The 5 Financial Terms Every Successful Operations Professional Should Know: From a VP of Finance

Lindsay Crittendon, Head of Headspace for Work, interviews Ada Johnson, VP of Finance at Heap Analytics, on the financial terms she believes every operations professional should know.

At AdaptivOps, our goal is to advance the careers of our community members through the sharing of knowledge cross-functionally. So when Lindsay Crittendon, Head of Headspace for Work, boldly claimed in a recent sit-down that “it is critical for operations professionals to understand financial terminology in order to advance their careers,” we listened — and we knew we had to share.

Enter Ada Johnson, VP of Finance at Heap Analytics. Ada currently manages finance and legal at Heap, where she joined as employee 45 — and knows what she’s talking about when it comes to finance.

In this interview, learn what Ada believes are the primary terms every successful operations professional should know, while Lindsay provides real-life examples from an operations perspective on why those terms matter.

Putting together a business case for finance

Business case (def.) A business case captures the reasoning for initiating a project or task. It is often presented in a well-structured written document, but may also come in the form of a short verbal agreement or presentation.

Lindsay: In my time in strategy and operations, business cases have become a super important part of my day-to-day. What is finance really looking for when an operations professional asks for something that might be an incremental budget?

Ada: Finance doesn’t want to be the bad guy. I always tell my finance team we want to be the best partners possible. Our goal is to understand how your request affects the financials of the company in the short, medium and long term. So the things I look for in a business case are:

• How this will affect revenue, PnL (profit and loss), balance sheet, and spend in the short term and long term.
• An understanding of why this did not make it into the plan. If you are asking for something that is out of budget, it obviously did not make it into the budget. So what are the new learnings that you had?

TLDR: Try to be as clear in your finance requests at the beginning of the fiscal year as possible. When finance receives a request that is not already in your budget, their first question will be: Why didn’t this not make it into your initial budget?

Annual Operating Planning (AOP)

Annual Operating Planning (def.) A detailed projection of all estimated income and expenses based on forecasted sales revenue during one year, with the goal to identify, communicate and monitor progress on key priorities for the year that advance the strategic plan.

Lindsay: What is Annual Operating Planning, and how might we, at different altitudes and seniority levels, think about partnering with finance through an AOP process?

Ada: An AOP looks different depending on company size. At Heap, we’re at about 200 employees. We sat in a room and thought about what we wanted our PnL (profit and loss) to look like. The next part is the company goals, because that is where the trade-offs are going to happen.

For example, you have a new feature you want to build. And you’re not ready to sell it, so you want to hire engineers at the beginning of the year and sales people later. That is a company goal more so than a financial goal. Then you compare your company goals to your financial goals, and go back to departments to let them know where they need to cut, or have room to grow. And then an annual plan is formed.

When it comes to partnering with operations professionals during the AOP process, there are metrics we want to hit. An example would be sales and marketing spend. So maybe we’re spending more on sales and marketing, and operations can help me understand why. That is important for finance to know so we can forecast longer term and give feedback to the board.

I prefer a weekly meeting that keeps me constantly in communication with operations. But the most important thing is aligning on what metrics finance cares about, and operations having the ability to take what they have and present it in that format.

TLDR: Operations teams should have a regular (weekly if possible) meeting set up so that they can remain aligned with finance about what metrics matter to them.

SaaS/Consumer Metrics

• Gross Margin (def.) a company’s net sales revenue minus its cost of goods sold (COGS). In other words, it is the sales revenue a company retains after incurring the direct costs associated with producing the goods it sells, and the services it provides.
• Customer Lifetime Value (LTV) (def.) the total worth to a business of a customer over the whole period of their relationship.
• Customer Acquisition Cost (CAC) (def.) the cost related to acquiring a new customer. In other words, CAC refers to the resources and costs incurred to acquire an additional customer.
• Total Addressable Market (TAM) (def.) also called total available market, this is a term that is typically used to reference the revenue opportunity available for a product or service.

Lindsay: As I progressed in my operations career, I found it was crucial that I understand finance metrics. Can you walk us through the following metrics, and give us insights into how they apply in a business?

Ada: Simple definitions are included above. But the most important thing for an operations person to know is how to dig into the segmentation of these metrics (especially CAC and LTV). This helps finance get a clear picture of where the company stands, and informs what we take to the board, the e-staff, etc. If you are looking to grow your career in operations, being savvy in this area is invaluable.

TLDR: It is critical for operations professionals to be aligned with finance about how metrics are calculated within their organization. In addition, the ability for an operations professional to dig into metrics in a meaningful way is invaluable.

Everything you ever needed to know behind a finance request

Finance Request (def.) A section of the business case that is presented to the board during quarterly and annual meetings, usually by the VP of Finance or the Chief Financial Officer.

Lindsay: A finance request is similar to planning and/or a business case. But if it’s a very large initiative and you’re in operations and putting together an ask, what is it that you as a finance professional are looking for before you put it in front of the board?

Ada: Finance has to be the source of truth, so we have to feel like we understand the numbers and the why behind them. In board meetings, you usually start with the PnL and the operating metrics, and finance is usually the person presenting that. So if we get a question, we need a high level understanding of what’s going on. So when we ask the operations team questions, the reason behind that is we will get asked that same question by the board.

TLDR: Try not to get frustrated when finance comes back to you with a ton of questions after you submit a finance request. They are simply asking you the same questions the board will ask them when they present your request to them. Instead, try to be as comprehensive as possible in your initial request. This will help your request go through much quicker, and instill trust in you that will bode well for future finance requests you may have.

System Management

System Management (def.) Systems management refers to enterprise-wide administration of distributed systems, including computer systems.

Lindsay: Systems are so important for us to be able to scale our business. And knowing when to introduce them into your business is as important. At what point do you think operations should bring in finance when they are looking at a system to solve a problem?

Ada: First, understanding how this system is going to affect the business case is important when communicating with finance. Knowing how much time will be saved, and how it affects the PnL, etc. Where I’ve had issues as a financial professional is trusting the data from a particular system. So I think if ops is going to bring on something, bring in finance as soon as possible so we can understand and trust the data.

TLDR: Finance has issues trusting the data from new systems. So when you introduce a new system, bring in finance as soon as possible so they can understand and trust the data.

Questions for Lindsay or Ada? Join AdaptivOps to connect with them directly. If you would like further elaboration on any of these points, check out their 30 minute conversation here, where they go deeper on each topic shown above.