In part two of a three-part series concentrating on the Software-as-a-Service (SaaS) model we look at the issues facing CFOs of a modern software delivery enterprise.
In the last decade cloud computing has transformed how software is purchased, delivered, and consumed.
The year 2006 is loosely pinpointed as the date when cloud computing entered the lexicon of the masses. Since then business models have changed dramatically and SaaS companies have led the new wave. Other valuable opportunities have branched out from the SaaS delivery model, such as Platform as a Service (PaaS) – think Amazon Web Services (AWS) — or Infrastructure as a Service (IaaS), which also includes elements of AWS.
In the midst of this alphabet jungle one C-suite position has changed beyond all recognition, that of the Chief Financial Officer (CFO). Let’s explain how and why.
1. Strategic input and a place at the top table
The CFO position has morphed from the chief accounting guy into a key strategic role at the top table. The role has been altered in many ways due to the success of SaaS. They now have real-time data coming from multiple sources at their fingertips. This wealth of financial information is manna from heaven for CFOs. However, for the CFO of a SaaS business the role is becoming even more important, and complex.
Higher management leans on the CFO more than ever to mould key decision-making. CFOs, as a result, need to be armed with comprehensive data so as to enable this smart decision-making. To do so they need a formidable understanding of data and analytics, tools crucial to strategic thinking and forward planning.
2. Navigating a path to globalization
Today, for SaaS companies, the world is their oyster. This lucrative opportunity has presented itself thanks to the incredible advances made in information technology and infrastructure across the globe. For example, a US-based SaaS company can sell to anyone at any time no matter where in the world they are located. Opening that oyster to find those pearls, however, is another thing.
For a CFO this road glitters but it is a perilous path to navigate. A global expansion brings numerous pitfalls. These obstacles range from regulatory compliance, foreign exchange complexities, to increased labour costs to factor into internal budgeting.
No matter the speed of technological advancement the core responsibilities of a CFO have remained the same. It is on their shoulders to deliver value and to maximise revenues.
3. Taking control of regulatory compliance
The global market of a few years ago is no more for SaaS business. Today, as a result of evolving international indirect tax reforms, the marketplace has become fragmented. Compliance is now based on local tax rates, dictated by where the end consumer is based.
For CFOs of a SaaS business this has multiple effects on their strategic and financial decision-making. Businesses may contemplate implementing an in-house solution (costly from a time and resources perspective) and using the services of a tax advisory firm (expensive) to assist in VAT/GST advice, registration, and filing with the foreign tax authorities. There is the option of outsourcing, ironically one of the key reasons why the SaaS model exists. Outsourcing international tax compliance, using services such as Taxamo, not only automates this process but saves costs and improves margins: key drivers for CFO decision-making.
The Wall Street Journal penned the following when examining CFO responsibilities alongside these ever-expanding international regulatory compliance burdens: “Given a continued proliferation of new and more onerous laws and regulations throughout the world, compliance functions will occupy more of the CFO’s time and organizational resources. To mitigate this burden, CFOs will need to streamline and automate their recurring activities and invest continuously in new technologies, especially to fulfill accounting and financial reporting functions.”
Potential outsourcing of tax compliance
The SaaS proposition – software hosted in the cloud and accessed via a web browser – has encouraged outsourcing of the majority of business functions over the past decade: from sales to HR, finance to customer service.
Today, these SaaS businesses are beginning to look at their own internal functions as tax authorities worldwide continue to focus on their business model. Tax reform is accelerating and burdens are increasing. Potential outsourcing of international tax compliance requirements needs to be considered seriously from a strategic perspective as it will affect a company’s global expansion coming as it does with a host of regulatory burdens.
How Taxamo takes over your indirect tax liability
Luckily, here at Taxamo, the problems highlighted here are the one we solve for digital businesses selling globally.
Taxamo acts as an intermediary, we are part of the supply chain. What does this mean? Well, it means that you pass your VAT/GST liability to us. As an intermediary we, legally, shoulder the burden of international tax compliance. This allows you to refocus on core strategic and revenue-maximising functions.
For a Taxamo demo contact us here now.
Next week: the final piece in our three-part series assessing the SaaS business model
How international tax compliance processes can be improved for SaaS businesses. Weighing up in-house solutions against an outsourced service, and how costs can be achieved with the right decision.