An Operator’s Guide To Managing Your SaaS Startup’s Cash Flow

Rule #1 — Don’t Run Out of Cash. Rule #2 — Don’t forget Rule #1.

As an operator in a finance capacity, I have two core rules: Rule #1 — Don’t Run Out of Cash. Rule #2 — Don’t forget Rule #1.

Queue in the blatantly obvious statement > Operating a business is highly intricate. When faced with ten urgent matters in a week, most operators resolve five, prioritizing the most crucial. Exceptional operators handle seven, downplaying the significance of the remaining three. And without top-notch operational metrics or visibility into operating metrics, the dreaded news of excessive cash burn looms large. This guide is tailored for startups striving to enhance their operational efficiency with cash in mind.

While this is not an overly comprehensive guide, my time spent serving at GitLab, Red Hat, Instabug, and now Uniqode has taught me a few core yet fundamental ways to ensure operators’ cash flow is as healthy as their product vision.

Annual vs. monthly subscriptions

The debate between annual and monthly subscriptions hinges on balancing short-term cash flow needs with long-term revenue potential. Monthly subscriptions provide steady, predictable income, which is ideal for maintaining liquidity and funding ongoing operations. Conversely, annual subscriptions offer larger upfront payments, improving cash flow visibility and reducing churn rates. With annual subscriptions, you’ll reap the benefits of immediate cash influx, and it will provide you with the time and focus to determine what your customers really want. After all, they will be with you for at least a year now (hopefully much longer as you work towards a high gross and net retention rate), and it will become very clear what is working and what is not. Even if strong product adoption isn’t there yet, I would encourage operators to focus and stay firm on adopting an annual subscription approach. It’s tough in the beginning but much harder to change later.

Winner: Annual subscriptions

Optimizing payment terms

You have annually paying and committed customers! Congrats! But what about payment terms on those annual (or multi-year 💸) plans?

When I am closing a deal with a vendor, I have a penchant for stipulating Net 30 quarterly payments upon entering into an annual contract. Why, you may wonder? Simply put, this arrangement allows me to retain three-quarters of the payment for a minimum of at least three months. During this time, I can allocate it towards high-yield investments such as a Certificate of Deposit or an Insured Cash Sweep account. While this strategy may prove advantageous for the procurement aspect of an operator’s business, it is ideal for an operator to concentrate solely on offering upfront annual payments.

Efficient payment terms play a crucial role in cash flow management. Keeping your cash longer is always better when it’s your business. Annual upfront payment terms with minimal net terms are guaranteed to keep your cash longer.

Winner: Annual Upfront with Net 0 payment terms

On the first two points above, I’ve added an illustrative example from one of our decks here at Uniqode of how this works out in practice:

Leverage macro environment changes

Knowing what macro environment you are operating in is incredibly important from both a risk and capital perspective.

Having strategies for each is equally important. For example, a multi-bank cash reserve strategy probably wasn’t on many operators’ radar before the March 2023 SVB crash, but it should certainly be on every operator’s mind now. Being on a call with Insight Partners CFO the weekend after the SVB crash, determining short-term capital needs wasn’t something I ever thought would happen, considering we just raised a significant round at Instabug. Luckily, things worked out the way they did, and we had cash reserves at another bank, but as an operator, it briefly grounded me back to my #1 Rule.

In a high-interest environment like the one we are in now, SaaS companies can leverage cash reserves to generate additional income through prudent investment strategies. At Uniqode, we have an ICS (insured cash sweep) account with two prominent U.S. banks that are part of our multi-bank cash reserve strategy. We also bank with an international institution that funds our India and global operations that cater to the needs we have today operating globally.

In a zero-interest environment (ZIRP), capital should theoretically be easier to find or come at a cheaper cost. While earning interest is not as advantageous, capital strategies around venture debt or lines of credit are a great way to ensure you have another insurance policy in case you need to fuel operations if cash flow becomes questionable.

Here at Uniqode, we’ve participated in strategies that have been both rooted in high and low-interest environments. Strategies around treasury ladders, high-interest accounts, multi-bank strategies, debt financing, or other financial considerations are a good way to ensure operators are taking adventures in the macro environment while protecting their business.

Winner: Multi-bank, multi-financial product strategies

Spending should be an outcome from great pain

My general viewpoint around spending and hiring is synonymous with AirBnB’s Brian Chesky. “If you want your company to truly scale, you must first do things that don’t scale. Handcraft the core experience. Serve your customers one by one until you know exactly what they want.”

As an operator, you would have or should always have some plan around doing things that don’t scale. Otherwise, the pain point is not significant enough to justify purchasing tools or bringing on an additional headcount. If you truly have such a pain point, the next tool or hire should automatically, at minimum, 2x the business productivity. By justifying spending like this, you save not only cash but also the ROI on that spending, which should almost immediately be returned to the business in some form or fashion.

Sharat, the CEO and co-founder of Uniqode, has been an entrepreneur for over 10+ years, pivoting more times than a junior accountant learning pivot tables. From Mobstac to Beaconstac to Uniqode, the business has transformed significantly, and it’s only because his focus on frugality was as disciplined as his co-founder Ravi’s product vision.

Winner: Spend less unless it’s painfully and obviously justifiable

Know your metrics

Lastly, know what metrics are important for running your business, why they are important, and pressure test them ruthlessly to ensure you, as an operator, are tracking towards the ultimate goal of incredibly efficient, best-in-class operating metrics. Like the late Peter Drucker famously said “If you can’t measure it, you can’t improve it”. While that is true, it is equally important to ensure you are measuring the right metrics and vetting them with your network or publicly available benchmarks. Your operating metrics are your compass to driving your business forward. If you don’t have your compass, you may sink the ship before docking.

While we track many operating metrics here at Uniqode, the five key metrics below keep us grounded on the high-level questions assigned to those metrics.

1. ARR Growth — Are we growing as fast as we should be?
2. Pipeline Coverage — Do we have enough pipeline to hit our operational goals?
3. Gross / Net Retention — Is our platform sticky?
4. Cash Burn — Are we making good decisions concerning cash? Remember Rule #1.
5. Burn Multiple — Are we efficiently growing our operations?

Winner: A disciplined team tightly coupled with a disciplined approach to understanding