SaaS Brief

The Secret Sauce to Building a Cash Flow Positive SaaS Startup

Cash Flow

Becoming (and remaining) cash flow positive is no trivial task, especially for SaaS startups in a flagging market like we’re seeing now. To stay afloat – let alone see strong revenue –finance and RevOps teams must be streamlined, effective, and incredibly efficient in their workflows. 

In particular, this article will focus on helping you become cash flow positive by: 

  • Focusing on the right things: Metrics are essential, but some are better suited to certain goals than others. We’ll show you the most valuable metrics to monitor to achieve positive cash flow quickly.
  • Accomplishing more with less: Automation is helping SaaS CFOs save large amounts of money by centralizing their departments’ data and making smarter decisions because they have exponentially more data at their disposal. 

Let’s examine a few of the most important steps to take if you’re trying to brighten the financial prospects of your SaaS startup.

SaaS cash flow: Metrics to track

Recurring revenue companies face different cash flow realities and challenges than companies operating based on standalone fixed-price transactions. If you take the time to acquaint yourself with the most relevant KPIs in your particular market, you’ll have a much smoother and faster journey to long-term profitability.

What are some of the most helpful cash flow metrics for SaaS startups to watch?

  • Cash Burn Rate: Your cash burn rate (CBR) can also be considered your financial runway. It’s a measurement (in months, typically) of how long your cash reserves will last, given the current liabilities of your startup. Depending on your financial situation, this cash flow metric either alerts you to slow down on projects and cut spending or lets you know that moving forward more proactively is alright. Either way, keeping a close eye on your CBR is imperative.
  • Monthly Recurring Revenue: Your startup’s monthly recurring revenue (MRR) is helpful for gaining a real-time monthly perspective on your revenue situation. Your MRR breaks down into various subcomponents, such as upgrade and downgrade MRR and others that measure different cash flow fluctuations.

  • Days Sales Outstanding: Days sales outstanding (DSO) is a measurement of how quickly you get paid by your customers. Automation can help you significantly lower your DSO by streamlining the revenue collection process. Reducing your DSO is one of the best ways to speed up your cash flow cycle.
  • Free Cash Flow: A startup’s free cash flow (FCF) relays how much surplus cash is available for dividend payments or business reinvestment. Strong free cash flow signals to investors that your company can provide a reliable ROI. 

Knowing the right cash flow metrics to use is essential, but it’s only half the battle. The other half is all about your strategy: manual, or automated? 

The SaaS startup’s cash flow accelerator: Automation

Accounting departments that utilize automation can become cash flow positive faster than their manual competitors. SaaS CFOs should do everything possible to optimize and streamline their startup’s accounting techniques. 

Automation will give you access to:

  • Role-based dashboards: Manual accounting requires team members to email data back and forth to put together reports, forecasts, and other important materials. Role-based dashboards use the polar opposite approach, taking all the data necessary for each departmental lead and combining it into one visually appealing screen. 

  • Robust forecasts: Automated forecasting is a massive advantage for SaaS startups. Being able to forecast accurately across large timespans will help you optimize your FP&A to ensure cash flow. Forecasting also helps you hire successfully and profitably by projecting your desired hiring results. Plan product campaigns more effectively, make better pricing decisions, and much more.
  • Investor-grade reporting: Apart from boosting cash flow through revenue, you also need to make your company as attractive to investors as possible. Investor-grade reporting gives you detailed access to every metric and KPI you need.
  • Paperless audits: Audits will probably never be fun, but automation can make them as enjoyable as possible. All your important transactional data will be stored in the cloud, and you’ll be able to retrieve it at a moment’s notice. You’ll even be able to save detailed information about why a change occurred in a recurring transaction, prove authorization paths, and perform other essential tasks.

Automation offers a way to transcend the inefficiencies, bottlenecks, and outright risks of manual accounting processes and practices. 

Ready to go cash flow positive? We can help 

Becoming a cash flow positive SaaS startup doesn’t have to be so difficult. If you’re like many startups, you’ve simply been standing in your own way by relying on outdated accounting methods. Now is the time to consider automating your subscription business.

Explore the five key steps to ensuring predictable revenue for your SaaS startup in our guide to automating your subscription business. You’ll learn how you can achieve meaningful improvements, so you can measure – and enhance – customer success. 

 

Finance Guide to Automating SaaS Business

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