3 mins read
Good news or bad news? Early and growth stages SaaS companies can find the answer in their cash flow. Cash flow analysis and tracking have become imperative for these companies namely to meet investors’ demands who analyze cash flow information in order to make their financing decisions of investing in these companies.
Also, SaaS founders can make real-time decisions, optimal investments, and choose the right growth financing option by simply analyzing their SaaS metrics and accurately predicting their cash flow. It’s this essential understanding that allows these companies to reach a stable financial position and ensure certainty in uncertain times.
As studies have shown, a positive correlation between cash flow uncertainty and firm liquidation risks clearly exists, therefore accurately predicting cash flow holds a high priority for SaaS companies more than ever.
In this blog, we will outline 3 major reasons why predicting cash flow is a high priority to reduce various risks related to SaaS companies, especially during their early and growth stages.
Reminder:
Predicting cash flow goes beyond traditional forecast methods, it leverages computational methods like Artificial Intelligence (AI) techniques, Machine Learning (ML) models, and big data mining to analyze historical data, internal and external data, discover patterns, identify trends, and predict future cash flow scenarios.
1-Prevent and bridge cash flow shortfalls
The various pricing models in SaaS, customer churn risks, and increased investments in customer acquisition during the early stages, not only affect a SaaS recurring revenue but have a significant impact on its cash flow.
For example: in the early growth stages of SaaS companies, churn is the utmost concern. As the client’s database size is limited, when a high-value customer decides to churn, it leads to losses in recurring revenues, an increase in customer acquisition costs to cope with the loss, and additional operational costs and expenses. As a result, it limits investment opportunities and increases cash outflows that create cash flow gaps.
To prevent these types of scenarios and reduce shortfalls risks, predicting cash flow is critical. Having an accurate prediction, helps SaaS companies identify future shortfalls, foresee expenses and make informed decisions to better manage cash and gain trust among investors.
Actionable tip: To make your inflows more predictable, you must predict high-risk churn customers and offer them incentives (Special offers, discounts, payment terms, etc.…) or enhanced customer support to retain them 😊
2- Reduce the risk of delayed/defaulted/non-payments
Predicting cash flow is a high priority when it comes to managing and planning SaaS customers’ and vendors’ payments. It plays a critical role in maintaining a healthy cash flow and building good relationships with stakeholders.
Especially with payments planning, SaaS companies should take timely decisions based on accurate future predictions. To do so, SaaS companies may adopt automated solutions to manage billing cycles, such as Chargebee.
Predictive analytics tools can use this information to get data-driven future predictions of the cash flow. By analyzing the patterns and discovering cash flow trends, SaaS companies can reduce payments associated risks and maintain a positive cash flow operating environment.
3- Cope with the global macro environment
The economic downturn has slowed down SaaS companies’ activities, and the European Central Bank (ECB) is expected to announce another interest rate hike beyond July (Reuters). Early and growth stages SaaS companies are notably affected by this macro environment that could have a dramatic impact on their cash flow if founders don’t take the right decision at the right time.
Considering raising funds for growth activities during these uncertain times with these increasing interest rates is a hurdle for a business. But how can predicting cash flow at its earliest help?
Collecting internal data such as SaaS metrics and financial metrics, also external data on the economic and industrial levels, and studying the patterns, behaviors, and other factors can give SaaS founders accurate predictions on their cash flow.
Once the risk of a cash flow gap is identified at an exact time in the future, founders can turn to an alternative funding solution that eradicates the future uncertainty of these cash flow gaps. This approach ensures better financial stability and better operational execution by founders.
Last words
Predicting cash flow helps reduce risks related to SaaS companies, especially in their early growth stages, and has numerous benefits such as:
- Seize growth opportunities
- Improve planning/ budgeting with data-driven insights
- Improve the decision-making process using real-time data
- Seize good funding and investment opportunities
- Avoid paying high-interest rates
- Maintain positive relationships with stakeholders
Predict your cash flow and get funded with Tapline
With Tapline, you don’t have to go through an extensive and comprehensive study of patterns, internal metrics, and economic trends to predict your future cash flow and bridge the gap. We developed a unique approach, we call: SaaS Intelligent financing!
You just have to connect your existing tools, and we take it from there! Tapline supports B2B/B2C SaaS founders to visualize and predict their SaaS financial metrics, their cash flow and also backs them with growth capital to bridge their financing gap.
Our predictive financing solution is transparent, non-dilutive, and provided in just 48h!
