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We’re a profitable SaaS startup that is self funded. What accounting best practices should we adopt to leverage profits to reinvest in growth?

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JASON LEMKIN

While no pure accounting magic will change cash-flow (probably the only metric other than revenue that matters when you are bootstrapped) … what will confuse you, and affect your cash-flow planning, is renewals. Especially, renewals of pre-paid annual deals.

The cash impact of renewals always creeps up on us, and it can be profound in a high-growth, pre-paid annual+ SaaS business.

For example, we targeted bringing in at least 120% of our MRR every month in cash, once we hit Year 3 and started to see impactful renewals of annual deals coming in.

And the faster you grow, and the higher % of deals are prepaid, the more you can push that % up higher.

The difference between 80–90% of MRR coming in as cash — where you’ll start (with the lag in getting paid with Net 30/60 terms and customers that are, sigh, late in paying) and 120% is really big, and if you are bootstrapped, can be profound.

But it takes time. You’ll have so few customers in Year 1 that it’s not until Year 3 that pre-paid renewals really impact cash flow a lot.

But when they do, you can invest ahead more than you’d planned.

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Published on September 6, 2016
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