Architecture
Step-by-Step Expense Forecasting: A Guide for SaaS
How long is your cash going to last? It’s a critical question for any finance leader to answer for the business. But you don’t just need an answer that’s a snapshot in time — you need to project forward based on your plans. Here’s how to forecast expenses effectively to better understand your cash burn.
By Shriyansh Gautam
Published on Jan 11, 2024 • 11 min read
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To a certain extent, there’s a limit to what company executives can control. They can put in place an expert sales and marketing team. They can ensure the product or service is top notch and tailored perfectly towards the target demographic.
But at the end of the day, the market is going to have the final say on how that transitions to revenue and profits. Every industry goes through ups and downs, on both a market segment and macroeconomic level.
CEOs, CFOs and other senior executives can’t influence the wider economy, but what they can control is expenses. That’s why, when it comes to projecting the future financial performance of a company, expense forecasting is a powerful tool that’s worth taking the time to get right.
Having a clear and consistent projection on the company’s costs will allow a far better understanding of how the business can be expected to perform through all stages of the market cycle.
That makes for more accurate projections, and ultimately, better business decisions.
But at the end of the day, the market is going to have the final say on how that transitions to revenue and profits. Every industry goes through ups and downs, on both a market segment and macroeconomic level.
CEOs, CFOs and other senior executives can’t influence the wider economy, but what they can control is expenses. That’s why, when it comes to projecting the future financial performance of a company, expense forecasting is a powerful tool that’s worth taking the time to get right.
Having a clear and consistent projection on the company’s costs will allow a far better understanding of how the business can be expected to perform through all stages of the market cycle.
That makes for more accurate projections, and ultimately, better business decisions.
What Is an Expense Forecast?
An expense forecast is simply a projection of your future company costs. While the concept is fairly straightforward, the practicalities of actually putting together an accurate forecast are more complex than it can first appear.
That being said, building an accurate and usable forecast is critical for any type of business, but especially for SaaS startups. They’re so important, in fact, that we have a term for it: burn rate.
When you have a clear view of your burn rate, you have a clear view of the length of your cash runway. The goal is to line up expenses with natural revenue growth and funding roads so that you can reach your end goal: profitability. Expense forecasts can be used to find obvious (and not so obvious) areas where spend can be reduced and the length of your cash runway optimized to promote sustainable growth.
That being said, building an accurate and usable forecast is critical for any type of business, but especially for SaaS startups. They’re so important, in fact, that we have a term for it: burn rate.
When you have a clear view of your burn rate, you have a clear view of the length of your cash runway. The goal is to line up expenses with natural revenue growth and funding roads so that you can reach your end goal: profitability. Expense forecasts can be used to find obvious (and not so obvious) areas where spend can be reduced and the length of your cash runway optimized to promote sustainable growth.
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