Managing your SaaS startup’s burn rate

Here’s the deal with raising growth capital for your startup: it will only last you so long, and you’ll spend it far faster than you ever imagined. Managing your burn rate, or the pace at which you spend your cash, requires a balanced approach to risk. There’s no getting around it; you need to spend money to make money. So, at certain times in your startup lifecycle, you’ll hit the gas pedal and blow through some money to make things happen. On the other side, you should be prepared to slow down (or pull the emergency brake) if you’re moving through your capital too fast.

The thought of finally obtaining the funds to take their business to the next level, and the possibility that it could all slip away (or burn up, if you will) keeps many founders up at night. Founders find themselves fixated on questions like how much runway is left? What’s the zero-cash date? Knowing how to calculate your burn rate, and keep it low, are fundamental to startup success. Read on to see how it’s done.

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Q&A: SaaS accounting struggles holding your startup back from funding

On Wednesday, we hosted a webinar about the critical accounting challenges SaaS companies face with inDinero. Investment Director Zach Hoene represented Lighter Capital, and inDinero brought Carter Hawke, Accounting Manager.

The webinar covered many bookkeeping woes, from the new revenue recognition rules (effective 2019 for private companies) to accounting stock-based compensation to capitalizing CAC for new customer contracts. It ended with a Q&A where listeners asked for advice solving their businesses’ accounting challenges. The whole video is available here, and here’s what our experts had to say about your questions.

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7 accounting basics new startups need to know

In 2014, my friend started her first company. She used her personal savings to fund development, buy computers, and hire a UX designer to help her get off the ground. For a while, things went very well. Then, a few months in, my friend decided to open a business bank account. She called in a favor to a mutual friend who was an accounting major in college: “Will you help me deal with my mess?”

And what a mess it was. She had been using various personal credit and debit cards to pay vendors and employees and letting late fees and interest pile up. She had “kept track” of her expenses by stuffing some of her receipts into the bottom drawer of her desk. She couldn’t remember which receipts were personal or business-related, so her financial history and profit-and-loss reports were unreliable, to say the least. Our accountant friend helped her untangle the mess, and things are better now, but without a real accounting strategy in place, the nightmare is inevitably going to creep back up.

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How your startup’s R&D expenses can earn you $250,000 in tax credit this year

Each year the US government provides billions of dollars to innovative businesses for developing new or improving existing technologies, products, materials, and processes, under the US Research & Experimentation Tax Credit (R&D Tax Credit) program.

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The problem with deferred compensation

Many times I have seen the following happen: a company is running out of money. In order to keep going, the team is going to have to take pay cuts. The Founder & CEO tells the team, ”We’ll have to 'defer' your salary. As soon as we raise our next round (or as soon as we sell), we’ll pay you what you have deferred.”

This is a mistake, and sometimes a costly one. The word “defer” is a dirty word in the law. Sort of like the word “backdating” (ok, maybe not that bad, but it is still not a good word). Why is “defer” a dirty word? Because when you “defer” you give rise to a number of potential adverse legal complications that you should, and can, avoid.

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Want to impress investors with great startup financials? Ditch Excel

As our Chief Investment Officer, I’ve been involved in many of the 150+ funding deals we’ve completed, as well as many deals that never went through. I’ve seen some wacky stuff when it comes to startup financials: hand-built spreadsheets that are a cross between an income statement and a balance sheet. Personal finances completely intertwined with company finances. Unbalanced balance sheets. Incorrect formulae.

We have so many great companies and leaders apply for funding from us, CEOs and Founders who build innovative tech solutions and run companies generating $1M or more in annual revenue. But sometimes we dig into a company’s financials—just like any investor will—and they’re a mess. When a company’s financials are in disarray, we (and other investors) simply don’t have the right information to evaluate and fund them.

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Four cash management tips for SaaS startups

Cash is king. In business, everything stems from the cash you have, the cash you earn, and the cash you raise. You need it to run every part of your business. How much cash you have determines your company’s runway, and how likely you will raise the next round.

At Lighter Capital, we sometimes see great companies with promising traction, but the entrepreneurs are presented with less than ideal funding options because they didn’t fully understand how to manage their cash. To help you operate better and be in a better position for fundraising, here are four cash management tips we find most useful for tech and SaaS businesses.

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The 5 top issues we see with startup financials

You’re an early-stage startup entrepreneur. You’re running your business fast and lean. Getting your company’s financials cleaned up and organized is on your to-do list, but so are a thousand other things. You’ll get around to it—just as soon as you secure the loan that will help you scale up.

I hate to break it to you, but as long as your financials are a mess, that funding is going to stay forever out of your reach. At Lighter Capital, we field a lot of loan applications, and the number one reason we reject potential borrowers is because the entrepreneur is unable to produce financials.

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Holiday tax treats for small business!

Happy Holidays!

Many of us are working to complete projects, close sales, and wrap up our books for 2015, and thinking about 2016.  Lucky for us, congress left us a treat under the Christmas tree this year: after years of leaving business owners without a clear outlook on tax exclusions and deductions they're allowed to utilize, legislators have codified more permanent tax extender legislation.

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The pros and cons of transitioning from a service to a product company

It’s a common trend in the software world today: service-based consulting companies transitioning to subscription-based SaaS product companies. Sometimes founders realize that they’re essentially solving the same problem over and over again for their customers and decide to capitalize on that demand by creating a product solution. Other times, founders have a SaaS product in mind from the start, but decide to fund the building and scaling of the product by generating a steady stream of substantial income from consulting.

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