Alignment
When Finance and Revenue teams work together, they can develop a clear understanding of the company's financial goals and create a strategy to achieve them. This collaboration allows for more accurate forecasting, better decision-making, and a stronger overall financial position.
Revenue Operations is perfectly suited for being the liaison between these two groups while also helping bring the two parties closer together.
This can be a critical relationship to nurture especially if you suspect that there is an issue in your Sales-to-cash workflow.
If you’re not certain whether there is a leak in your sales-to-cash workflow, check out our digital guide to the process.