How budgeting and forecasting help SaaS companies reduce uncertainty and boost recurring revenue

Budgeting and forecasting work together to help SaaS companies minimize uncertainty and improve their growth rate, but they do this in different ways.

First, budgeting helps finance leaders plan how to use resources for a given period, making sure each department has enough capital for its projects.

It also helps SaaS companies prepare for the ups and downs that often happen in subscription-based businesses.

Forecasting has strategic implications for the budgeting process and reducing overall uncertainty but has slightly different objectives.

These include:

Projecting revenue growth

Being able to estimate your likely monthly revenue and annual recurring revenue (ARR) is integral to both SaaS budgeting and broader financial planning and analysis (FP&A).

Similarly, forecasting helps you anticipate new customers, revenue contraction, and other financial trends.

Optimizing the billing process

Selecting the best SaaS billing model for your company is essential in reducing long-term uncertainty.

Seamless and strategic billing plays a large role in keeping churn to a minimum by providing a great customer experience.

Forecasting also helps you predict new customer sign-ups, potential revenue drops, and other financial patterns.

Managing cash correctly by growth stage

As a SaaS CFO, you’ll have different priorities and goals depending on what stage of the business lifecycle you’re in.

Are you pre-seed or seed and trying to establish a product-market fit? Or are you more mature and fine-tuning your revenue model or even expanding internationally?

Forecasting helps finance leaders navigate each growth stage optimally.

By combining SaaS budgeting and forecasting, CFOs can make informed decisions, adapt quickly to changes, and stay competitive. Let’s peel back a few more layers.

How else can this symbiotic pair of financial processes improve your company’s financial performance by reducing uncertainty?

Planning for surprises with accounting
automation

Expecting the unexpected is crucial for SaaS companies.

Looking at past market trends and historical data helps predict the future, which is one of the major ways forecasting reduces uncertainty.

Automated forecasting makes this process much easier—you just enter your starting data and click a button.

Running “if-then” scenario tests is central to reducing doubt about your company’s financial future.

What if many customers suddenly cancel their subscriptions? Will your cash on hand cover your needs while your subscription revenue recovers?

Asking questions like these help finance leaders plan more confidently.

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Automated forecasting makes this process much easier—you just enter your starting data and click a button.

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Accounting for deferred revenue through SaaS
forecasting

SaaS companies recognize revenue in a unique way, so accounting for deferred revenue through SaaS forecasting is vital.

Managing the demands of ASC 606 is a big piece of that and is a much smoother experience with the help of financial automation.

Financial automation uses AI software to handle repetitive tasks and complex calculations.

This not only saves time but also reduces errors and provides real-time insights.

By accurately forecasting deferred revenue, finance leaders can manage their cash flow effectively and avoid running short on funds.

Risks of spreadsheet-based budgeting and
forecasting

For decades, finance teams relied on Excel sheets and adding machines for budgeting and forecasting.

But here’s why sticking to these pre-automation methods can be risky:

Manual budgeting and forecasting is time-consuming and prone to errors that need to be corrected, wasting a great deal of your time and cash.

Using outdated processes can hurt your department’s effectiveness and the health of your entire organization.

Manual methods also don’t allow for real-time updates or adjustments.

Inaccurate budgeting and forecasting can lead to financial instability and missed growth opportunities—because when you’re busy constantly crunching numbers, you lose focus on big-picture thinking that could move your company forward.

None of this is good news for SaaS companies. Let’s check out financial automation for comparison. Is it better at slicing uncertainty down to size?

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Manual budgeting and forecasting is time-consuming and prone to errors that need to be corrected, wasting a great deal of your time and cash

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Benefits of automating your SaaS budgeting and planning

Automating your SaaS budgeting and FP&A benefits your business in several important ways:

1. Slashing manual financial processes

Automation cuts out manual data entry and calculations, making your entire process more accurate and reliable.

2. Centralizing your data and streamline workflows

Integrating all your CRM, ERP, and billing data into a centralized system ensures seamless SaaS forecasts and eliminates the risk of errors’

3. Unlocking real-time insights and more robust forecasts

Lag-free financial reporting combined with automated budgeting and planning provide real-time visibility into your SaaS revenue and financial performance, helping you make smarter, data-driven decisions.

Automated forecasting models can generate lower-variance revenue projections by effortlessly incorporating historical data, market trends, and a wider variety of SaaS metrics’

4. Freeing up time for strategy

With automation and AI handling the routine tasks, your team can focus on big-picture thinking, finding new efficiencies, and working on initiatives that can really drive your business forward.

Investing in automated software solutions for SaaS forecasting and budgeting can greatly improve your department’s financial planning and growth prospects. But not all accounting suites are created equal.

Six actionable tactics to slash uncertainty for your SaaS business

Now that we’ve explored the benefits of automating your SaaS budgeting and financial planning, let’s look at six actionable tactics you can use to slash uncertainty for your SaaS business through forecasting and budgeting.

1. Plan accurately for revenue recognition on multi-year contracts

Accurately planning for revenue recognition on multi-year contracts is essential for SaaS companies.

These contracts can be complex, as revenue recognition may occur over a long period with multiple layers of service obligations to consider.

Automation makes it easy to keep track of deferred revenue waterfalls and their impact on your budget.

CFOs need to carefully review the terms of these contracts and determine the appropriate timing and method of recognizing revenue.

Be mindful of potential changes or risks that could impact the revenue recognition process, including contract amendments, changes in market conditions, or similar factors.

Advanced financial management solutions can help automate this process, ensuring compliance with current accounting standards while providing real-time visibility into your revenue streams. 

Accurately forecasting and budgeting for revenue recognition helps CFOs reduce uncertainty and ensure their businesses remain financially stable.

2. Centralize and automate to eliminate shadow IT

One of the most important reasons to integrate and automate your financial data is boosting your cash flow by cutting shadow IT.

Any application that your company unintentionally continues to pay for but no longer uses is considered shadow IT.

Enterprise subscriptions can get quite pricey, and neglecting even a few recurring subscriptions can produce a sizable hit to your cash flow.

Centralizing your data in the cloud puts everything in front of you, allowing you to see what you need and what you don’t.

Modern cloud-based financial management platforms offer centralized data storage and automation capabilities, helping you identify and eliminate unnecessary expenses.

3. Get granular about your pipeline performance and your various sale cycles

Analyzing and breaking down your sales cycles into smaller segments allows you to identify trends, patterns, and key metrics that impact your sales performance.

This enables you to make data-driven decisions based on the specific dynamics of each sales cycle, including seasonality, customer behavior, and market trends.

Also, give your pipeline a closer look.

Are parts of it converting particularly well, or any spots that could benefit from a change?

Here are a few ways to do that:

• Map your buyer’s journey and customer expansion paths.
• Define and regularly review your success metrics.
• Use a single, real-time financial data source across teams.
• Align RevOps and FP&A priorities for better collaboration.
• Balance short-term goals with long-term strategic objectives.

Sage Intacct’s reporting and analytics tools can provide detailed insights into your sales pipeline and cycles, helping you visualize trends, automate reporting, and make data-driven decisions to continually improve your sales performance.

4. Aim for a slow burn

Your SaaS company’s burn rate is one of the most essential metrics for ensuring positive cash flow.

Essentially, your burn rate covers your total expenses: how much money are you spending each month, and how long can yoU keep that up with the cash you have available?

It might be time for comprehensive financial planning and analysis tools that allow you to closely monitor your burn rate and make informed decisions to extend your runway.

5. Think ahead and prioritize seamless scaling

When scaling your SaaS business, thinking proactively and planning ahead for seamless growth is essential.

By selecting SaaS solutions built to accommodate future growth and increased demand, you can avoid the constant need to switch and upgrade software.

Try this: look for scalable solutions designed to grow with your business, eliminating the need for frequent software changes as your company expands.

6. Build efficiencies for peace of mind

Streamlining and automating your financial processes not only saves time and reduces errors but also provides greater peace of mind.

By identifying and implementing efficiencies in your financial operations, you can free up valuable resources to focus on strategic initiatives and innovation.

The right automation tools and best practices—combined with AI—can help you build these efficiencies, giving you more confidence in your financial data and processes.

Empowering SaaS CFOs to navigate uncertainty

Optimizing your revenue forecast activity, sales pipeline projections, and budgeting processes are all essential to cutting uncertainty to the absolute minimum.

For SaaS CFOs, automation is the easiest pathway to get there because it integrates your data, fine-tunes your forecasting, and equips you with robust financial analytics—all in one fell swoop.

By leveraging the power of budgeting and forecasting, embracing automation, and implementing the actionable tactics we’ve outlined, you can navigate the complex SaaS financial landscape with greater confidence and precision.

Remember, in the world of SaaS, adaptability and foresight are your greatest allies in slashing uncertainty and driving sustainable growth.

As you continue to optimize your SaaS forecasting and budgeting process, keep in mind that it’s an ongoing process. Stay curious and leverage the wealth of resources and tools available to SaaS financial leaders.

Ask yourself (and your team) these critical questions:

• How can you best leverage your financial tools in the first 90 days post-deployment and beyond?
• What strategies can you implement to scale sustainably at each growth stage?
• How can you build and forecast different billing models with confidence?

These questions touch on core aspects of reducing financial uncertainty for SaaS organizations.

If you’re looking to deepen your expertise in managing uncertainty and winning your market, the Modern SaaS Finance Academy offers valuable resources tailored to your needs.

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Optimizing your revenue forecast activity, sales pipeline projections, and budgeting processes are all essential to cutting uncertainty to the absolute minimum

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Ready to learn more? Discover how Sage’s cloud-native solutions can help you navigate financial uncertainty with confidence.

Editor’s note: this article was originally published in August 2023 and has been updated for relevance.