03/24/2023 | Press release | Distributed by Public on 03/24/2023 07:25
Do you know the best way to manage cash in and cash out for SaaS companies during a recession? It's an especially important question for newly-hired CFOs to consider.
Most firms realize the need for financial clarity if they're going to survive the sluggish market conditions that have recently prevailed in the software space.
This article will help you get a better understanding of cash flow for SaaS startups, and how to manage your firm's finances in inhospitable markets.
Gain cash flow clarity with our free forecast template.
In a nutshell, cash flow is the movement of money in and out of your company. Most of the time, it takes the form of cash, although liquid cash equivalents may be included in some cases.
Cash flow is among the strongest indicators of a company's financial health. Optimizing and predicting it with the help of automation is a central task for today's accounting teams.
An equally important counterpart to your cash flow is your cash flow statement.
A financial statement gives a snapshot of a company's cash position. It shows how much cash migrates in and out of a company, and where it's going and coming from. Financial statements cover the operational, investment, and financing aspects of a company's relationship to its capital.
However, there's one caveat: Negative cash flow might signal a serious problem for business owners, but not always. Sometimes it's the short-term result of expansion activities, hiring waves, or M&A.
Understanding cash in and cash out lays the foundation to fully optimize your business operations. But before you can improve your company's finances, you need to understand them deeply.
Automated accounting software offers a level of visibility, efficiency, and control over cash flow that was previously unheard of. With the press of a button, finance teams can access critical cash metrics such as:
Forecast variance: Forecast variance is the difference between financial forecasts and financial reality. It's essential to minimize this figure, which is expressed as a percentage or the equivalent number.
DSO: Days sales outstanding (DSO) reflects the gap between when a sale is made and when you receive payment on that sale. Automation can help you bring your DSO as low as possible.
Free cash flow: Free cash flow is what you have left after paying for your business's capital and operational liabilities. It's called "free" cash flow because it is free of obligations and available for use.
In addition to understanding cash flow itself, you'll need to grasp how a recession impacts it, and know some strategies you can use to maximize your firm's resources.
Gain cash flow clarity with our free forecast template.
Cash flow priorities in a recession are slightly different than during bullish market conditions.
In particular, you'll want to prioritize two main objectives:
1: Axe or scale back what's failing: Whether it's underperforming sales staff or poorly received products, harsh market conditions call for total honesty about what's subpar.
2: Improve and build on what's working: Once you've identified your poor performers, you can focus on your star players. That might mean using automated forecasts to make hiring expansions or trying to penetrate a promising market-as long as you can justify your decisions with data.
A recession is also a great time to reevaluate how a company tracks and improves its cash flow. If your business has been lagging in adopting automation, there's no better time. It's the single most effective way to manage cash in and cash out.
Companies should adhere to some standard best practices for how they relate to cash in and cash out. In particular, as a newly hired CFO, you should:
Remember, when it comes to cash flow, your accounting processes after bringing in revenue are just as crucial as your methods for sourcing that revenue in the first place.
Cash flow is one of the central realities of any business and should be optimized in every possible way.
From role-based dashboards for SaaS finance leaders to in-depth revenue recognition assistance, Sage Intacct helps companies understand cash in and cash out at a granular level of detail.
Learn more on how to monitor and manage SaaS financial drivers to steer through the recession.
Gain cash flow clarity with our free forecast template.