SaaS Businesses: 3 Common Finance Mistakes

This week in our Q&A series with our Co-Founder Susan Richards, FCPA, FCMA we decided to tap into her expertise with SaaS businesses.

Q: What the 3 common finance mistakes you see with SaaS businesses?

A: The SaaS business model is very distinctive and very hot right now.  But it is a ruthless business model.  I could probably write for days on all the mistakes that exist within this business model, but I’d say the 3 most common mistakes are the following:

1. Underestimating how difficult (and expensive) it is to acquire revenue paying users. I think there isn’t enough focus on the target audience right at the start of the business and as a result the products are not being fully imagined and designed with the target market in mind.  Tech startups often spend upwards of $1million dollars before they even start talking to prospective customers. This is a mistake.

2. Not understanding the prescriptive nature of the business model.  SaaS is not actually a really difficult business model to understand, but it isn’t exactly intuitive either.  Traditional financial statements do not measure SaaS performance well at all, and frankly it’s not easy to get SaaS expertise at banks and accounting firms so founders are often not guided in the right direction from the start.  Every SaaS founder should have a seasoned financial expert in their network for regular steering conversations early on.  Mistakes are expensive.

3. Continuously running out of cash.  The SaaS business model requires ruthless cash flow discipline because it takes so long before customer revenues can sustain the business.  Until that time it’s a game of fundraising which never truly stops.  Those that succeed are very prescriptive in their approach, very iterative, very calculated, very measured in their sequencing of focus so that they can build momentum and not suffer layoffs year after year.

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