Expert CPA Reveals Dirty Lies About SaaS Financial Models You Need To Know Now

Do you make financial models for your company? If so, you may want to plan your expansion. You want to avoid a cash crunch. That’s why you’re building a SaaS financial model.

But here’s what nobody tells you.

Those financial models you got on the internet? They’re built for investors. For VCs. They help investors (not you!) see your past performance. That’s it. They don’t help you.

You can’t make a strategy from them. Can’t make decisions from them.

You spend weeks making it believing what the “experts” say—to operate your business like a pro, you have to make a financial model. When you finally finish your model, you realize something painful:

It was a complete waste of your precious time.

Your model doesn’t seal the churn hole. Every month, you watch customers leave. The model just shows you the bleeding. It doesn’t stop it.

Your model doesn’t increase the number of users. You’re stuck at slow growth. The spreadsheet just confirms it. You have no idea what to do next.

Your model doesn’t decrease your CAC. You’re still paying too much to acquire each customer. The numbers just sit there.

No growth. Just sad numbers on a screen.

Most SaaS financial models use your past data and guess that things will keep going the same way for the next few years.

They estimate sales growth. Then costs. Then cash.

The models show linear growth. Sales increase by a fixed amount each month. Eventually, those sales balance out your churn. Then your revenue hits a wall. It plateaus.

Working harder doesn’t help. You can’t grow anymore.

Traditional models work like this: Sales → Costs

Compounding models work like this: Costs → Sales

That’s the entire difference. But it changes everything.

In traditional models, your costs follow your sales. More revenue means more expenses. Costs are just a burden. It’s like a tax that increases every time you make more money. Growth is slow. Growth is linear.

In compounding models, your costs are investments. Not a necessary evil. You spend on costs, they drive more sales, and you get more cash. You reinvest the increased cash, you get even more sales.

Each time your sales inflate bigger than before. Your costs don’t just support revenue. They multiply it.

True strategy is about deployment. Where do you put your cash? How much return do you get? How fast does it come back?

Find the best place to invest. Build a growth engine. Watch it compound.

That’s the real SaaS financial model. That’s the compounding model.

So, when you get the model, the first thing you do is to check whether the model allows you to plan spending. And it clearly shows the cause and result relationship of spending and growth. Where to spend, how much, and when.

Cash timing is also important. Because if you don’t have enough cash to pay next month’s costs, that is the end of your business. And you can’t invest a penny when you have no cash even if you have tons of profit. So, a clear distinction between cash flow and profit is needed. The model has to be centered around cash flow, not profit.

Cash flow and profit are very different. For example, your annual payment brings 12 months’ worth of fees in one month. That is cash inflow, not sales. 

Here are actual financial models I found on the internet. They don’t help your growth at all.

• Profit-based model. No cash flow simulation. That is the worst because cash flow decides your business growth.
• The model makes profit and loss statement and balance sheet at the same time. Those help your investors a lot, but not your business growth. It takes long time to make it, but the priority is low.Just spending more on CAC magically brings unlimited customers. As I said, each channel has an upper limit of accessible potential customers. You can’t exceed the limit even if you spend more.

• Some models predict future revenue from your current revenue. This is totally fake. You can’t predict future revenue without seeing your spending (investment). Your investment decides future revenue, not your current revenue.
• The model doesn’t cover all basic SaaS activities. Like churn, expansion, automatic annual payment cash flow calculation, etc.
• The model supposes CAC magically decreases as you go. This doesn’t happen. On the contrary, CAC increases over time. Because:

1. When your industry has more competitors, ad platforms charge higher per visitor. If you don’t think so, Google slap will be a big surprise.
2. Also, you have a maximum accessible cap for each channel. Spending low, you can reach only a partial amount of potential customers. You have to pay a higher price to access a bigger pool.

That is why CAC increases as you go. For example, if you spend only $2 on Google ads, the ad is shown to only 10% of total impressions. But if you spend $10, your ad is shown to 70% of total searchers. So, when you hit the upper limit of impressions, you have to spend a higher CPC (cost per click) to expand the limit of visits.

Making the model is not the end. That is just the starting point. Make a model, then you can finally think of a strategy. What lever to pull (which metrics to focus on and improve for growth). You can’t improve all of them at once. You have to pick one that impacts growth the most. With the model, you can clearly see that. And where to put your resources like developer hours, and most importantly, where to put the cash. What kind of features to develop to improve which metrics? Is your resource allocation now optimized for growth?

Your goal is not making the world’s best product, but making the most cash flow to achieve much faster growth. Is your allocation optimized for this purpose? For example, developing features based on customer requests is mainly for churn reduction. Not because that is the ethically right thing. 

So you check usage data of your churned customers, find out the same kind of problem they faced, then calculate how much percentage churn can be reduced, and figure out the cash flow impact of the new feature. Then finally decide whether to develop or not.

If you have too many developers to make a perfect product, and if the future cash flow those developers bring is lower than the salary investment, firing them can be a rational choice sometimes.

You don’t have to make the model from scratch. I have a model template here. It is free. A model made by a cash flow specialist CPA. Covering all basic SaaS financial aspects. Just fill out the form below and click the button.

But remember, making the model itself means nothing. Making a strategy from it is.

Without a financial model, you can’t make a strategy. Without a strategy, business doesn’t grow.