Many technology businesses struggle with cash flow despite generating strong revenue growth. High burn rates, delayed customer payments, rising cloud infrastructure costs, and rapid hiring can quickly put pressure on cash reserves.
In this guide, you’ll learn what cash flow planning is, why it matters for tech businesses, key financial concepts, how to overcome cash flow challenges, and the process of planning cash flow.
What is Cash Flow Planning?
It is the process to predict and manage the cash inflows and outflows of a business. It involves predicting the cash a business will have at different points in the future, such as monthly, weekly, or even daily. This also covers how money flows through a business, including operations, investments, and financing.
The cash flow plan assists in the early identification of cash shortages to give your business enough time to plan solutions in order to avoid company insolvency.
Explore how to save your company from insolvency and ways to grow your surplus business cash in these guides.
Why Cash Flow Planning is Important for Tech Businesses?
Tech businesses need effective cash flow planning to have enough liquid cash to meet their everyday costs of operations, like payroll or software subscriptions. To manage the high burn rate, tech owners need to develop strategic plans tailored to the tech market.
These plans should include strong forecasting methods, flexible budgeting rules, and comprehensive cash flow management to prevent insolvency. These practices help technology businesses improve financial visibility, extend runway, and prepare for future investment opportunities.
We help tech, SaaS, and e-commerce businesses become investor-ready for future funding rounds with the confidence to secure capital.
How Cash Flow Planning Works for Technology Businesses
By planning cash flow, you can track the timings of cash inflow and outflow in your tech business, instead of just calculating the profit. Effective cash flow planning involves forecasting revenue, expenses, burn rate, and cash runway to predict shortfalls and support innovation.
It can be challenging because of delayed payments, churn, upfront costs of R&D, sales and marketing, cloud infrastructure, and talent acquisition.
SaaS businesses need to calculate deferred revenue, annual subscription billing, and the difference between recognized revenue and actual cash collections.
For example, a customer paying £12,000 upfront for an annual subscription generates immediate cash but only £1,000 of recognized revenue per month. This matters significantly when planning cash positions.
Cash flow plans help tech businesses predict whether they can meet their cash demands in the present and future. Cash planning also helps mitigate risk, reduce bad debt, and plan for future fundraising.
If you are more inclined towards forecasting, fundraising and financial management, you may also find these guides helpful.
Key Financial Concepts Every Business Owner Should Know
Inflows and Outflows
Cash inflow and outflow are the liquid cash and cash equivalents that move through your business. They are the cornerstone of the financial standing of your business. The cash flow statement in your financial reporting contains a detailed record of every transaction involving cash, both in and out.
Operating, Investing, and Financing Activities
A company must first prepare cash flow statements detailing its operating, investing, and financing cash flows before conducting a cash flow analysis.
Cash from operating activities is the difference between operating expenses and cash received from consumers. Annual and recurrent costs, including rent, utilities, supplies, and salaries, are included in this bucket.
It also shows changes in working capital and adjustments for non-cash items, such as depreciation and amortization. Investing activities show the cash spent on and generated from long-term assets and investments.
Examples include the sale or purchase of real estate and other assets, as well as the acquisition of financial investments, such as shares or securities in other businesses. Financing activities reflect the cash flow generated by the business’s financing activities, such as borrowing, repaying debt, and paying dividends.
Cash Flow Planning Process for Technology Businesses
Follow these steps for effective cash flow planning for IT businesses:
Improve Revenue Forecasting Accuracy
First work on your monthly recurring revenue (MRR) and annual recurring revenue (ARR). Acquire new clients, expand clients, manage churn and downgrades, and involve the billing mix in cash flow forecasting.
Add historical data, sales pipeline and realistic conversion rates into your forecasting. Your revenue forecast for cash flow purposes should be based on expected cash receipts, not just revenue.
If you are not doing a cash flow forecast for your business yet, you should learn how it impacts your business growth!
Create a Forecast of Your Costs
Classify all your expenses as either fixed, such as employee salaries, office rent, core tools used for operations or variable, such as pay-as-you-go cloud, marketing expenses, commissions.
Build Monthly and Quarterly Cash Flow Forecasts
You should be able to predict all cash outflows minus all cash inflows with reasonable detail for the next 12-18 months. Use a 13-week rolling forecast to provide clear short-term projections of your cash position.
Your ending cash balance for the period is your cash position at the start of the period plus your net cash flow for that period.
Set Targets for Cash Reserves and Runway
A reasonable target is to provide 6-12+ months of runway (cash on hand divided by your monthly net burn). Leave a surprise buffer. Surprises are common in technology; an 18-24 month runway is a reasonable time before seeking additional funding.
Monitor Key Metrics on a Weekly Basis
Keep monitoring your burn rate, your runway, Monthly Recurring Revenue (MRR), churn rate, cash conversion efficiency and the average number of days taken to collect payment from customers (DSO).
You also need to calculate the rate at which you can recover failed payments on your receivables. Use tools that provide a graphical representation of the metrics you are tracking on the web, such as QuickBooks, Baremetrics, or Stripe.
Stress-Test Different Scenarios
You need to create a model for base, best, and worst scenarios, for example, a 20% increase in churn, deals occurring later than anticipated, and cloud computing costs exceeding budget. Establish clear triggers for cost containment measures or funding requirements.
Continuously Review and Update Forecasts
You should revise the forecast you created to account for the difference between projected and actual cash collections. Make revisions to your cash flow model based on collections and spending to improve forecast accuracy. Create, revise and collaborate to keep things moving across all groups.
Common Cash Flow Challenges for Technology Businesses
If you are running a technology business, you may face cash flow challenges even with a strong revenue stream. Understanding these challenges is crucial to avoiding them before they worsen your cash flow. Common cash flow issues include:
Delayed payments from enterprise clients: Enterprise sales cycles typically run 2 to 6 months, creating a significant gap between invoicing and cash receipt.
Increasing cost of cloud infrastructure: As usage scales, the cost of cloud providers like Azure, AWS, or Google Cloud can go higher compared to revenue.
Increasing customer acquisition costs (CAC): Spending on marketing and sales to acquire customers can be costly for a new tech company before it stabilises its revenue.
Subscription churn: Tech businesses frequently lose customers, reducing their monthly recurring revenue (MRR).
Hiring ahead of revenue: Hiring a team while anticipating growth is common in tech, but it creates significant burn before your business achieves stable revenue.
Practical SaaS example:
If your SaaS business is earning around £60,000 in MRR, your business may still face cash shortages due to marketing, payroll and infrastructure costs exceeding £75,000. With a strong top-line growth, the delayed payment of enterprise clients or late payments from subscribers can create a significant cash flow gap.
Your business may go short of cash despite healthy revenue figures on paper. Therefore, understanding the difference between recognised revenue and actual cash collection is important for SaaS businesses.
If you are looking for specialist support for your SaaS business, our SaaS Accountants are here to overcome your cash flow challenges.
How to Overcome Cash Flow Challenges in the Technology Sector?
Having worked with thousands of tech companies, Clear House Accountants has identified the top challenges they face when managing their cash flow. We have listed some of these, along with their generic solutions, below.
Even though your specific issue might differ, having a general idea of the problems and their solutions can help build a great foundation. You can always discuss your specific issue with a specialist technology accountant to obtain a more accurate analysis and bespoke solutions tailored to it.
Managing Cash Burn
The cash burn rate is a financial metric that shows the rate at which a company spends its available cash reserves, typically monthly. It indicates the financial health of a company, particularly for startups and small tech businesses.
Gross burn rate is the total amount your business spends each month, regardless of revenue. It represents your full monthly cost base.
Net burn rate is the difference between total monthly cash outflows and the cash inflows. It is your net cash consumption.
Example: If the monthly expenses of your business are £80,000 and your monthly revenue is £30,000, your gross burn rate is £80,000, and your net burn rate is £50,000.
Our specialised startup accountants can help your startup with precise accounting, tax oversight, and compliance assurance from scratch.
Formula: Net Burn Rate = Gross Burn Rate − Monthly Revenue
Explore the difference between startups and small businesses. Learn how to manage your startup’s cash burn rate to avoid cash flow shortfalls.
Extending Cash Runway
The cash you have left, assuming constant consumption, is your cash runway. In general, higher is preferable. A high runway indicates stable financial standing and effective cash flow management for your company.
Calculating Cash Runway: Cash Runway = current cash balance/ burn rate
To get the essence of cash flow planning for your tech business, you need an in-depth understanding of creditors, debtors, liquidity ratios and R&D tax relief. Read these guides to strengthen your financial concepts.
Tools and Technologies for Cash Planning
These are some popular tools for cash planning:
- Float
- Fathom
- Futrli
- Pulse
- Cash Flow Frog
- Mosaic
- Runway
- Jirav
Learn the difference between trade receivables and account receivables. Find out how GoCardless for Xero improves your cash flow.
Cash Flow Forecasting
Get expert support for your tech business
We build accurate forecasts, extend runway, and prepare your startup confidently for funding
Final Thoughts
As the tech industry rapidly evolves and constantly generates new ideas, it requires careful financial management. Tech accountants can better handle the complexities of cash planning by using advanced tools such as cash management software, automating cash flow processes, and integrating with accounting platforms such as Xero or QuickBooks.
Explore how management accounts work and how to prepare them for sustainable business growth.
