5 Best Budgeting Practices for SaaS Startups

Following these budgeting strategies early on will help your SaaS startup with cashflow, forecasting and avoid wasted time that should be spent building your business.

  1. Use a Reliable Budgeting Platform (Not workbooks)
  2. Integrate/ETL with Accounting/HR/CRM
  3. Focus on Cash Flow then P&L
  4. Start the Habit of Actual vs Budget Early
  5. Use Rolling Forecasts

Use a Reliable Budgeting Platform (Not workbooks)

You’re probably going to find it maybe a little strange for you to hear a CFO type to say,” I don’t like workbooks”.

Workbooks are problematic because you spend so much of your time as a CFO fixing errors, usually due to different versions producing conflicting data. The more data you have the more complicated they get. And if you’re spending all this time making sure that your spreadsheets are working correctly, then you’re not spending time analyzing and figuring out the business and where it’s headed.

It wasn’t until recently that affordable budgeting platforms became available online for small businesses. We work with one now, it’s called OnPlan and it eliminates the whole spreadsheet headache.

Integrate/ETL with Accounting/HR/CRM

ETL stands for extract, transform and load. It’s a fancy word for export and import. But whatever budgeting program you have, it needs to talk the same language as your accounting system. So if you’re budgeting based on a Standard B2B SaaS cost structure you want your budget to look exactly the same. You don’t want any differences where somebody has to fudge it between the two.

Your budget should tie absolutely back to every account on your accounting system so that you can do a proper budget versus actual.

Focus on Cash Flow then P&L

When focusing on cash flow, it’s important to make sure that your P&L is translating into a cash flow forecast that is reliable. There is nothing worse than predicting that you have enough runway for six to eight months and then discovering that you only have runway for two months. That situation may seem like an exaggeration, but that’s a situation some companies find themselves in.

Not having proper cash flow projections is like driving your car in the dark without headlights. Then add some foggy weather conditions. If you can imagine trying to navigate your car without knowing where you’re going and not having any idea of what’s in front of you, that’s what not having a cash flow forecast along with a budget would do for a company.

Start the Habit of Actual vs Budget Early

If you’re a smaller company, you may think that you don’t need to worry about that habit of actual versus budget early on. However, shifting focus to that area creates a habit.

Habits are difficult to establish if you don’t have one already in process. If you’re not in the habit of creating an actual versus budget from the early days, it becomes more difficult to get into the habit of creating one later. It will not only be more difficult for you but also for your department heads and the people that oversee major functional areas.

Your team needs to understand and be managed on:

  • How are expenses being controlled?
  • Are those expenses going towards supporting the company’s mission and its strategic objectives?

Not knowing if you’re on target is like a football field without any goalposts or field lines. And without any lines on the field, you have no idea how well you’re moving down the field.

Use Rolling Forecasts

Rolling forecasts help provide an accurate view of where your company is headed. To use rolling forecasts, each month take your actuals and add them to the future budget months to better predict what the rest of the year look like.

Having your actuals built into what’s left of the year is going reflect whether you’re going to hit your numbers or not. This is especially true when considering targets such as:

  • EBITDA targets
  • Profitability targets
  • Gross margin targets

Having these actuals built into the frame that you’re looking at can help you determine if you’re going to hit your numbers and if you’re not, you should understand why.

Rolling forecasts become an important budgeting strategy as you scale because they can tell you how to move forward. For example, consider if your company had been running with six to eight employees and an investor dropped extra money into your business. A rolling forecast with your actuals baked in can help you determine what you’re going to do with your headcount and what tech stack you should buy.

Utilizing a rolling forecast can also help resolve the question of where extra cash flow would be the most impactful in situations like closing your A round sooner than expected.

Learn More About SaaS Best Budgeting Practices

SaaS Gurus evolved from years of experience building B2B SaaS finance and admin ecosystems for many companies including Duo Security (exit to Cisco $2.35Bn), LLamasoft (exit to Coupa $1.5Bn), and 10+ other start-ups.

If you’re looking for further guidance on budgeting for your Saas startup, contact Anthony Nitsos to schedule a consultation.

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