Startup Financial Model For SaaS Founders And Its Importance

Farwah Jafri | June 15 2022

Finding a book that tells you how fast to grow your business, the amount of capital to raise, and the best time to scale is next-to-impossible. Yes, there are many books with strategies and tactics, but none with a solution tailor-made for you, and that’s because your business and circumstances are unique.

To answer questions left unanswered in the books, startup owners need financial reports and models, ones that could analyze the past, decode the present, and forecast the future. These models entail the answers you need to run your business correctly and guarantee success.

Even though every founder runs the same race, SaaS founders have a unique business model. Their business is unlike traditional ones where the theme is to trade as here the trend is to lease. They allocate software or solution to clients that run a business the conventional way for a given period on a subscription basis.

What is Software-As-A-Solution (SaaS)?

SaaS or Software-as-a-Service businesses operate by licensing a centrally hosted software to clients on a subscription basis. Any startup that follows a similar model and leases its software or solution to other businesses through a cloud-based system for a fee falls into the bucket of SaaS businesses.

However, their job is not just to deliver services and solutions. They must also maintain servers, databases, and confidential data within. Often, a SaaS business offers multiple subscription options with varying functionality, features, duration, and services.

Why Do SaaS Founders Need A Financial Model?

Every startup owner needs a business model, at least those who really want to make their business a success. The same is true for SaaS founders. Without a doubt, they operate uniquely, yet still, without a structure, it is hard to differentiate between constructive and destructive strategies.

A startup financial model is a tool that lets you forecast your financial performance in the months ahead by analyzing your present and the past. It tells you how much revenue you may generate and the amount of capital you may need to keep your business afloat.

Hence, it is almost impossible to run a business smoothly without a startup financial model, and it acts as a guiding light to take your business forward the right way.

A SaaS startup financial model shines a light on areas and aspects that can take the hassle away from running a business and almost ascertain success. Here are the three things a startup financial model tells you about your business:

1. Growth Levers

A startup financial model gives insights into the areas to focus on or what levels to pull to take your business forward and grow exponentially.


2. Goals & Milestones

A SaaS financial model also provides your team with actionable and fitting milestones to target in the days to come.


3. Business Structure

Above all else, the financial model helps you better understand how to structure your business for success by helping you decide what type of team, machine, and tactics are required to win.


The Difference between SaaS Business Model & the Rest

We singled out A SaaS startup financial model because it entails multiple factors that traditional business models lack, like recurring payments. SaaS businesses operate by leasing their software and solution to others and generate revenues via subscription rather than sales.

From an accounting standpoint, these recurring payments are monthly recurring revenue or MRR. Moreover, unlike traditional sales, subscription revenue does not become earned revenue right away and can only be classified as such at the end of the subscription.

Peculiarities like these make the SaaS Business model unique. Not to forget the consistent updates you need to ensure your solutions stay current and don’t become dated.


Is It Possible To Run A SaaS Startup Without Financial Model?

Yes, it is possible to run a SaaS startup without a financial model, the same way it is possible to sail a ship without a helm. However, to ensure your business becomes a hit, you need a financial model to steer you towards the success path and away from troubled waters.

Business success is all about making the right decisions at crunch times, and that’s what financial models help you do. These include the call you frequently make about acquisitions, capital, budget, growth, and allocation.

See Also: Payroll For Startups: 5 Common Mistakes To Avoid

Moreover, a financial model is integral to assessing where your business stands among the competition. Knowing where you are, where others are, and where you ought to go is key to positioning your brand as the best in the market, and that’s impossible without a financial model.

Author Bio

Farwah is the Product Owner of Monily. She has an MBA from Alliance Manchester Business School, UK. She is passionate about helping businesses overcome challenges that hamper their growth, which is why she is working at Monily to facilitate entrepreneurs to efficiently manage business finances and stay focused on growth.