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SaaS Cash Flow Forecast Best Practices

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Last editedDec 20223 min read

Do you know how much money your SaaS business will bring in over the coming year? There’s no way to predict the future with 100% accuracy. Cash flow forecasting, when performed correctly, comes close. In this guide, we’ll cover a few ways to make sure your SaaS cash flow forecast is accurate – and why it matters.

What is a SaaS cash flow model?

Cash flow forecasting uses a series of data points to project your future cash flows. Typically, this means looking at your past cash flow positions alongside predicted market conditions. You can then use these factors as the jumping-off point to project SaaS cash flow over the next month, quarter, or year.

A cash flow forecast shows your opening balance, cash inflows, and cash outflows. This allows your business to see how much money will be moving in and out of your accounts. For example, imagine that your SaaS app brought in £5,000 in cash inflows last month. You’re growing at a steady rate of 6% each month. Using these figures, you could predict that your cash inflow will be a 6% increase of £5,000 next month. For outflows, you would need to look at your typical expenses, churn rate, and other factors.

Why is SaaS cash flow forecasting important?

Without a basic grasp on your finances, it’s difficult for any SaaS company to invest and grow. You need to know how much cash will be coming and going to help you meet financial obligations. Here are just a few benefits of SaaS cash flow forecasting:

  • It helps you plan for future investments

  • It shows you how much money you have in the bank over time

  • It presents a clear overview of revenue and expenses

  • It helps you manage outgoing expenses such as liabilities and payroll

  • It shows how quickly you are using your investment funds

What should you include in a SaaS cash flow forecast?

To create a SaaS cash flow model, you’ll need to look at metrics including the following:

  • Business expenses

  • Sales revenue

  • One-off sales figures

  • Recurring revenue from subscriptions

  • Tax obligations and credits

  • Fees and interest paid on accounts

  • Funding from investors

  • Purchase and sale of assets

The figures above are easy to find on your financial statements, but you’ll also need to take any industry-related fluctuations into account. For example, if your business creates travel booking software, you might have more users during typical holiday periods and a slump during the school term. Fitness apps and gyms experience a boom during the month of January on the back of New Year’s resolutions.

Best practices for cash flow forecasting

Simply gathering data and metrics isn’t enough to create a usable forecast. Here are a few tips to keep in mind for the most accurate cash flow forecasting.

1. Verify all data accuracy

When basing a financial forecast on historic data, it’s extremely important to ensure that data is accurate. Something as simple as a formatting error could impact your results when you’re running reports. It’s well worth using automated accounting tools like Xero or QuickBooks that offer features like three-way matching and digital invoicing to prevent these manual errors. You should also keep all records current when making any data-driven decisions or predictions.

2. Don’t forget about new contracts

Many businesses rely solely on historic data to create a cash flow forecast. This is best done when you’ve been in business for at least one year. Yet in addition to projecting future cash flows through historic revenue and expenses, you should also turn to your sales office for help. Are there any new contracts in the pipeline? Work together to create a sales forecast based on upcoming contracts and marketing outreach.

3. Take different pricing models into account

SaaS businesses often use a subscription pricing model charging monthly fees for services. This is the easiest model for cash flow forecasting, with a predictable stream of income. You can use your cash flow forecast to model changes to this pricing strategy and how they would impact your budget.

4. Break down expenses in the budget.

When recording expenses, break them down into specific categories to make forecasting easier. Automatically track fixed and variable costs in your accounting software to better understand marketing and inventory expenses.

5. Use cash flow forecasting software.

If you’re already using cloud accounting software, there will most likely be some element of cash flow forecasting included. You could also look at dedicated cash flow forecasting software for more in-depth reports as your business grows. Using this technology helps utilise real-time data analysis for more accurate predictions. It also eliminates the potential for human error.

Finally, consider using a tool like GoCardless that links billing and payments with accounting and cash flow. We integrate with over 300 partners, including major software like Xero and others. This gives you full visibility over cash flow from a central dashboard, with a real-time overview of all cash inflows from client invoices. Our Success+ intelligent retries technology automatically runs customer payments at the most optimal time, significantly reducing payment failures for an improved cash flow.

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