If you want your SaaS business to grow, then you need to consider your cash flow. A diminishing cash flow will limit available capital for creating opportunities for growth and may threaten a business’s ability to maintain basic operations. Customers may therefore not receive the best customer service and subsequently leave the business – further reducing cash flow.
There are numerous activities that can negatively affect your SaaS business’ cash flow, so what are the top five actions you should take?
1. Increased Accounts Receivable
One of the biggest problems that can negatively affect your business’ cash flow is having a significant and growing list of debtors to the company. This is a double edged sword for your company because not only are you not receiving the revenue owed to you, but you are spending money delivering a service to your client.
The only way to combat this is to use an automated billing service that will cut access to your software if they don’t make payment.
2. Decreasing Customer Acquisition
Another common reason why cash flow decreases is a lack of new customers coming into the business. Even if your customer service is excellent and you offer the best software, you will have some customer churn. If you don’t have strong brand positioning and marketing and are therefore not promoting the business, you will struggle to replace those customers and therefore the cash flow each month will lower.
So always remember to check your marketing efforts and your website copy to ensure it is working effectively and attracting new customers.
3. Increasing Customer Churn
If you are finding that customers are discontinuing their subscription to your business’ software then you are suffering from a serious problem. An increasing customer churn rate leads directly to lower revenues and therefore a poorer cash flow. Without these customers it is unlikely you will be able to make enough to pay for expenses and therefore, your business’ existence is placed at risk.
To combat this you need to know why customers are leaving your services. Once determined you can then take action to stem the flow of customers exiting and move towards a higher customer retention rate and better cash flow.
4. Higher Costs
While the lack of customers can be a major threat businesses face, there is one more that is sometimes overlooked – rising costs. Over the longer term, costs are expected to increase due to inflation, but in the short term this isn’t necessary the case, so businesses should always be seeking ways to reduce costs in order to increase profit margins and improve cash flow.
When you conduct monthly or quarterly financial reviews, study your expenditure, seek out areas where there are rising costs and take action to reduce them. The more control you have on your costs the better the financial position your business will be in the long term.
5. Poor Credit Terms Compared To Customers Paying You
If you have customers that can pay you within 60 days or more, but you have to pay for those supplies within 7 or 14 days, then you are creating a scenario where you have funds leaving your business before they’ve even entered. This creates a headache for your business and can seriously affect your business’ cash flow.
Instead you need to seek credit terms from your suppliers that are longer, or the same, than the terms you provide to your customers. However, the best option is that you request payment from your clients upfront.
Your business’ cash flow is important. It helps you maintain your services while also expanding. Therefore, you need to look for ways to improve the cash flow of your business to make sure that you always have a positive flow of cash. Use the list above and check that you have the financial processes and accountability in place for your SaaS business.