Cash Flow Forecast For Startup BusinessFeb 4, 2021
SAAS (Software As A Service) companies and startups, especially in technology, have a lot of tea leaves to read. In order to attract investors and funding you need to have a strong handle not just on the quality of your product but on the quality of your market.
Cash Flow is Crucial
A startup lives and dies by the dollars it brings in, especially in product development that’s heavy on research and development or engineering. Resources to create a product can be expensive, and managing cash can require almost daily maintenance.
This is also where forecasting becomes critical. A startup has only so much runway, so knowing your burn rate and when an infusion is necessary requires foresight and strategic thinking.
More Sales or More Funding?
Accurate forecasting is a driver for financial decisions, but forecasting can be difficult in a startup with new products or untested markets. The question becomes: what are the realistic sales goals you should set and how detailed will you be in managing them?
- What are your target markets?
- How deep into customer segmentation should you go?
- What competitive advantage do you enjoy?
- Are there seasonal considerations to what you sell?
- How does engagement, attrition, and retention impact revenue?
Without accuracy around your sales functions you’re missing essential factors to smart decision making.
On the other hand is consideration for what kind of funding is right for your business. In the life of a startup we typically see seed funding from friends and family or business associates. This might evolve into angel investors or venture capital. Further down the road you might even look at going public, or selling the company. In any case what will investors be keenly interested in? That’s right – forecasts. What do you plan to do? How? With what?
Forecasting With Data
A capable CFO amongst your business advisors is key to helping you create forecasts that help your sales or funding strategies. An experienced CFO – or in our case at ProCFO Partners, part of a network of high performance CFO’s – will have depth and breadth so that whatever stage the startup is in, guidance and expertise can come from real-world knowledge.
The data, reports, and forecasts continue to be essential as you grow. Once you’re cash-flow positive, is it time to start diversifying products or expanding your market? When should you consider acquisitions to help your competitive posture? How do you respond to evolving market dynamics? Being able to understand your data, read the directions the data is providing, and take smart, insightful action is the key to moving from startup to sustainable.