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Be SaaSy: Looking at Working Capital the Way SaaS Does

Working Capital is a boring term….but is $ in the bank?




SaaS - “Software as a Service”. SaaS businesses have evolved to become laser focused on operational metrics that allow them to know how they are consuming their current cash (the “burn rate”) in order to accelerate their sales growth, and when they are projected to need to raise more money.


The inflection point in customer growth when Operational Cash Flow (true Cash Flow, not EBITDA) turns from negative to positive once critical mass in the customer base is reached typically requires several years of effort and of capital; the start-up period.


Key Management & Financial Metric: current Working Capital and planning for the funding of the increasing need for additional working capital - EVEN WHEN THE BUSINESS IS DOING WELL - BECAUSE IT’S DOING WELL.


New clients & customers do NOT pay for themselves initially – the upward spiral in customer acquisition is driven by the corresponding downward spiral in available cash. All growing businesses face this working capital squeeze and though they all would do well to actively manage their cash flow and working capital, few do it as well and pro-actively use the resulting KPIs from their ERP data to actively manage as do SaaS enterprises.


Customer Acquisition Cost (CAC) will kill you if you are not brutally realistic about it. Lifetime Value (LTV) of your customers comes L A T E R. It may be on your projections and spreadsheets now but it’s not money in the bank now. Getting this wrong will have the business be in technical, if not actual, bankruptcy, and that is not when you want to have to go and raise more money whether it’s your series B or C etc.


Churn & Monthly Recurring Revenue vs. up-selling and cross selling…and adding actual human salespeople. Shocker but most high-tech SaaS companies need really good salespeople to grow at the maximum rate (look at SalesForce for example).


Cash $$$ vs. Burn Rate vs. Bookings vs. Next Capital Raise (Series, A, B, C…)

The SaaS industry benchmark “Magic Number” – if not 1.0 or higher management has some urgent tactical work to do.


Best regards,

Andrew Barker CFO MBA CPA

Middle Market Advisory LLC



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