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Subscription Cash Flow, "Golden Goose” or “Cash Cow”?

Peter A. Sangiorgio is the former CFO of Metropolis Magazine. He holds a B.S. in Accounting
and an M.B.A in Controllership from St. John’s University. He is a member of the
Institute of Management Accountants (IMA) and is currently pursuing a Certified Management Accountant (CMA) credential.  Contact Peter at pacs@erols.com


Cash flow is probably the most important resource any business has. It is the lifeblood of any entity, the oil for your engine so to speak. Revenue and margin metrics are important for a business to show value, performance and profitability. However, the cash flow of a business is what enables the business to continue to grow. Cash flow is the money that comes in from sales, moves through the business, and out to pay its obligations so it can continue to produce its income. Businesses that can successfully project their cash flow are better situated to weather economic storms and continue to grow their business. This is easier said than done. There is an old saying, “He is such a good salesman, he could sell a newspaper to a blind man,”  Yeah, that’s a cute saying and nice in theory, but no matter how good a product or service you have or how persuasive you are selling it to customers, if you can’t collect payment for it, it means nothing. In today’s business world, most sales are done on some form of credit so, the timely collection of outstanding monies owed to you is sometimes more important than knowing that you will ultimately get paid.

There are of course things a business can do to help maximize its routine cash flow. It can offer incentives such as discounts for prepayments or for earlier payments. To receive that cash up front or sooner than later, it is willing to accept less of the overall sales amount and it is considered a cost of doing business. Being flexible and understanding what is in the best interest of the company in the long run is what will distinguish successful companies with unsuccessful ones.

These days, traditional publishing companies are struggling to survive. With the emergence of the digital age, the historical brick and mortar publishing houses are having harder times affording their printing costs and other overhead costs. Some are closing up shop all together and some are permanently discontinuing their print publications in favor of an all- digital offering. One example of how hard things were in 2012 is the discontinuation of Newsweek’s print version after some 80 years in existence.  They are now an all-digital subscription only offering.

What does this have to do with subscriptions and cash flow? Well, I will get to that, be patient.  You see, most publishers generate a substantial portion of revenue from advertising. As advertising is strongly considered the “Golden Goose” of revenue for publishers, subscriptions are the true fulcrum or support that can always be counted on for consistent cash flows. As with any “Golden Goose”, if advertising is not used properly or if it fails to reap benefits for your advertisers, that source of profits will decline. As advertising revenue declines, this can have a material direct effect on future subscriptions. And as your future circulation declines, it will have an effect on your rate cards and your ability to attract potential advertisers. This of course is a never-ending “Catch 22” or revolving cycle situation. As publishers continue to adjust to the digital age and grapple with what is best for its individual publications, the “subscription” and the cash flow derived from it becomes more of a focus for its operations. I know that during my time in publishing, while advertising revenue generated a substantial portion of our magazine’s total revenue, there were times when the collection of these payments presented huge challenges for us. As the economy went toward recessionary levels, more companies cut their advertising budgets as well as extending their payment terms to us beyond our typical payment terms of 2% Net 30 …..many times without letting us know that they were doing so until after the fact. When you are the CFO or Controller and responsible for monthly cash flow management, actions like this can truly hamper your ability to fund your monthly obligations. So, when am I going to discuss how subscriptions and cash flow come into play? Well, how about right now?

Working with a subscription fulfillment house makes life much easier for publishers because they basically handle all of their subscription needs including the billing and collection of your subscription revenue and the routine reporting of your subscription receivables and cash collections for a fee. These reports will give you a good idea of your expected cash flows from the subscription sales and will help you plan your monthly operations accordingly. While there is always a provision for bad debt allowances, this was a pretty accurate constant for me with my cash flow planning and forecasting. I knew when there were lulls in the advertising receivable collection cycle; I could always rely on the consistent subscription cash flow to settle our monthly and weekly debts.

As technology continues to progress, people will continue to choose whether to receive their news and information in print or in digital format. How content is delivered in the most efficient and convenient form as well as the analysis between that cost vs. benefit will determine the publishing industry’s ultimate fate. But as that evolution continues to migrate to a mostly all- digital format, the one thing that will not change is the importance of subscription revenue and its cash flow on a publisher’s ability to navigate any storms. Businesses with models relying heavily on advertising will still be viewed as that “Golden Goose” for viability.  However, it is the subscription revenue portion of that model for me that will be considered as a somewhat lesser “Cash Cow” with respect to keeping the company consistently funded.