How to Master your Business’ Cash Flow Needs

In today's turbulent economic landscape, cash flow management is the key to staying ahead of the game. No matter your industry or business type, it's crucial to master the art of anticipating, reducing and financing your cash flow needs. Are you ready to take control?

1 – Why and how to anticipate cash flow needs?

“He who fails to plan is planning to fail” – Winston Churchill. This timeless wisdom rings true in the world of business, where cash flow reigns supreme. Don't let inadequate cash flow hinder your success. Embrace the art of anticipation and reap the rewards.

1.1 – Cash: The deciding factor in business longevity

In the ever-changing business landscape, reckless spending leads to a short-lived existence. Your cash runway is a vital measure, indicating how long your company can sustain itself with current funds. It's a make-or-break factor, and once it’s depleted, it's often too late to take corrective action.

1.2 – Breaking down the factors that influence cash flow

To effectively manage cash flow, you must delve deeper into the underlying factors that shape your financial needs. From your financial structure to your unique business model, understanding the dynamics is key.

a – Financial structure: Balancing the equation

Your accounting records hold the key to your cash flow needs. The net cash position (NCP) is the battleground where working capital (WC) meets working capital requirement (WCR). When NCP is negative, your working capital requirement (WCR) exceeds your working capital (WC). This is a signal action is needed. Unleash the power of this equation: NCP = WC – WCR.

b – Business model: Example of a marketplace

Every business has its unique rhythm. The nature of your activity and business model are additional factors to consider when anticipating cash flow needs.

Take the example of an intermediation platform that connects freelancers with clients (but doesn't handle billing transactions between them). By prioritising the cash flow needs of its freelancers, this platform cultivates loyalty and retention, fueling growth and success.

1.3 – Cash flow forecasting: Your business security shield

In the dynamic world of business, anticipation is the key to success. Enter the realm of accurate cash flow forecasting, the ultimate tool to secure your business. Stay on top of your game by keeping your accounting up-to-date, projecting short and medium-term budgets, and continuously monitoring your financing plan. Remember, agility is essential—adjustments are the secret to staying relevant.

1.4 – Examples of financial management

Witness successful companies’ strategies in action. A SaaS company in its growth phase utilises powerful key performance indicators (KPIs) like monthly recurring revenue (MRR), churn rate, lifetime value of a customer (LTV) and customer acquisition cost (CAC) to navigate the financial landscape, fuel expansion and manage expenses.

For B2B marketplaces, the game is all about connecting buyers with service providers, involving multiple payments between parties that may span several months. To thrive, they must:

• Dive into comprehensive financial reporting to analyse past transactions and gain insights.
• Maintain an updated cash flow forecast to ensure precise control of their cash position in the months ahead.
• Monitor business KPIs like the buyer-seller ratio, gross merchandise volume (GMV) and CAC to orchestrate seamless operations.

2 – Conquer cash challenges: Controlling and reducing cash needs

When stormy cash flow forecasts loom, it's time to take the reins and minimise your company's cash requirements. Before seeking external financial assistance, unlock the hidden potential within your organisation. The first step is to thoroughly review the internal levers available within your company to potentially reduce the cash flow requirement.

2.1 – Increase your working capital (WC)

The first component of the net cash position equation is WC. Explore these avenues to fuel your cash flow:

• Boost equity capital through strategic capital injections, deferred dividend distributions, or equipment grants.
• Harness quasi-equity with shareholder current accounts and innovative funding options.
• Improve the company's profitability and generate a steady stream of cash flow.
• Reduce the planned investment amount outlined in the financial plan or consider leasing options.
• Implement a lease-back operation, involving the sale of assets followed by leasing.
• Fuel your growth with bank loans to finance self-financed assets.
• Negotiate the refinancing or consolidation of a credit facility.

2.2 – Taking action on working capital requirements (WCR)

Unleash the power of working capital requirements to reduce cash needs. Focus on these vital components:

• Master inventory management, preventing overstocking while safeguarding against stockouts through vigilant rotation monitoring.
• Reduce accounts receivable by tracking payment terms, implementing effective debt collection measures and offering enticing incentives for cash payments.
• Forge stronger relationships and extend supplier credit terms to ease cash flow pressure.

3 – Cash flow solutions: Empowering your financial success

When internal efforts can't fully bridge the cash flow gap, it's time to explore external financing options. Step into the future of cash flow management, where traditional solutions meet more innovative and flexible alternatives, designed to supercharge your business growth.

3.1 – Traditional short-term financing with banks

For residual cash flow needs, short-term financing options are available. These conventional solutions typically require collateral, annual accounts and budget forecasts.

Here are the main options for professionals seeking cash flow:

• Authorised bank overdraft
• Short-term overdrafts
• Seasonal working capital loans
• Assignment of receivables (invoice discounting)

3.2 – Factoring: Reduce your accounts receivable

Take control of your accounts receivable and reduce outstanding balances with factoring. Similar to the invoice discounting, by transferring customer receivables to factoring companies, you streamline your cash flow. In factoring, the transfer typically encompasses all invoices from the customers involved. While this approach offers broader coverage, it leaves little room for selective handling.

3.3 – Embedded Invoice Financing: Unleash the Power of BNPL for B2B marketplaces, DSPs and SaaS

Experience a game-changing short-term financing solution tailored for B2B marketplaces, DSPs and SaaS companies. Aria integrates embedded invoice financing directly into your platform, revolutionising your occasional cash flow needs.

Imagine empowering your service providers with instant financing, enhancing their cash flow with a single click. Meanwhile, you safeguard your own cash flow while waiting for customer payments. It's a win-win situation, boosting provider loyalty and safeguarding your business. Welcome to the future of cash flow management with Aria's cutting-edge BNPL solutions.

A Key Use Case for Transactional SaaS and Marketplaces: Supercharge Your MRR with Aria's Instant Invoice Financing

• You Are: A Transactional SaaS or a B2B Marketplace seeking to increase their Monthly Recurring Revenue (MRR) through innovative revenue sharing strategies.
• Use Case: Assume your current MRR is €40k, with €50k worth of invoices flowing through your platform each month. By integrating Aria's deferred payment option, you can monetize this invoice flow. When a user chooses the instant payment option, you receive a commission from Aria for each financed invoice. This scenario sees your MRR rise to €60k.
• Benefits:
  • Elevated MRR and Growth: Unlock new revenue streams and boost your MRR through commissions on financed invoices.
  • No Extra Development Costs: Generate more revenue without the hassle of developing new features. Aria's solution, including the "Get Paid Now" button, is simply integrated via an API.
  • Satisfied Users: Boost user satisfaction and retention with the convenience of instant payments, offering a seamless, integrated experience.
• Implementation: Incorporate Aria's solution into your platform smoothly through an API. This system is built to adapt to your unique invoice and billing flows.

No company can escape cash flow financing, whether it's to support its establishment or growth. To continue covering expenses while awaiting client invoice payments, businesses can turn to an innovative financing option: embedded invoice financing.