You have a brilliant idea. It’s going to save your company money and increase productivity. So far so good, but like many great ideas to deliver new software, services and support, corporate or IT finance needs to sign-off on your plan. Speaking tech talk, like subscription, cloud or SaaS may confuse them. Put yourself in their shoes - think and talk like a CFO to get your plan approved.
The CFO and finance team wear many hats:
- Compiling financial reports
- Planning strategies and tactics that are related to budget management
- Keeping track and record of financial activities in the company
- Budgeting and forecasting for future company needs
- Assembling cost-benefit analyses and compiling ROI reports
- Securing funding from a variety of sources
Understanding the CFO’s responsibilities and speaking in his or her own language will eliminate many barriers. With a better grasp of your organization’s strategic, financial and operational priorities – and how they affect your department – you will be able to present your plans from a CFO’s perspective. Additionally, understand the topics below, and you will be writing your own checks.
The Difference Between Capital Expenditures (CapEx) and Operating Expenditures (OpEx)
Begin with an understanding of your company’s financial strategy around capital (CapEx) versus operating expenses (OpEx). Many CFOs, especially those in the utilities, oil and gas industries prefer CapEx spend as they can be amortized and depreciated over time. Remember subscription and SaaS solutions switch CapEx to OpEx and move from the balance sheet to the profit and loss statement. If you are looking to increase spend on cloud-based solutions, you will be increasing the company’s OpEx.
The Implications of the Financial Accounting Standards Board (FASB) Guideline ASC 350-40
ASC 350-40 redefined the rules on how companies account for the professional services, development, project management, labor and implementation costs associated with cloud and SaaS purchases. What was a capital expense is now an operating expense. Is there a workaround? Maybe. On the 16th of January 2019, the accounting standards for acquiring software will change. If your SaaS or subscription contracts come with a software license in certain circumstances you have option of treating the acquisition an intangible asset (CapEx), which would appear on the balance sheet. If, however, the cloud-based solution does not contain a license agreement, it would be treated like any other service contract (OpEx), which would be listed on the profit and loss statement. All of this may have a major impact on the accounting for software. For more information on the IFRS and FASB, read our blog here.
So next time you need buy-in from your CFO, do your homework and communicate your plan and business case with detailed scenario analyses which reflect your company’s balance sheet and income statement business drivers.
Begin by talking to us. Central Technology Services provides customized licensing solutions for enterprise software. We are the software industry’s leading financial services partner specializing in assisting Fortune 1000 companies and their vendors manage the financial, operational and budgetary issues associated with acquiring enterprise software and related technology assets.