Last editedJan 20222 min read
In simple terms, a cash flow model is a means of forecasting the cash flow in your SaaS business. Cash flow is the money coming in and going out of your business during a specific period of time, and knowing when cash is leaving and entering your SaaS business is vital when it comes to making any kind of plans for the future.
Cash flow forecast for SaaS is a model which makes use of current and historical data in order to determine how much money your SaaS business is expected to receive and spend over a set time frame going forward. Having this information to hand will enable you to tweak your plans for the future and the direction of your business on the basis of how any changes will impact on cash flow and other metrics such as net profit in the future. Decisions such as taking on new employees, changing the pricing structure of your products, adding to your product offering or buying new equipment will all be easier to take if you can use a SaaS cash flow statement and cash flow forecast to estimate the impact they will have on the amount of cash you’re able to call upon.
Improving cash flow for your SaaS business
The first thing any SaaS business owner needs to do if they want to improve the cash flow of their business is to fully understand exactly how they are currently using cash. A full audit of all financial and business activity, including collation of all expenses, will create a picture of where the cash which comes into your business is being used. Expenses to look out for include rent, travel costs and salaries, while other financial activity will include invoices and sales.
The more data you are able to pull together, the more accurate any SaaS cash flow model will be, and with the SaaS pricing model in particular the details of exactly when clients make payments – and how much those payments are – need to be clearly accessible. Working with GoCardless is one way of ensuring that your SaaS business has the processes in place to ensure regular and predictable payments. We offer a direct debit payment solution, which can be scheduled in advance, which means that – although the direct debit system has a three-day cycle – you can receive recurring payments which always land in your account on the day which you intended. Working with direct debit rather than other forms of payment means reducing the percentage of payments which fail and puts control of the process, and in particular of the amount paid and the date of payment, in your hands rather than your customers.
Not only do GoCardless enable users to process direct debits, we also offer the Success+ product. This is an intelligent retries product which means that, if a direct debit payment fails to go through, a retry will be scheduled on what is the best day for each customer.
Once you’ve audited the cash flow of your SaaS business and made forecasts based on payment schedules you can rely on, you should check those forecasts on a regular basis. If your cash flow isn’t growing as you predicted it would, then you’ll be able to make adjustments to your cash flow model and your working methods.
We can help
If you’re interested in finding out more about improving cash flow for your SaaS business, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments