- 9 April 2020
- Posted by: Canberra Innovation Network
- Categories: Event News, Weekly Innovation Challenge
Predicting cashflow, it sounds like a tedious task, one that many startups would like to put on the ‘to do later’ list. However even if you are not a numbers person, it is an important topic to understand as it enables you to make informed business decisions that could be the difference between ‘making it’ or ‘breaking it.’
So, before we talk about managing cashflow, there was a helpful lesson in terminology.
First word; runway!
Whilst the thought of travelling to a tropical beach is a nice one, the term does not refer to an airport, although the analogy is a helpful one.
So, what does it mean? Your runway refers to the time between now and when your money runs out. The longer your runway the better, as it provides more financial security for your business.
Second word; churn.
This is related to the percentage of your customers who leave, typically for SaaS it is around a 5% churn rate. Which means the lower the percentage the better, you want to retain your customers, right?
Now that everyone is up to date with the terminology, it is time to look at different cashflow models and scenarios. Which leads us to the loveable spreadsheet, you either love them or you hate them. But regardless of how you feel about them, projecting and forecasting numbers is critical.
An easy way to start is by populating the spreadsheet, breaking it down into costs and revenue to discover where your gross profit lies. After a few months in market you will be able to look at trends and revenue from your sales. From this information you can start monthly forecasts, for example, predicting a 10% increase in sales on a month to month will help you see a clear trajectory of your reoccurring revenue, which will lead to better decision making,
This is a never-ending cycle and is a part of your business structure. Having numbers handy can help you sell your pitch to the most unlikely investor – think elevator!
In the famous last words from our guest facilitator.
“If you think you know everything, you don’t” – Harold Dimpel, CEO mHITS
So, on that note you will need to tune into next week to learn something new.
Weekly Innovation Challenge: Connecting to customers in a COVID-19 world.