Creating an Effective Financial Plan for Your SaaS Business -

Over 430,000 businesses were registered in the US in March 2023 alone. And more businesses continue to be registered.

But starting a SaaS business is the easy part, ensuring its survival is an entirely different story.

Keeping the financial health of your SaaS business in check is key to its survival. And that begins with creating a financial plan for your SaaS business.

Creating a financial plan may feel intimidating, especially if it’s your first SaaS business. However, it equips you for long-term success.

It makes you better prepared to pitch to investors and get funding. It also enables you to anticipate and manage cash flow shortages. A financial plan makes it possible to forecast growth, set attainable goals, and bounce back fast from bad situations.

Before discussing the steps for creating a winning financial plan, let’s understand what it is.

What is a Financial Plan?

It’s an overview of your SaaS business’s current financial situation and its growth projection. A financial plan helps you keep track of the present and future financial health of your SaaS business to avoid any surprises.

Creating a financial plan is crucial to the long-term growth of your SaaS business.

By analyzing and forecasting your current and future financial position, you can manage cash flow better, especially during periods of low revenue.

According to Younium, SaaS billing software can automate the SaaS business billing process. SaaS businesses, such as subscription-based businesses, can plan their financial plan with recorded and verified financial data.

You can also control business spending and prioritize your financial resources by budgeting for expenses and planning for taxes.

Creating a financial plan ensures that you’re not carried away by financing the daily activities of your SaaS business and forget about your long-term vision and obligations.

Guide to Creating a Financial Plan in 4 Steps

Here are four easy steps to get you started with creating a financial plan for your SaaS business.

1. Analyze Your Current Financial Position

Start by assessing the financial position of your SaaS business. As explained in this Small Business HQ guide, accounting software helps automates data collection and entry making it easy to assess your business’ financial health. Here are a few financial statements that’ll give you the insights you need.

Cash Flow Statement

It’s possible to be super-profitable and not have enough cash to cover your monthly expenses. It’s also possible to not make much profit and still cover your expenses effortlessly.

It all depends on your cash flow management, and this is where a cash flow statement comes in.

This is a financial statement that highlights the movement of cash in and out of your SaaS business.

Here is an example.

A cash flow statement indicates the cash position of your SaaS business and how well it can fund its operating expenses and pay its obligations. It also highlights your cash position at the end of a month.

The cash flow statement encompasses three main components. Cash from:

Operating activities
Investing activities
Financing activities

Creating a cash flow statement lets you identify a cash flow problem before it blows up in your face.

For instance, if your cash inflow is low, you can take steps like adjusting the payment terms for your customers. You can adjust how much they should pay upfront or shorten the length of the credit period.

In case you have a surplus at the end of the month, you can budget for SaaS business expansion or future investments.

Balance Sheet

A balance sheet also goes by the name ‘statement of financial position.’ It’s a financial statement that shows:

What your SaaS business owns (assets). This includes what customers owe you, cash, inventory, property, equipment, etc.
What it owes (liabilities). This includes amounts owed to creditors, loans, credit card balances, mortgages, etc.
How much investors have invested (shareholder equity), such as investors’ shares and retained earnings.

The balance sheet adheres to the equation:

Assets = Liabilities + Shareholder Equity

Here is an example.

The balance sheet provides your current capital structure. It tells if your SaaS business is capable of covering its obligations or if it’s highly indebted.

A healthy SaaS business will have ample assets and an appropriate level of debt. Business analysts also use the balance sheet to compute financial ratios.

Profit and Loss Statement

Also known as an income statement, a profit and loss statement is a summary of your revenue, costs, and expenses over a period. It can be a quarter or fiscal year.

It indicates how your SaaS business performed over the specified period.

The profit and loss statement includes:

Revenue (sales)
Cost of producing your goods
All operating expenses, like utilities and rent

At the bottom of the statement, you can see the net profit or loss you made.

Here is an illustration.

By looking at the profit and loss statement, you can analyze the steps you need to make more profit. You’ll know whether to increase revenue, reduce costs, or both.

Sales Forecast

This is a projection of the sales your SaaS business expects to make within a given period, such as a month, quarter, or fiscal year.

A sales forecast ensures that your revenue expectations are on track. It also predicts your future cash flow.

The sales forecast takes into account:

The amount each sales opportunity is projected to bring in.
The time (month, quarter, or year) within which the revenue from a sales opportunity is expected to come in.

Here’s an example.

The sales forecasts can be segmented based on your business type. If you sell online courses, for instance, you can track sales from your course content separately from sales from your ebooks, templates, and so on.

The difference between the forecasted revenue from sales and the forecasted cost of goods sold (COGS) will give you the forecasted gross margin.

It’s important that your sales forecasts be consistent with the sales in your profit and loss statement.

While you can use the intuition of your sales leaders for your forecasts, the analytics, forecasting, and reporting features of a powerful lead generation software would be more accurate.

2. Review Your Strategic Business Plan

Once you evaluate your current financial position, you need to make plans for the future, including your strategic SaaS business goals.

Evaluate what you’ll need to achieve these goals for your SaaS business and how it will affect your overall financial position.

For instance, ask yourself:

Will I need more equipment?
Will I need to get additional staff?
Will these goals affect the business’s cash flow?
What extra resources do I need to achieve these goals?

Based on your current financial position as indicated by your financial statements, you can determine if you can accommodate these goals or if you’ll need more financing. As per Attrock, examining your sales cycle is crucial to determining your revenue potential, as it directly impacts your ability to fund and sustain growth. Also, determine how much debt your SaaS business can take.

3. Make Financial Projections

Next on this guide to creating a financial plan is making financial projections or forecasts.

Create a projected balance sheet and profit and loss statement.

Your financial forecasts will be based on anticipated income from sales forecasts and any other income from the projects you intend to undertake to achieve your strategic goals.

The forecasts should also take into account the extra expenses you’ll incur to achieve these goals. Be sure to cover different scenarios, both optimistic and pessimistic. Anticipate the impact each scenario will have on your financial health.

Creating financial projections will also come in handy when seeking funding from investors or lenders.

4. Plan for Contingencies

The phrase ‘anticipate the best but prepare for the worst’ comes into play when creating a financial plan.

It’s important to have a backup plan for times when there’s no sales revenue or when your business takes a downturn.

The cash flow statement you created in step one will come in handy.

Based on your average cash use in a month—as indicated by your cash flow statement—have emergency sources of funds for contingencies.

It can be a cash reserve or a line of credit where you can access a substantial amount of cash fast. Having a plan in place helps you react quickly to these occurrences and ensures business continuity.

Start Creating an Effective Financial Plan for Your SaaS Business

Creating a financial plan should not be a one-time task. It should be an essential and recurring part of your SaaS business.

Effective financial planning facilitates the long-term growth of your SaaS business.

Start by understanding the current financial position of your SaaS business. Then check if your strategic plan is attainable based on your current financial position.

Make financial projections and see how your goals will affect your financial health. Finally, plan on how to survive unexpected financial turns in your SaaS business.

Put these strategies into action to secure the future of your SaaS business.