Technology and SaaS
Technology companies are measured by numbers their accounting system does not produce. Monthly recurring revenue, churn, net revenue retention, acquisition cost, payback and burn are built from billing, CRM and bank data, and most founders assemble them by hand before every investor update. We build the finance function for software and technology companies across British Columbia, working alongside their CPA and their lawyer. Ali's MBA is in technology management and he has founded technology and automation companies since 2007.
How the money works
- Revenue is recognised over the subscription term while cash often arrives up front, so the income statement, the cash flow and the recurring revenue metrics all tell different stories
- Acquisition cost and payback decide whether growth is affordable, and both vary widely by channel and by segment
- Gross margin depends on hosting, support and onboarding costs that are easy to leave out
- Burn and runway set the fundraising clock, and a hiring plan can shorten the runway faster than any other decision
The moves we make
- A recurring revenue model: new, expansion, contraction and churn by month, reconciled to billing and to the ledger
- Acquisition cost, payback and lifetime value by channel and by segment, from actual spend and actual retention
- Burn, runway and a hiring plan modelled together, with the cash low point visible
- A monthly investor update and board pack produced from the systems rather than by hand
Where cash and margin leak
Margin leaks in hosting that scales with usage while price does not, in support and onboarding time that is not costed into gross margin, in discounts given to close the quarter and in annual plans priced as twelve monthly plans without a reason.
Cash leaks in hiring ahead of revenue, in acquisition spend on channels with a payback longer than the runway, and in annual contracts invoiced late. The clearest sign is a company whose recurring revenue grows while its runway shortens faster than the plan said it would.
The numbers to watch every week
Monthly recurring revenue and its movement: new, expansion, contraction, churn. Net revenue retention. Gross margin with hosting and support included. Acquisition cost and payback by channel. Burn and runway in months. Cash collected against billed. Pipeline against the revenue plan.
These go on one page, reconciled monthly to the books, and they are the page the board reads. A founder who knows them without looking raises money more easily and runs the company with fewer surprises.
How pricing works in software
Pricing in software is a design problem: what to charge for, in what tiers, with what metric, and how annual and monthly plans relate. The cost of serving a customer sets a floor that is lower than in most industries, which makes value the main driver and discounting the main risk.
We model pricing changes against the recurring revenue base, the churn risk and the gross margin, test packaging and tier changes on the actual customer list, and build the discount rules the sales team works within. Pricing is reviewed annually with the model open.
Questions from technology and SaaS owners
Can you prepare us for a funding round?
Yes. The metrics, the model, the data room and the narrative are the funding readiness work, and we attend the meetings with you. Term sheets, securities matters and shareholder agreements are for your lawyer and a registered adviser.
Our accounting system does not produce our SaaS metrics. Is that normal?
Yes. Recurring revenue metrics come from billing and CRM data and need their own model, reconciled to the ledger each month so the board and the CPA see consistent numbers. We build that model and the routine that keeps it current.
How do we decide how fast to hire?
From the model. Each hire is a date and a loaded cost in the forecast, and the cash low point moves with it. We model the hiring plan against the revenue plan and the runway, so the decision to bring a hire forward or push it back is made with the runway visible.
Start with a finance review.
Ninety minutes with Ali on your cash, margin and pricing. You leave with the four numbers to watch and the two or three moves that change them, whether or not we work together.