For the longest time, all B2B SaaS companies and investors cared about was growth, at any cost. So much so that there were barely any discussions around liquidity or cash flow management for a B2B SaaS business.
Since the past two years, though, this trend has turned on its head. And effective cash flow management has emerged as a marker of business stability. After all, only if you have more cash coming in than going out can you cover expenses and grow.
The existing macroeconomic uncertainties, intense competition for business funding and high valuation, and a greater focus on efficiency over growth, are considered the causal factors for this paradigm shift in financial operations.
In a recent webinar, we spoke with Johan Castevall, Chief Financial Officer of Younium, and Co-Founder and Partner at Partinc Capital. And here are some of the key cash flow-related takeaways:
Be it in the boardrooms or discussions with VCs, cash flow planning is all anyone can talk about these days. But, what exactly is in this for you?
A good growth rate decides the ARR multiple, and hence the valuation of the company.
But while growth (or scaling your business) is an important driver of the valuation, Johan cautions against losing sight of the cash-in and the revenues.
So, the first step in cash flow management for B2B SaaS companies is to have a finger on the pulse of how efficiently the business is converting closed deals into cash. To this end, he recommends securing a deep understanding of customer payment terms and payment patterns.
Next, you need to use this information (and other financial metrics) to improve cash-in and revenues.
Johan added that cutting costs is easy. But, building an efficient order-to-cash process is very tough. On this note, he shared, “While it's great to be able to keep your business as lean as possible (eliminating unnecessary expenses), do so without jeopardising your ability to keep up with competition.”
The ideal time period for companies to try to reach a cash-positive state is within five to seven years from the date of inception.
But, this is not a rule written in stone, as Johan added that the time it takes to become cash flow positive tends to depend on the company’s growth journey and owners’ agenda.
Side note: Experts at McKinsey believe that ideally, the sum of a SaaS company’s growth rate and its free cash flow rate should be 40% or more.
We asked Johan about the metrics he finds most critical from a cash flow management perspective. And he recommends that SaaS businesses focus on two major KPIs.
There is no better way to manage these cash flow KPIs than by harnessing a powerful B2B subscription management solution, such as Younium.
In the next section of this article, Johan outlines how such platforms optimise and automate your cash flow management processes.
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Johan believes that this decision is difficult to take since there usually is a communication gap between sales and finance. But with automated technologies in place, you can decide on the action, execute it, and then communicate it organisation-wide with greater ease.
Meanwhile, automation of the dunning and invoicing process means fewer instances of unpaid receivables.
Therefore, Johan recommended that SaaS businesses choose a flexible solution that integrates to their CRM “for smooth handover to new orders”, while also integrating with PSPs and third-party dunning platforms.
You should also consider using the following AI technologies to further improve the operations of your SaaS business:
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Johan believes that cash flow management for B2B SaaS businesses and contractual terms are deeply interlinked. He said, “If you're missing out on a solid legal contract structure in your customer agreement, you're adding risk of misunderstandings or expectation management issues arise. And, as soon as anything is up for interpretation, payments end up getting delayed.”
This is why your sales, finance, and customer success teams need to work together to review the contract structure. And then, you must offer clear communication around the contract terms in order to set customer expectations. This will ensure that the customer at least pays the initial invoice.
And when it comes to invoice payment, he recommends defining the pricing models/strategy, growth tiers, and identifying price drivers that enable you to increase the subscription value. In this way, if the customer is growing, your revenues also grow with it.
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Younium is a one-of-a-kind subscription management ‘hub’ built with the purpose of supporting B2B SaaS companies. Here is how it can be your close aide in navigating cash flow struggles:
Younium helps you track key revenue and cash flow metrics and even make accurate forecasts.
Image via Younium
“If you look at the typical technology ecosystem, we usually fit right in the middle of the CRM system and the financial platform. And in some cases, we also connect with your own SaaS service,” said Johan in conclusion.
Watch Younium in Action here to figure out how we can help you with building a cash-rich SaaS business.
1. What should a B2B SaaS cash flow statement look like?
A B2B SaaS cash flow statement typically follows the standard three sections: operating, investing, and financing activities.
It must detail subscription revenues, customer payments, recurring billing cycles, and any delays in receivables. Additionally, it should reflect outflows such as payroll, software costs, and marketing expenses.
2. Are there any strategies for cash flow management for B2B SaaS businesses?
Yes, several strategies can improve cash flow management for B2B SaaS firms. These include implementing upfront annual billing, reducing churn, offering discounts for early payments, and automating dunning processes. Forecasting cash flows using real-time SaaS metrics is another critical strategy.
3. Can automation enhance cash flow management for B2B SaaS firms?
Absolutely. Automation enhances cash flow management for B2B SaaS firms by streamlining subscription billing, invoicing, and payment follow-ups. It reduces human error and ensures that no revenue opportunity, like renewals or upsells, is missed.
4. What are the common challenges in cash flow management for B2B SaaS firms?
You can face cash flow management challenges like late payments, high customer churn, complex billing structures, and misaligned sales-finance operations. Without proper tools, these issues can hinder accurate revenue tracking and forecasting.
5. What are the best practices for cash flow management for B2B SaaS startups?
Startups should prioritise setting up clear invoicing cycles and adopting annual upfront payments to boost cash-in. It’s also essential to regularly review SaaS financial metrics.
Cash flow management for B2B SaaS companies involves much more than just tracking income and expenses. It’s a way to optimise your entire financial process.
Businesses that fail to prioritise this aspect often face stalled growth or financial instability.
Thankfully, automated platforms like Younium offer features for optimising cash flow by integrating billing, CRM, and financial tools for better visibility and control over both cash inflows and outflows.
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