Verge Advisors: Is Growth Killing Your Company? The importance of cash conversion in the growing enterprise.

IS GROWTH KILLING YOUR COMPANY?

THE IMPORTANCE OF CASH CONVERSION IN THE GROWING ENTERPRISE

FINANCE FUNDAMENTALS

•  The liquid assets a company has available to grow its business

•  Current Assets – Current Liabilities

DEFINING WORKING CAPITAL

FINANCE FUNDAMENTALS

•  STEP 1: Know the Problem –  Is it structure or scale?

•  STEP 2: Understand the Paradox –  Profitable but out of cash

•  STEP 3: Examine the Process –  Managing days to cash

MANAGING WORKING CAPITAL

FINANCE FUNDAMENTALS

Company A: •  SaaS Revenue Model •  Acquisition Cost: $100 •  Setup Fees: $0 •  Monthly Fees: $20 •  Avg. Lifetime: 2 years

Company B: •  SaaS Revenue Model •  Acquisition Cost: $100 •  Setup Fees: $100 •  Monthly Fees: $10 •  Avg. Lifetime: 2 years

KNOW THE PROBLEM: �IS IT STRUCTURE OR SCALE?

FINANCE FUNDAMENTALS

Company A: Structural Problem Need to: •  Raise significant funds •  Rapidly lower acquisition cost

while extending customer lifespan before capital runs out

Company B: Scaling Problem Need to: •  Rapidly acquire new customers •  “Grow into” current overhead

(i.e. try to grow customers without growing overhead)

SUMMARY OF CASH FLOW

Month! 1! 3! 6! 12! 18! 24!Company A" -$80" -$40" $20" $140" $260" $380"Company B" $10" $30" $60" $120" $180" $240"

FINANCE FUNDAMENTALS

UNDERSTAND THE PARADOX

•  Company A has higher year 1: –  Bookings –  Revenue –  Cash Flow but… Without ample capital reserves the company will run out of cash.

FINANCE FUNDAMENTALS

Our definition: Time it takes to close and collect from new customers

DAYS TO CASH

FINANCE FUNDAMENTALS

•  Closing: going from late stage to signed •  Onboarding: going from signed to started •  Billing: going from started to invoiced •  Collecting: getting cash into the bank

DAYS TO CASH: OVERVIEW

Closing" Onboarding" Billing" Collecting"

FINANCE FUNDAMENTALS

•  Days to Cash= up to 270 day cycle •  Must look for ways to improve each area of the cycle

TRACKING YOUR DAYS TO CASH

Closing" Onboarding" Billing" Collecting"

7-60"days" 10-90"

days" 10-30"days" 20-90"

days"

FINANCE FUNDAMENTALS

IMPROVING THE PROCESS

Closing" Onboarding" Billing" Collecting"

•  Closing: –  Streamline proposals –  Products vs. Custom

Negotiations

•  Onboarding: –  Formal kickoff meeting –  Customer approved

timelines/commitments

•  Billing: –  ID finance personnel –  Clearly defined triggers to

bill on

•  Collecting: –  Terms (credit card, ACH,

minimums, discounts) –  Formal A/R escalation

FINANCE FUNDAMENTALS

ABOUT VERGE ADVISORS We provide part-time CFO and accounting services for growing businesses. We blend strategic thinking with tactical execution in the finance function to help you drive better decision-making and accountability in your business, so you can get to your next milestone. Our firm was founded in 2005, and we are located at the heart of business growth and innovation in Kendall Square in Cambridge, MA.

THANK YOU

VERGE ADVISORS ONE BROADWAY, 14TH FLOOR CAMBRIDGE, MA 02142 T: 617.401.2520 VERGEADVISORS.COM

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