How to increase forecast accuracy with automated forecasting

Forecasting accurately across long periods is an indispensable skill for SaaS finance and RevOps departments. The further you can reliably forecast, the clearer your picture of your company’s financial health will be.

Automated forecasting has opened up an entirely new tier of efficiency and effectiveness. Automating your forecasts will enable you to:

• Stop worrying about manual errors: Forecasting inaccuracies can be costly, especially if you’re using the forecasting data as the foundation of a long-term financial plan.

• Make more complex forecasts: For SaaS companies with multiple subscription tiers, and even those with just one or two, making multi-factor forecasts around discounts and similar matters can be extremely hard. Modern SaaS accounting automation software can handle even the most challenging forecasts.
• Have more time for high-level strategizing: All of this will free up your department to devote its time to more action-oriented activities rather than planning-oriented tasks like forecasting.

Adopting a modern approach to finance and accounting can upgrade your forecasting capabilities immensely. Let’s look at some specifics.

Understanding your cash position

One of the most important aspects of forecasting is that it allows you to get a panoramic view of your finances across the future. This is highly beneficial because knowing your future financial prospects impacts your team’s behavior and risk appetite in the present.

For instance, imagine that your SaaS company has been planning a subscription discount campaign to help reduce your churn numbers. To accomplish this without negatively impacting your finances, you need to know in granular detail how much of a discount you can offer and for what time range.

If you have multiple subscription tiers and plan on offering different discounts for each one, the odds that you’ll make a costly miscalculation get even higher.

• Get detailed about deferrals: Deferred revenue waterfalls play a large financial role for many subscription-based companies. However, if they aren’t handled with care, they can significantly complicate your financial reporting and give you a false sense of your cash position. Accounting software makes accounting for deferrals a breeze.

• Price your products profitably: As we mentioned above, effective long-term forecasting is indispensable for any degree of strategizing around price points. Automation can give you crystal clarity about how to maximize the profitability and attractiveness of your services and show you how different price points will affect your overall finances.

That’s only the beginning of how a streamlined approach to finance can benefit your entire company.

Tighten your order processing and close faster

Days sales outstanding (DSO) is a critical aspect of your recurring revenue operation. DSO is the average length of time it takes you to complete the entire lifecycle of a sale, from processing the initial order to receiving payment.

Shortening your company’s DSO is something that you’ll be expected to accomplish as a SaaS CFO. Automating your subscription business can help you shorten your order processing cycle as fully as possible in your unique circumstances. You’ll also be able to run effective forecasts to determine how various DSO lengths will impact your cash position.

Another critical benefit of automation is its effect on your close cycle. Instead of a single monthly close, automation leverages a “continuous close” approach. Your books will be continually closed and updated as each transaction takes place.

Say goodbye to manual invoicing errors

Invoicing is one of the worst business domains in which to make a mistake. For one thing, invoices always involve at least two parties. This inherently makes matters more time-consuming if there’s an error to address.

But beyond that fundamental aspect, invoicing errors can also:

• Reflect poorly on your company: People naturally get a bit touchy where their wallets are involved. Depending on who your specific customers are, a single invoicing mistake might be enough for them to cut off their professional relationship with you. While that may not always be true, it’s better to play it safe and automate the process.

• Cause financial strain: This might apply to either party in the transaction. Since people and businesses budget for certain expenses at certain times, an unexpected upcharge can be a thorn in the side.

Invoicing is one of the most critical functions of any business. When SaaS accounting practices have come so far in the twenty-first century, there are fewer and fewer excuses for not leveraging automated invoicing.

Are you ready to level up?

SaaS finance is more than just a numbers game. It’s a vital pathway to helping your company secure long-term profitability. And forecasting is more than just projecting figures. Automated forecasting gives you a “financial crystal ball” that you can gaze into whenever you need answers to help you strategize.

Learn more about how Sage Intacct can help you take your reporting to a new level of effectiveness.