Bruce Stuart: Working capital and cash flow needed for cloud

Working capital and cash flow are emerging as major challenges to the development and growth of a cloud or recurring revenue based business.

As your financial modeling will show, without adequate capital the required investments to transition the business model cannot be made.  Without the required investments in marketing, sales and technical skill sets the likelihood of cloud, SaaS and/or MPS success is reduced.  In addition time and money appear to be interchangeable…without enough capital it takes too long to get required changes made and momentum in the business cannot be built or sustained.  Reviews of successful SaaS partner businesses, and assessments of those that did not fare so well confirms these assertions.

It is important that before a business takes a serious look at investing in the cloud/SaaS/MPS business, they have full comprehension of the impact of the investment decision on their working capital and cash flow.  Generally the investment capital to build the business will come from operating profits, new debt and or new equity being injected into the business.  Whatever the source of capital is, it is imperative to understand the dynamics of the use of the capital.  The purpose of financial modeling is to illuminate the working capital and cash flow questions that are consistent with entering the recurring revenue driven cloud or SaaS business.

Simple model of cloud business cash consumption

The cash consumption characteristics of the cloud business have been modeled extensively and verification data on performance is beginning to emerge from the field. At Channelcorp we (and our clients) use LivePLan to accurately project how much capital a successful entrant likely needs to have available to invest.

For example we can accurately project how much capital it will take in order to build a business with twenty employees that generates revenue of 8.3 million dollars in five years at rate of earnings before interest and taxes (EBITA) of 25-30 per cent. We can project how long the required investment is at risk and we can foresee when the total amount that was originally invested will be in the business owner’s bank account as cash.  We are also beginning to generate information on the expected returns that the cloud or SaaS business can generate longer term.  Obviously there are a number of variables at work here, many of which are related to the capabilities and resources that make up your organization.  However, at this stage of your examination of the cloud transition decision we can provide enough insights to encourage you, as a potential investor, to engage with your vendors and distributors and work with the financial planning tools that have been created for you to understand the financial realities around the strategy that you wish to execute.

You will find the 30-DAY RISK FREE PILOT of LivePlan provided to you by Channelcorp and CDN to be useful in this respect.


Channelcorp, CDN and LivePlan have teamed up to offer CDN readers a 30 DAY RISK FREE PILOT of the unique cloud based business planning solution LivePLan.  LivePlan is the best cloud based business planning solution that Channelcorp has found publically available on the market.  You can use LivePLan to model your recurring revenue business (cloud/SaaS/MPS).  You can then use LivePlan to merge financial models of your traditional business with the recurring revenue models of your cloud, SaaS or MPS business to get the whole business-planning picture.  For $139.95 per year (thirty eight cents per day) you can have access to LivePlan. Get started, by trying a 30-day free trial.

About Channelcorp

Margaret and Bruce Stuart founded Channelcorp in 1989.  The firm is a global leader in the assistance of reseller, distributor and vendor clients. Channelcorp specializes in the business model transformation that is required in the face of the structural changes to recurring revenue driven business models in the worldwide IT business (  Channelcorp publishes and sells four industry- leading books and 12 white papers (  


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