Off the Ledger Hot Topic:
A look at the shared pain points for small finance and accounting teams and approaches to procurement software.
We began hosting a Slack group for finance professionals almost 9 months ago; our intent was to connect our customers with one another. We knew many of them were working with few resources to build finance and accounting operations in rapidly evolving companies – each confronting similar challenges. The community called Off The Ledger grew to include finance pros beyond our customer base and was active and supportive – posing questions and crowd-sourcing answers about useful resources, approaches to operations and accounting, questions about the handling of specific reporting requirements, and more.
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When accounting and finance professionals suddenly went into overdrive in response to the economic shutdown, Off The Ledger membership skyrocketed and the group became more active than ever. Recently, a participating CFO, Tom Crowley of Deserve, a Menlo Park based FinTech startup asked the group to respond to a brief set of questions to help him frame his thinking around building his operation and team. This was not intended as a formal survey, and yet the 34 responses it received contained some helpful feedback on the challenges respondents face and the vendors they rely on; insights we thought we’d share more broadly in this post.
Title or not, CFO functions are still carried out.
We were not surprised to see that only around half of the companies represented have a full-time, in-house CFO. It’s our experience that in many early-stage companies, the functions of a CFO are often shared by the CEO (for strategic planning), and an inhouse or external controller, accountant, or even HR director for daily financial transactions. This, of course, increases reliance on the coordination of internal and external resources, systems, and processes. It was also not surprising that the top pain points from this sample concerned strategic finance. Because small teams are constrained by the demands of a monthly close, and a lack of real-time reporting, it’s difficult to contribute to the more strategic FP&A issues. Clearly there is an opportunity for smaller companies to free up their valuable time with automation tools. The survey also looked at what business accounting software tools respondents were using.
Small finance teams – long closes.
Respondents were from companies with between $1 million and $25 million in annual revenue, with between 21 and 50 employees and a one to three person finance team. The number one ERP used by the group was Quickbooks (50%), then Netsuite (approximately 25%), followed by Xero, and Sage Intacct.
Most of these small finance teams are closing their books about two to four weeks after month-end. About 15% of them are taking longer. Crowley points out that this delay “impacts not only board reporting but also budget vs. actual and decision making.” Using automation tools is the obvious place for finance leaders to look to gain efficiencies for both a faster close and better access to information.
The survey asked what procurement software they use and almost 30% said “none.” The responses remind us of the confusion that sometimes exists about what constitutes procurement software. The top pick of respondents was Bill.com (50%). This legacy software was an early cloud-based invoicing and payments solution and has been helping small to midsize companies since 2006. While it allows for payments by check and ACH it doesn’t include card spending, and yet corporate cards are the second most used payment method (after ACH) listed by the group. Bill.com does not provide the core requirements of a purchasing process i.e. automating the request and approval, generating POs, and enabling a 3-way match (PO, invoice, packing slip).
Some listed Concur as their procurement software, which is typically used as an expense management system rather than a full procurement solution. A few of the respondents listed Tipalti, which is a payments system specializing in international transactions. At Airbase, we think of procurement software as “spend management software,” which is a concept borrowed from the large enterprise procure-to-pay (P2P) software solutions to describe a broader process than AP or expense management. Like P2P, spend management includes approval workflows and direct automated syncing to the GL, it allows for all payment types, and it provides real-time reporting.
In fact, it was surprising to see that the group had a few users of the highly engineered, often expensive, enterprise-level system Coupa. We were, of course, pleased to see ourselves on the list. Airbase is a broad procurement software platform designed as a lightweight alternative to a heavyweight system like Coupa. Airbase is for companies that want the automation and spend control features, but don’t need the large-company capabilities, nor want the price tag.
Vendors for employee spend.
Tom’s survey also asked about what vendors were used for employee spend. Brex ranked in the top card position with approximately 24%, followed closely by American Express at approximately 21%. Brex was designed as a solution for startup businesses who were underserved by the banking system, especially because banks demanded that founders provide personal guarantees for corporate cards. Brex has been an important alternative to Amex cards for early-stage and startup companies.
Expensify was listed by almost 50% in the “other” category for this section. As an expense reporting software for employees who use company or personal cards it makes sense that Expensify would show up as an employee spend vendor. The platform serves to communicate spending after it has occurred to management for oversight, to accounts payable for reimbursement, and to accounting for inputting to their ERP.
Building an approval process before the spend occurs.
The class of software that includes “spend management” and “P2P,” typically builds approval workflows into spending before it is committed. They are designed to capture transactions as they happen, provide for all AP, and flow spending activity automatically to the GL. They are payment-type agnostic, handling cards (virtual or physical), ACH, or checks. Around 5% of the respondents selected Divvy as their “employee spend vendor.” This solution contains many, but not all, aspects of spend management and is particularly attractive for companies with fewer than 50 employees.
Full spend management solutions like Airbase are seen to be a one-platform replacement for a messy stack of software used for company spending. Companies have pieced together siloed software for approval flows, approval documentation, corporate cards, expense reporting, bill pay, and reconciliations. A single platform can save finance teams significant amounts of time in their lengthy month-end close.
Shared pain points.
The final question on the questionnaire was about the pain points experienced by the group. Respondents were asked to choose three from a list of 13 options, and the top three were “budgeting and FP&A,” “lack of real-time reporting,” and “strategic finance.” Our experience working with, and talking to, finance leaders has made us acutely aware of the gap between the contribution they would like to make to their company, and the one that they have the time and bandwidth to make. We were, therefore, not surprised to see the top picks on the list. The author of the survey notes: “I think this captures the struggle of trying to balance your “day” job (i.e. closing books / having complete financial view of company / budgeting) and adding value by providing real-time insights (i.e. strategic finance, etc.).”
Freeing up valuable time.
The deficit felt by finance teams makes finding ways to free up time all the more important. Tools for automation, and an ability to quickly and easily provide real-time reporting, can be an important step toward making the time to play a more strategic role.
We love seeing Off The Ledger members take full advantage of the wisdom and perspective that this Slack group of finance professionals provides. Active conversations around software solutions, professional resources, PPP loans, tax and accounting issues, job postings, and more, take place every day. We work to protect the value of Otl by vetting each applicant’s professional duties to ensure only finance pros are included, and monitor activity against a set of rules that include no sales or spamming, and some strict community guidelines. Small to mid-sized businesses do a lot with few resources; Airbase exists to provide support to their finance teams so that they can do more.
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Airbase offers a one platform solution to manage all non-payroll spend. It provides oversight and control over spending with real-time reporting and automatic syncing directly to your general ledger. Control all payments – physical cards, virtual cards, ACH, and checks – from one place. Close faster. Empower employees. Control spend.