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Cash Flow Planning Basics For SaaS Companies

Ideally, when building a SaaS business, you would want to hire a CFO or Financial Director to track and manage that cash flow of the business. However, in today’s day and age, many startups or businesses in their early stages find this impractical and hold out until their business has grown to the point where needing a CFO is necessary.

Until they achieve their desired level of growth, many businesses, including those in the SaaS industry, rely on software and templates to help them get the basics of their cash flow right.

Cash flow forecasting allows businesses to project cash inflows and outflows over a forward-looking period of time. If you’re wondering why, you should read “4 Reasons Why a Cash Flow Forecast is Useful For a Small Business”.

The first thing that companies should remember is that cash flow planning is not accounting as there are key differences between liquidity planning and the actual accounting process. While accounting is essentially the practice of reporting and recording financial transactions to comply with various aspects of law, cash flow or financial planning has a more immediate impact on the efficiency of your business’s operation. 

In this post I’ll be covering:

  • Cash flow planning and financial forecasting is key to help businesses visualize the future
  • When it comes to cash flow forecasting, human error is the biggest challenge
  • Good cash flow planning has invaluable benefits for SaaS businesses
  • Final thoughts

If you’ve missed out on our previous cash flow related posts, take a look at our cash flow section on our blog for articles that can help you understand “Direct vs Indirect Cash Flow Methods: What’s the difference?” , or help you improve your projections with “18 Actionable Cash Flow Forecasting Tips for Small Businesses & Startups”.


Cash flow planning and financial forecasting is key to help businesses visualize the future

Startups and small enterprises, including SaaS businesses, rely on cash flow – or liquidy. While many SaaS business are able to accurately track and report on relevant metrics such as MRR (monthly recurring revenue), churn rate, or ARPA (average revenue per account), many are not as necessarily as adapt at compiling their cash flow forecasts – especially newly founded businesses or those of more limited means to hire a financial expert.

This is where cash flow planning, forecasting templates and specialized software comes into play. Without the need to be a financial expert, there are an array of templates and tools available that allow businesses, including those in the SaaS sector, to accurately gain a holistic view of their cash flow and liquidity to identify what the business needs to be profitable and grow.

Forbes has a great article on “Six Tips For Creating A Cash Flow Forecast To Help Grow Your Business” that is worth taking a peek at if you’re looking for some financial planning inspiration from the experts.

There are many spreadsheet templates and specialized tools available to help businesses plan for their financial future, one such software is Brixx – showing us just how simple it can be to create a model within their system

Financial forecasting allows businesses to gain complete visibility over all cash flowing in and out of the business each month to ensure there is enough cash in the bank to cover planned for and unforeseen expenses. A detailed cash flow forecast gives you comfort that your business will have enough money over the coming months and the confidence to invest it in new ways to grow your business.


When it comes to cash flow forecasting, human error is the biggest challenge

Unfortunately when it comes to cash flow planning, a number of businesses still make a few common errors which can spell disaster on their scenario models. We’ve taken the time to list the most common mistakes businesses make to help you avoid going down those rabbit holes. 

1. Being too optimistic in financial modelling scenarios

As human beings, we want to see and believe in the best life outcomes. When it comes to business, we are no different. Overly-optimistic cash flow planning is very common so it is key to plan out room for unexpected expenses and worst case scenarios. This helps businesses predict the outcomes of a multitude of events while allowing you to aim for the best one. 

2. Not getting the timing quite right

When planning your cash flow scenarios, many businesses still forget to enter realistic timelines for their incoming and outgoing funds. For example, does the money you receive in October only arrive in the account in November? By managing financial inflow and outflow timelines correctly, cash flow projections and scenarios will be more accurate.

3. Unplanned growth costs

For many SaaS businesses looking to plan their financial futures, costs associated with business growth are often overlooked. Whether it be increased use of  tools like Slack, Asana, etc; salary raises and budget increases; or office expansion and increased staffing, it is sometimes easy to forget to enter every little detail into your cash flow plan. 

4. Lack of accuracy and detail

In order to achieve optimal success from your financial plan, it is important to pay attention to every detail of your incoming and outgoing money streams. While this may be a tedious process, you will thank yourself in the long run. 

5. Having too many debtors

Significantly true for SaaS businesses is that if a client is not paying on time for a service, money is being lost on two fronts: the revenue owed for the service and the expenses incurred to deliver that service. By ensuring proper management of debtors, and planning out worst case scenarios, cash flow planning can become more efficient.

Cash Flow Planning Basics For SaaS Companies blog post image of a frustrated man

There are a number of other issues that SaaS businesses face when it comes to financial forecasting for their business growth, including losing existing subscribers, not getting enough new customers and more. Using a specialized financial forecasting software can help minimize the human error aspect of the cash flow planning process and give you all of the information you need to make better business decisions. 


Good cash flow planning has invaluable benefits for SaaS businesses

There are a number of advantages to having good cash flow planning in place within a SaaS-based business, among others these include: 

1. Multiple cash flow scenario testing

Cash flow planning for SaaS businesses allows for the testing of multiple scenarios to help companies get a better idea of which situation is vital to the company’s growth. By building out multiple financial scenarios, whether in a spreadsheet or through the use of specialized forecasting software, businesses can explore the best and worst ends of the spectrum and design their path forward while implementing sustainable measures for each outcome.

2. Data-driven business decisions

By having a clearer, holistic view of your liquidity parameters, SaaS businesses are able to make better decisions based on fact, rather than on gut feel. A clear cash flow projection provides all the necessary information companies need to optimize their incoming and outgoing money streams while being able to better plan expenses and present more accurate reports.

3. Venture capital-funded businesses get clarity on burn rates

Having a clear view of burn rates and runway is key to a VC-funded business. FInancial and cash flow modelling helps companies plan expenses and timelines accordingly to ensure their cash flow does not run out before the end of their runway.

4. A holistic view of expenses and profit

Whether by use of spreadsheets or software, having a visual representation of expenses will help businesses easily spot inconsistencies and avoid unnecessary waste. Successful cash flow modelling allies for the streamlining and optimization of expenses that help increase overall profit. 

Brixx is a specialized cash flow planning tool that helps SaaS businesses model their possible future based on multiple scenarios. This cash flow forecasting software helps businesses visualize how today’s decisions will affect tomorrow’s bank balance. 

Brixx’s cash flow forecasting software helps businesses with, among others:

  • Planning and managing cash flow with ease
  • Knowing when to invest money
  • Modelling cash based “what if” scenarios
  • Long term strategic planning

More accurate than spreadsheets due to decreased human error, Brixx allows businesses to use it as a standalone software or integrate it with their Xero accounting software. For many SaaS companies, specialized forecasting software like Brixx has been an ideal solution in planning for their growing needs. 

Offering a 7 Day Free Trial, see how Brixx can help your SaaS business model its cash flow future to give you an idea of where your business is headed and which path you should take to get there.


Final thoughts

Cash flow is the life-blood of a business, especially when it comes to those in the SaaS industry. Whether you are able to hire a financial expert to manage your cash flow or are looking for a low-cost alternative, it’s important that you implement cash flow planning into your business management strategy as soon as possible. This will help you grow your business based on the numbers that matter.

Take a tour of Brixx by trying out the Bike Shop Demo or take advantage of Brixx’s 7 Day Free Trial. See what specialized cash flow forecasting software can do for you and your business growth.

If you’re looking for more information on cash flow planning and financial forecasting, take a look at the Brixx Blog or read “How to Create a Cash Flow Forecast in Brixx” to give you an idea of how you can successfully manage and grow your business with specialized modelling tools.

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