You should never be surprised to come to this blog and find posts about why SaaS companies should invest in finance, accounting, and related metrics and analytics early in their life cycle. I mean, it’s what we do.
And we really love it when we see and hear other influential leaders from within the SaaS community touting the importance of effective financial management. One such influencer is Jason Lemkin (follow him here on Twitter), a SaaS founder, CEO, and advisor to SaaStr. He also happens to be a guy who has a heck of a lot of smart advice and guidance on all things SaaS, so if you don’t already follow him, you should.
Over the weekend, Lemkin shared the following Tweets that offered insight into why he feels startups need to pay attention to finance right out of the gate. Check ’em out, and I’ll meet you on the other side.
– terrible at collections. start-ups without an A/R function often have $250k-$500k in uncollectible receivables.
– metrics that break and don’t make sense. starts to harm you in later fundraising.
– inability to do cohort analyses, or even often, any basic analyses
— Jason ✨?????????.???✨ Lemkin ? (@jasonlk) February 15, 2019
at least commit to one KPI: collect at least 110% of your MRR each month in cash.
if you can do that without even a 1-day a week controller, great
but if you fall below 100%, something is W R O N G
— Jason ✨?????????.???✨ Lemkin ? (@jasonlk) February 15, 2019
There are a couple things that I’d like to highlight here. First, collecting cash from customers is, no doubt, very important. And there are a lot of B2B SaaS companies out there that are subscription-based, so they collect payment up front before services are rendered. But if your business doesn’t collect cash up front, ask yourself “why?” and try to change it. This is the simplest way to avoid uncollectible receivables. Not to mention, it’s a business model that almost everyone is accustomed to.
Another key item to unpack here is how important accurate financial reporting really is. That notion drives a lot of questions. How accurate is your bookkeeping? Are you recording transactions in accordance with Generally Accepted Accounting Principles (GAAP)? What the heck is GAAP and why does it matter? Do your financial statements make sense? Do they balance? Have you checked? Or are you just minding the balance in your checking account, and that’s it?
As Lemkin mentions, and what I really think is the essence of these Tweets, is “Metrics that break or don’t make sense start to harm you in later fundraising.” Read that again, maybe out loud, and think hard about whether you’re tracking your metrics correctly, or even at all. If you aren’t accurately recording your transactions, if your general ledger isn’t set up to correctly, if your financial reporting isn’t structured properly, then it’s highly unlikely that you are properly tracking the metrics you need to effectively make decisions in your business. These are the same metrics you’ll need to know intimately when you seek funding.
The bottom line here is do not wait to start paying attention to the finance side of your business. Do not wait to start tracking KPIs and other metrics that are important indicators of your business’s health and trajectory. If you don’t have the time to do this, find someone who can help. Hire a part-time bookkeeper, hire a financial management advisor (like us), or find someone you know who can help get you set up. Don’t wait until the last minute to do these things only to discover how much you really need to do before what could be the most important meeting in the history of your company.
About Left Mind
At Left Mind, we partner with B2B SaaS businesses to provide subscription-based virtual financial management services built specifically to serve this dynamic business model. This boutique approach offers SaaS businesses significant benefits over traditional consulting firms that serve multiple industries. By specializing in the SaaS industry, Left Mind is able to leverage their knowledge and insight to provide exceptional value to their customers. Contact us today for more information.
