Update to Enterprise SaaS Financial Model - Showing Cash Flow if Customer Receipts are Collected at Beginning of Contract Instead of Amortized

I built an enterprise SaaS financial model a few months ago to allow for the planning of startups where customers might have varying contract lengths i.e. 12 month contracts or what have you. The new update was a simple 'yes/no' configuration option so the user of this model can show cash flow accurately. For example, some organizations may collect the full value of the contract up front. With the new update, that can now be accounted for in the resulting cash flow and effect IRR/equity requirements/contributions/distributions.



Main Update:

If 'yes' is selected on the new box in the Control tab of the workbook, then the total value of each contract will be shown as a cash in flux at the start month for new customers that have signed up. If 'no' is selected, then the total value of contracts will be spread evenly across the amount of months the contract lasts for.

So, when you look at a single monthly cohort over the life of the model, you will see revenue in-flux only at the start month and then at each renewal month.

This can be turned off or on in one click. The main effect you will see if the selection is marked as 'yes' is that more cash comes in immediately. That can be important for startups that are trying to survive early burn from operations as they try to grow. Also, there will be more revenue in the 60 month period than if you have amortized the revenue over the length of the contract. It is sort of like a rolling current liability since the services must be provided in the future while the receipts have already been collected.

For example, if the contracts are 12 months long, then when there are only 11 months left in the model, the cash in flux for month 50 will be a full 12 months, however per the amortization method only 11 months will show (months 50 to 60 inclusive) in revenue. In month 51 another full 12 months are collected, but for the amortized method only 10 months will be showing as revenue (months 51-60). and so on. Month 52, the total revenue collected would show for 12 full months, but the amortized method will only show 9 months worth of revenue.

The revenue collected immediately that is related to services which will be provided in the future is called deferred revenue. As this revenue is actually 'earned' i.e. services get provided, then the deferred revenue gets recognized. This allows for proper cash flow and proper revenue to be reported at the same time.

This means, the greater the contract length, the greater the effect on cash flow in total and the greater the IRR (less cash required in the beginning and more overall cash returning over the 60 month forecast). 

So, you won't be able to tie out revenue on the top line with the revenue collected at the beginning of each contract term when selecting 'yes'. That is ok though as the point of the option is just to show a scenario where that cash is available. Because it results in such discrepancies, the selection can be turned off by marking the box as 'no' instead of 'yes'.