4 Tips on How Forecasting Cash Will Help Navigate Uncertainty
Our software community is facing uncertain times from the COVID-19 pandemic. So, we created a virtual Sage Intacct Modern SaaS Finance Summit to help you navigate cash management, churn, expenses, and forecasting. For our first session on April 2, we gathered a panel of experts to discuss how they are staying ahead of the curve in this rapidly changing business environment caused by the Coronavirus. You can access all content from the summit here.
- Mike Etheridge, VP Finance, Arena Solutions, a SaaS provider of Product Lifecycle Management solutions
- Vinny Prajka, Partner at JMI Equity, Growth Equity investor in leading Software Companies, including Arena Solutions
- Stuart Langer, Director of Product Management, Sage Intacct
Our panelists shared these four tips for forecasting billings, cash, and revenue.
Tip 1: It is all about forecasting cash, churn, and expenses right now
Forecasting helps bring about rapid change in your organization—it’s the toolset you need to make the right changes to help manage and grow the business. Mike Etheridge, VP of Finance at Arena Solutions, recommends that you “put in place a tool and set cadence with budget owners to create visibility and accountability into strategic plans for where to invest to grow the business.” Given the rapid change and economic certainty that we’re all experiencing today, you’re likely adjusting your business to this “new normal.” Plans may be shifting to survival instead of growth for the moment. Either way, visibility and accountability are even more important.
From an investors point of view, Vinny Prajka, Partner at JMI Equity shared that “forecasting has become much more difficult. We need a view of the future so we can plan, including how we’d exit the business or finance further add-on acquisitions. The general consensus now is that we don’t know what’s going to happen. What is the range of possible outcomes?” Given the rate of change today, plan for a variety of scenarios and daily or weekly updates to all your forecasts.
Tip 2: With the uncertainty, you need agility in your model
It’s all about actionable items. Forecasting is great if it helps you envision and change the future. Stuart Langer noted that “the value is linking the forecast to actionable items so that you can drive the behaviors you need to achieve the objectives you’ve set for your organization.” The panelists all agreed that rolling forecasts are best, so you have a consistent view of the future. Vinny Prajka added that “we ask our portfolio companies to have a 5-quarter rolling forecast. That way they can get ahead on opportunities and see risks coming. If you don’t know where you are going, how can you react, plan, or make better decisions faster? As investors, we think a lot about getting to where we are going more quickly.” Setting a regular cadence with budget owners within the organization and using the same formatting every time will help you become smart over time and create alignment across the different stakeholders.
Tip 3: Cash position dictates survival in a down market
There are a lot of tactical steps you can take today to ensure you will have enough cash going forward. Stuart Langer shared how to manage days sales outstanding (DSO) through forecasting: “Right now, you need to do deep analysis and manage churn and DSO by customer, customer cohort, and by industry. Also, look at it from things that are not yet built, whether we anticipate billing cycles on new business and renewals. If you look at it by industry and customer cohorts, certain products will be in a better defensive position.”
Be brutally honest when forecasting, which is only possible with the right company culture. Do the budget owners feel safe to reduce forecasts and share bad news? Can you verify that a particular product, service, or industry is really at risk? Otherwise, you’ll just have more inaccuracy, like a Soviet-era 5-year plan that turns out to be pure fiction.
Let’s look at how to accomplish this tactically. A great example of managing a rolling forecast is from Mike at Arena Solutions. “When we forecast, we go beyond [profit and loss] and look at bookings, billings and cash flows. We keep all that information tied together. We’re an annual subscription business, so we have to actively manage renewals,” according to Mike.
Tip 4: Automation creates scenario options and helps you reach your goals faster
“Forecasting is a continuous improvement process,” according to Vinny at JMI. The more you automate, the faster you get the data. That frees up time to be strategic on forecasting and analysis. Best-in-class companies can accelerate their growth by leveraging great forecasting and completing their 5-year plan in three years, not five. This can help to find, enhance, and leverage your competitive advantages as a company. What happens if your competitors become great forecasters, and you are a step behind?
We hope these tips help you in your decision making.
The virtual Modern SaaS Finance Summit will continue every Tuesday and Thursday at 11am PT/2pm ET from April 2 – 28, 2020. You can see the upcoming sessions, previous recordings, and accompanying blogs sharing the key takeaways here.
David Appel is the Head of Software & SaaS at Sage Intacct, and is passionate about creating great B2B SAAS companies. Over time he has developed a series of SMB, Mid-Market, and Enterprise customer-lifecycle playbooks that focus on creating value for customers, increasing return for shareholders, and building great teams, that have generated over $1.1B in market capitalization for his clients.