We’ve compiled our top tips for SaaS cash flow forecasting to help your business see increased success. This is because any company, SaaS or not, needs to keep track of the cash they have on deck in order to stay afloat.
It is vital that companies keep track of where and when money moves in and out of the business. This is because it allows them to plan accordingly for the future. Tracking and managing cash flow is key as cash is the lifeblood of any business.
When it comes to cash flow forecasting, companies are able to model various financial scenarios for the future using current and historical data. Essentially, it helps businesses see how much money they expect to receive as well as payout over a set time period. This enables them to make predictions on how business operations may impact future finances.
With a cash flow forecast, businesses are able to make better-informed decisions. These could include
- Hiring new employees
- Buying new equipment
- Changing prices
- Adding to products or services
- And more
By basing such decisions on predicted future cash rollouts, there is an increased chance for the survivability of the company.
In this post, I’ll be covering:
- Tip #1 – Understanding your company’s cash usage
- Tip #2 and Tip #3 – Revenue doesn’t always equal cash inflow. Listen to the data, it matters
- Tip #4 – Check your cash flow forecasts regularly
- Final thoughts
Cash flow management and forecasting are vital to businesses in any industry. For the purpose of this post, however, we’ll be focusing on SaaS cash flow forecasting. We welcome you to explore the Brixx Blog for more articles on forecasting, cash flow, business plan writing, and more.
If you haven’t yet, we recommend you take a look at the below posts for more cash flow insights.
- Cash Flow Planning Basics For SaaS Companies
- 18 Actionable Cash Flow Forecasting Tips for Small Businesses & Startups
- A Beginner’s Guide to the Cash Flow Forecast Report
Cash flow forecasting is essential for businesses in any industry in order to gain a clearer picture of how their decisions today could affect their financial future. There are a number of unique forecasting challenges faced by SaaS businesses that Brixx addresses specifically. Thus making Brixx ideal for companies in this industry.
These unique challenges include, but are not limited to:
- Subscription renewals and recurring revenue are difficult to forecast
- Deferred income from subscription sales has tax implications
- Modelling churn/cancellations
Brixx also offers a Free Cash Flow Forecast Template for Excel and Google Sheets. You can download a range of templates from our site.
Tip #1 – Understanding your company’s cash usage
It may sound simple but businesses are complex and it can be easy to forget an expense or two. When it comes to having accurate and dependable forecasts, leaving out one or two expenses could make all the difference.
You want to incorporate all of your financial activity and business expenses such as incremental income, invoices, renewals, other sales, operating expenditures, loans, taxes, rent, travel, and salaries – just to name a few.
In order to effectively conduct SaaS cash flow forecasting activities, it is crucial to understand the company’s financial structure. This includes the business’s accounts receivable collections, performance obligations, and more.
While it may seem overwhelming at first, especially for those that aren’t financial experts, specialised software, tools, platforms, and apps like Brixx exist to make life a little easier.
Tip #2 and Tip #3 – Revenue doesn’t always equal cash inflow. Listen to the data, it matters
Tip #2 – Revenue doesn’t always equal cash inflow
Many companies choose to measure their revenue on an accrual basis and find that it may not always align with when cash is paid. “Accrual vs Cash Basis Accounting Methods – Everything You Need To Know” has more information on the two methods.
The big danger is that companies can be profitable on paper, but have no money in the bank. This becomes a problem if they are taxed on profit and have no cash.
Cash and revenue seem like similar terms but basing a cash flow on revenue will present an incorrect picture of most SaaS businesses’ finances. The more accurate approach is to produce a “direct” cash flow based on the actual timings of transactions, independent from revenue.
Tools like Brixx, for example, simplify this for companies by automatically handling the difference between cash and revenue.
We’ve written a post “What’s the Difference between Cash and Profit and Can a Business Be Profitable But Still Run Out of Cash?” where we explain the differences between cash and profit as well as how business can prevent running out of cash.
Tip #3 – Listen to the data, it matters
As one may expect, the more data that gets entered into a financial model, the more accurate the predictions will be. To be successful in SaaS cash flow forecasting, it is crucial to be mindful of what data is entered. Ensure that the data is thoughtful and will lead to predictions based on the business’s financial activity and expenses that impact cash.
When creating a cash flow forecast, companies should begin with the most basic information required and expand from there. As a starting point, the foundations of a company’s cash flow are its existing customers, contract renewals, and new contracts. Its basic expenses will include payments to suppliers, subscription services, wages, etc. The more (mindful) data that is added into the forecast from there will paint a more accurate picture of the remaining cash balance at the end of each period.
Comparing actual cash flow figures to a cash flow forecast can be a great learning tool. It dispels any bias that decision-makers have in their assumptions about their business. Additionally, they can swiftly challenge preconceptions about what’s working and what isn’t. By tracking emerging trends over time and re-forecasting based on this new data, modellers can get closer to a reliable forecast. As each business cycle progresses over time, companies will be able to notice patterns. These patterns will lead to a more accurate representation of the company’s cash flow and provide insights to inform on business decisions moving forward.
Tip #4 – Check your cash flow forecasts regularly
A common mistake many founders and CEOs make in terms of their forecasts is that they look at them, make plans from them, then don’t return to them again until the next quarter, or year.
For best SaaS cash flow forecasting results, businesses should be checking on their forecasts on a regular basis, comparing actual data to predicted data as often as possible.
Regular checkups will inform on how the company’s cash flow is doing as well as how the forecast is performing in comparison. This will help decision-makers make real-time decisions. It will allow them to know their cash balance and be able to adjust forecast models accordingly. It enables them to improve the accuracy of their forecasting.
Cash flow forecasts are essential tools for growing SaaS businesses. Forecasts allow companies to get a glimpse into the future of their cash balance while helping influence present-day decisions that influence cash runways.
Many businesses still choose a more traditional tool such as Excel or Google Sheets to create their cash flow forecasts. Many prefer the accuracy and ease of a specialized tool such as Brixx. We’ve written, “How to Avoid Making a Mess of Your Cash Flow Forecasts in Excel” and “Excel And Google Sheets vs Software For Financial Forecasting” to help companies navigate the choice between using traditional spreadsheets or a specialized tool.
Our blog post, “How to Create a Cash Flow Forecast in Brixx”, guides you through creating a cash flow forecast. It covers structuring the plan; forecasting income, costs, funding, and assets. It also guides you through running cash flow scenario as well as the first steps you should take to set up a forecast in Brixx.
Whether it be SaaS cash flow forecasting, e-commerce cash flow forecasting, or forecasting for any other industry, it is important to have a plan. Having a forecast in place will enable you to make well-informed business decisions. By utilizing a specialized cash flow and financial forecasting tool like Brixx, there is less room for human error. This is compared to creating a detailed forecast in Excel or Google Sheets.
Take Brixx for a test run with the Bike Shop Demo and explore how Brixx can help your company. Improve SaaS cash flow forecasting by signing up for a free 7-day trial or trying the Bike Shop Demo today.