Managing Cash Flow: Best Practices for Startups and SaaS Companies

When money runs out, you can’t do anything until you figure out where it’s going and how much you’re making. Nothing happens to your money unless it’s the victim of fraud. There is a large gap between what you spend money on and what you make or gather.

We’ve done the legwork and compiled a list of the finest cash management tactics for SaaS companies like yours because Profit Jets knows you need cash management recommendations fast. Continue reading!

SaaS Cash Flow Management: 7 Suggestions

Your company’s working capital is the difference between its current assets and liabilities. To put it simply, negative working capital exists when a company’s liabilities, such accounts payable, exceed its assets. Here’s how to convert that surplus into useful capital.

• Establish a strategy for handling your cash flow.

Keeping tabs on and managing various working capital KPIs, such as accounts receivable and payable, can be a challenging undertaking. If you fail to keep tabs on the procedure, your company’s cash flow issues will quickly spiral out of hand. Therefore, if this can’t be done in-house, consider hiring an accounting company and automating as much of the process as feasible.

• Reduce Customer Churn

Customer churn metrics compare the number of an organization’s original customers to its current customers and reveal how successful an organisation has been at keeping its original clientele. Customers should not be leaving at a rising rate.

You can use this information to formulate a plan to keep clients from leaving, such increasing the frequency of your communications with them. Customer unhappiness could also be to blame; if this is the case, try resolving their concerns by providing them with additional information or resources relevant to your products and services.

Furthermore, since some clients will go regardless of what you do to retain them, concentrate on the ones who remain and pay attention to what they have to say.

• Consistently Invoice Your Clients.

Invoice customers once a month to maximise monthly cash flow. Include a payment link in the invoice to save time when making a payment. You’ll have better cash flow and your customers won’t have to go through the hassle of keeping track of your bills if you operate this way.

If you are constantly sending out invoices to your clients but still struggling to make ends meet, you may want to try shortening the amount of time customers have to pay. If you want to encourage early payment, you might provide a discount.

Pre-authorized recurring payments are another option. It is effective for a wide range of businesses, from SaaS start-ups to online lenders providing instant personal loans. The customer’s credit card will be automatically charged on the same day each month. The customer’s next payday is a good time to check in to make sure there’s money in the account.

You can reduce the amount of time it takes to process payments by implementing a decentralised collections system in your startup. After receiving funds, the region’s many payment processing hubs transfer the funds to a centralised location.

• Cash Flow Statement Analysis

If you can tell apart the money coming in and the money going out of your company, you’ll have a good grasp on cash flow. See how much money you’re making from running activities and which items or services are most lucrative. In addition, you may find that some forms of investing activity, like selling assets, actually increase your net worth.

Don’t rely solely on this report for financial analysis, though, as a number of factors outside the control of the authors can impact the cash in and cash out flows. The cash flow statement may indicate a deficit if, for instance, the company spends more money than it brings in when it purchases an asset. And even if you think your business is solvent, you may be surprised to learn that it owes money to a number of vendors.

• Integrate Key Performance Indicators for Working Capital Management

If you have your teams work together to reach out to clients, you can boost your accounts receivable because everyone on the team will be taking on more of a role in the cash flow process. The sales department’s ability to reduce past-due accounts receivable, for instance, might be a crucial performance statistic for the accounting department.

• Implement In-Time Budget Management

Monitoring expenses in real time helps prevent several issues, including the inability to pay vendors at the end of the month. If you don’t have the software, just use a simple spreadsheet to keep track of your money.

• Pay Attention to Cash Flow Predictions

If you make a weekly or monthly forecast, you can avoid a lot of money issues.

It makes use of information you currently have, such sales, payroll, and costs. It also predicts revenue from returning clients as well as those who are new to the business, which may be used to determine what areas of the company will benefit from an infusion of capital or can be cut back on.

In addition, the cash flow projection can be utilised in what-if scenario planning. The subscription-based business model used by SaaS providers makes it simpler to plan for cash flow.

In the past, a software firm’s cash flow projection was calculated by multiplying its anticipated sales by the selling price. You can now see your regular monthly membership rate updated in real time.

Inaccurate data for making projections is a weakness of this business model. If you don’t integrate your systems to automatically rather than manually acquire data, you may get skewed numbers due to spreadsheet errors or missing information.

Conclusion

When receivables are low, a company’s ability to pay for expenses and maintain operations depends on how well it monitors and manages its cash flow. Using a cash flow statement, you should first learn about your cash inflows and outflows. Profitability analysis and cash flow forecasting can help you anticipate financial needs and plan accordingly. Your startup must avoid running out of money. Pay your bills after you’ve been paid.