SaaS (software as a service) is an expanding field with lots of room for growth. Starting a SaaS business is almost a no-brainer for those with experience in software and working with clients. It can have relatively low startup costs, and services can be offered regardless of location. So there’s a lot to love. Still, it’s important to be informed about the financial considerations of starting a SaaS business endeavor. Here are some items for aspiring entrepreneurs to consider:
Every business’ needs are different, and today there are a lot of resources to make things easier and more affordable for entrepreneurs just starting out. On a very basic level, you’ll need the resources to create and sustain your product offering. This likely includes web hosting, source code hosting, domain names, internet access, and phone capabilities. There are tons of options for fulfilling these needs, and you could do it for as low as a few hundred dollars or as high as your budget goes.
More considerable costs include office space and payroll costs for employees. If you’re starting a business on your own, these may not be necessary as you start, but if you anticipate growing to need them, you’ll want to start planning early. Payroll is one of the most substantive costs of most businesses, and commercial rental space isn’t cheap.
Be sure not to discount the cost of your own labor. Though you likely won’t be able to take a salary immediately, you should work to be able to do so as soon as possible. After all, if you can’t pay yourself, you’re not building a sustainable business.
After you figure out your initial and ongoing costs of operation, you’ll need to procure funding. If you’re bootstrapping, you might be able to use your savings to get started. But if your financial needs outweigh your assets, you’ll need to look at outside sources. If you have poor credit, this process likely seems daunting, but there are ways to procure small business loans with bad credit. Just make sure you’re using reputable sources and that you’re not getting in over your head in debt.
You can also look into crowdfunding or other ways to start with a boost in sales/subscriptions so that you don’t have to wait to build up your incoming revenue. Avoid the temptation to take personal loans from friends, families, and colleagues unless official paperwork is involved. Otherwise, you’re putting both your personal relationships and your business at risk.
From the very beginning, you should make an outline on how you will spend your incoming revenue. Initially, a high percentage will likely go to paying bills and repaying loans. But you should also be setting aside money for those periods where you lose clients or fail to collect so that one-time shortages don’t put your business at risk. You’ll also want to plan a strategy for protecting your business income. This process alone will result in a lot less naivete about the potential threats to your business. It also encourages you to start with good financial and documentation habits from the beginning so you won’t have messes to clean up later.
Do you have experience starting your own SaaS company? What was the expense that surprised you the most? Share in the comments!
Noah Rue is a journalist and a digital nomad, fascinated with the intersection between global health, personal wellness, and modern technology. When he isn’t frantically updating his news feeds, Noah likes to shut off his devices, head to the beach and read detective novels from the 1930s.