Your bankers won't answer the phone, the venture capitalists all have alligator arms and your start-up needs cash. However, you are generating revenue and have a solid sales pipeline. What do you do? Get creative. The best advice I ever received as an entrepreneur was from one of a wise board member of mine in 2001. He told me know matter how many great opportunities you have in your sales pipeline, no matter how unique your technology is, no matter how solid your management team is, no matter how great your company is....you are out of business when you are out of cash. There is no future if your run out of cash today. Plain and simple. Unfortunately sometimes good businesses go out of business.
All is not lost. Tough times sometimes require creative solutions to financing cash flow gaps. Below is an excerpt from an email I received an astute entrepreneur who is considering implementing a creative solution to raise cash. He is running a successful SaaS software business and is business is strong enough that he probably could raise venture capital if he had to, but terms would be onerous in these times. He is doing exactly the right things to keep his business alive to fight another day when things turn around.
We have basically two revenue streams, our recurring monthly subscription fees and a setup fee when we bring on a new customer. We are not yet profitable, our cash burn is not substantial but our runway is getting tight.
I am looking at offering our customers the ability to pre-pay their monthly subscription for a year or two and providing some financing incentives for them. This would drag forward some cash but obviously reduce our monthly cash in take later on. It seems like a nice way to solve some short term cash issues, but throws the whole SaaS subscription model on its head (at least from a cash flow perspective).
My guts says it’s a good way to help finance things, but I’m wondering if it’s a rob peter-to-pay-paul scenario. Should I be more protective of the future cash flow?
I’d appreciate any thoughts you might have on this.
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