Why a Broken MRR Schedule Can Kill Your Funding or Exit

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If you run a software business, ignoring your Monthly Recurring Revenue schedule (MRR) can cost you your next funding round - or a good exit 👇

If you run a software business, your MRR schedule isn't just a report - it's the heartbeat of your company.Investors love software businesses because they scale fast with very low marginal cost per new subscription. And recurring revenue? That's GOLD. That's why recurring revenue sits at the core of your business.😱

𝙒𝙝𝙖𝙩 𝙙𝙤𝙚𝙨 𝙖𝙣 𝙖𝙘𝙘𝙪𝙧𝙖𝙩𝙚 𝙈𝙍𝙍 𝙨𝙘𝙝𝙚𝙙𝙪𝙡𝙚 𝙧𝙚𝙫𝙚𝙖𝙡 𝙖𝙗𝙤𝙪𝙩 𝙮𝙤𝙪𝙧 𝙗𝙪𝙨𝙞𝙣𝙚𝙨𝙨?

An MRR schedule lists all active customer subscriptions. It may look like simple info at first, but it can tell you a lot:• Do your customers love your product? If they stay longer, you're building something valuable.• Are customers spending more over time? That's a good sign - they're growing with you.• Is recurring revenue growing or shrinking? If it's slowly going down, it's a sign to act ASAP before it gets worse.

⚠️ 𝙐𝙣𝙖𝙘𝙘𝙪𝙧𝙖𝙩𝙚 𝙈𝙍𝙍 𝙥𝙧𝙞𝙛𝙞𝙩𝙚𝙞𝙜𝙞𝙡𝙞𝙩𝙞𝙚𝙨 𝙒𝙩𝙪 𝙖𝙞𝙞 𝙧𝙖𝙢𝙛𝙞𝙧𝙦𝙖𝙞𝙣𝙜𝙨

• The schedule does not match the accounting records. Revenue in the schedule is different than what you have in your profit and loss statement. Big issue. You might get into trouble when raising money, taking a loan or selling your business.

• One-off income is recorded as recurring income. There are two problems with this. Once investors find it out (THEY WILL), then the trust in your finance numbers is tanking. The second reason is that once-off income drops because it's temporary and you are included in recurring revenue, then your recurring revenue also decreases. In this case, your numbers will show high churn, which is the biggest software nightmare for investors and founders.

🤔 𝙃𝙤𝙞 𝙖𝙗𝙤𝙪𝙩 𝙞𝙡𝙡𝙞𝙧𝙤𝙮 𝙤𝙛𝙛𝙚𝙣𝙨𝙖𝙛 𝙧𝙚𝙣𝙚𝙣𝙪𝙚 𝙞𝙣 𝙩𝙝𝙚 𝙨𝙪𝙦𝙖𝙚𝙪𝙡𝙪 𝙖𝙗𝙙 𝙨𝙖𝙞𝙚𝙤𝙞𝙚𝙣?

Always allocate separate subscription categories for new customers and recurring, for example:Revenue - Licence (Year 1) - this is the new revenue for the yearRevenue - Licence (Year 2+) - this is the recurring revenue for the yearYou need to have the revenue split like that because you want to work out how well your marketing is working. For example, you will select a period, check how much new revenue was generated, and compare it with the amount of sales and marketing spent.

If you split your revenue, then you make it possible to work out unit economics easily, like customer acquisition costs, CAC Payback, Magic Number, etc.Remember, the MRR schedule is the lifeblood of your software business. Do you need someone to audit your MRR schedule and the rest of your financials? If so, send a message :)

→ Get your financials reviewed and restructured by our fractional CFO team