Complete Guide to Cash Flow Budgeting for SaaS

What is a SaaS?

Definition

A SaaS (Software as a service) offers software directly on the cloud for use by companies. Users do not need to download the software, they can access it directly via a standard internet browser. 

It is therefore not a product that would be distributed and installed on customers' devices after the acquisition of a license, but rather a service. 

In exchange for the use of the software, the client pays a subscription or a fee depending on theuse he makes of a site. The costs are thus reduced compared to a traditional software.

What are the benefits?

The main advantage of SaaS is the simplicity of use: the maintenance and the update of the software are carried out directly by the provider. This considerably reduces the number of round trips between the provider and the customer and significantly reduces the costs of the software.

Moreover, the product is constantly evolving. It is used by different types of customers who will have different needs and therefore require new features that will benefit everyone. SaaS software is also more flexible, if your needs evolve the tool can, in most cases, evolve with you.

One of the major advantages of the SaaS mode is that the customer can access it from anywhere via any device. Employees can also use it whenever they want, which increases productivity and promotes more flexible work.

How is a SaaS treasury organized?

How does cash flow work in accounting?

Cash accounting reflects the company's banking flows. It records the receipts and disbursements that have been made during the year. It is essential to have a clear idea of your cash flow because it reflects the health of the company.

There is an equation that you must know in order to be able to analyze your cash flow: Net cash = Working capital - Working capital requirement.

• Net cash is the cash available after subtracting expenses related to the company's activity (financing, purchases, receivables, etc.)
• Working capital is the total financial flows available to a company to finance its activity (equity and financial debts minus fixed assets)
• Working capital requirements, on the other hand, are all the financial flows that a company needs to run its business (inventories and receivables minus supplier, social and tax debts)

What are the specifics of SaaS company revenues?

SaaS companies also need to keep a close eye on their cash flows. However, because of their model, they have some specificities that we will detail here.

Most SaaS business models are based on asubscription principle. The type of revenue generated (such as ARR, annual recurring revenue, or MRR, monthly recurring revenue) makes it relatively easy toanticipate the future revenues that will be generated by the business.

What are the specifics of SaaS enterprise spending?

While it is easy to determine the company's future cash receipts, it is also easy to anticipate some of the cash outflows based on their nature. Typical SaaS business expenses fall into three broad categories: vendor-related expenses, employee-related expenses and tax expenses.

Take the time to identify all expenses incurred with your suppliers or external service providers. They can be :

• Marketing expenses: website, commercial campaign, advertising, referencing
• Operational expenses: rent, energy, subscription, etc.
• Outsourced services: lawyer, accountant, recruitment firm

It is also possible to easily anticipate expenses related to salary and social security payments. As your business grows , take the time to assess your needs and plan for possible new hires.

Finally, do not neglect expenses in your cash flow forecast, taxes, VAT, etc. This will avoid unpleasant surprises. This will avoid unpleasant surprises.

What are the challenges of a SaaS enterprise cash flow budget?

Define the company's business model

When creating a SaaS company , one of the major interests of the cash flow budget is to ensure the profitability of your business model. Thanks to a well constructed model, you will be able to define the price of your services and to anticipate your financing needs.

You need to be able to answer the questions: How many customers do I need to be profitable? How will I price my SaaS software? At what level? How much money do I need to launch my business? What will be the schedule for the launch of my business?

Ensure the smooth running of the company

A cash flow budget allows you to establish the needs of a SaaS company to ensure its operation. This will allow you to identify potential problems that would penalize the development of your company.

A well-executed cash flow budget will prevent you from defaulting on payments. By anticipating this type of situation, you will be able to adjust your supplier payment schedules or opt for a different pricing model. Your first objective is to avoid going into the red!

Make development decisions for the company

It is impossible for a company manager to make decisions concerning his activity without a precise knowledge of hiscash flow. 

A cash flow analysis allows you to make a typology of customers according to the revenues they generate for the company. Conversely, it will help you identify the providers or suppliers that cost the company the most.

This detailed knowledge is essential in the projection of cash flows. It will help you to make relevant decisions in order to improve your profitability: reinforcing your marketing efforts on a type of clientele, changing service providers, redesigning your website. 

You will be able to better determine the time to make your investments as well as the amount you can allocate to them.

Find financing

Don't underestimate the value of a carefully crafted cash flow budget when seeking funding. The more accurate you are, the better your projections are for the SaaS model and your business, the more confidence you inspire in your potential investors.

Moreover, by taking the time to ask yourself questions about the future of your business, you will have a better grasp of the subject and will therefore be more effective in presenting your business.

How can I optimize my cash flow budget?

Getting help with cash flow management

So you've understood, managing your cash flow is essential to ensure the smooth running of the company. A brilliant idea, a powerful software, a great communication are not enough. You must make sure that your financial flows will allow you to carry out your activity.

For this, there are software to help you manage your flows. Do not hesitate to use them, they are often SaaS like you. They will simplify your life, allow you to save a considerable amount of time and be more serene on a daily basis.

Getting help with business financing

As mentioned, making a cash flow budget allows you to identify your financing needs. There are several sources of financing. You can use traditional means (equity, business angel, VC funds, etc.) But there are also other less restrictive ways to find funds to develop your business.

For example, a company like Karmen offers loans to SaaS companies to help them finance key positions such as marketing and recruitment. The advantage of this type of solution is its flexibility and speed. 

You can repay at your own pace by setting your own schedule, funds are available within 24 hours, and most importantly, you retain 100% control of your business. 

The company Karmen has just raised 50 million euros in debt. It currently has 3 offerings based on RBF.

Developing a SaaS business presents many challenges and it is very easy to be overwhelmed by poor cash management. So don't leave anything to chance, take the time to patiently build your budget, it will help you navigate the sometimes stormy waters of entrepreneurship.

Don't miss out on solutions that are at your fingertips and that will simplify your life, whether it's for pure cash management or for your financing needs.