Investors will ask for the last three to five years of monthly financial data. The data must be accurate, insightful, and tell a good story. And this either kills the deal or leads to the company being sold at a discount. A fractional CFO will help you analyse your company's perfomance and work with you to improve it. For example:
- A fractional CFO will help you analyse your customer concentration ad how to de-risk your revenue. If too much income comes from 5% or 10% of your client, it’s a red flag for investors. A fractional CFO can help you build a healthier mix by identifying growth areas, improving your sales pipeline, or adjusting pricing strategies.
- A Fractional CFO will also clean up your reporting, highlight key trends, and make sure your numbers support the story you're trying to tell - whether that’s growth, stability, or a clear path to profitability.
- Recurring vs. Non-Recurring Revenue: Investors prioritise predictable, recurring revenue streams over one-time sales. Clearly distinguishing between these in your financial reports is crucial. Focus on growing your Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR), as these metrics are key indicators of business health and sustainability.
- Deferred Revenue: Upfront payments for services to be delivered in the future are recorded as deferred revenue, a liability on your balance sheet. Properly managing and recognising this revenue as services are rendered is vital for accurate financial reporting. Mismanagement can misrepresent your company's financial position and deter potential investors.
- Churn Rate: High customer turnover can negate growth efforts and signal underlying issues with your product or service. Regularly monitor your churn rate and implement strategies to enhance customer satisfaction and retention. Reducing churn not only stabilises revenue but also improves the overall valuation of your company.
- Reach profitability at least one year before selling your business. Also, you need to make sure, for example, that your software business has a gross profit margin of at least 70%. Reaching the needed benchmarks requires time and needs to be planned in advance.
By closely monitoring and addressing these areas, you can strengthen your SaaS company's financial health and increase its valuation. Need help? Book a call and let’s discuss.
