Budgeting/Forecasting: What best practices to implement

Define clear financial goals

From the beginning, it is recommended to clearly define what you consider financial success for your business. Different achievements can constitute a founder’s goal: rapid growth, steady profitability, or perhaps a balance of both! Knowing in which direction you are going will help guide your budgeting process and decision-making.

Here’s what you can do: 

• assess your market position and competitive landscape;
• identify KPIs that align with your business objectives (MRR, CAC, CLTV, etc.);
• set specific, measurable, achievable, relevant, and time-bound (SMART) goals. For instance, don’t just say you want to ’increase revenue,’ but rather aim for ’a 15% increase in MRR over the next six months.

For example, if your goal is to achieve rapid growth, you might target increasing your customer base by 50% within the next year. Allocate resources to marketing campaigns, sales team expansion, and customer acquisition tools. 

Create detailed expense categories

A useful approach to refine your forecasts is to categorize your expenses, which allows for precise tracking of spending and helps identify opportunities for cost savings and optimization. The principal categories you can look at and track include:

• Marketing and sales: Advertising, lead generation, sales commissions.

• Research and development (R&D): Product development, software tools, prototypes.

• Operations: Office rent, utilities, administrative expenses.

• Human Resources: Salaries, benefits, training programs.

• Customer support: Support staff salaries, and software for customer service.

• General and administrative: Legal fees, accounting services, office supplies.

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To add granularity and precision to your analyses, you can subdivide your sections into sub-categories. For example, you could add more detail under marketing with digital ads, content marketing, and events. This will help you identify precisely what is working, what needs improvement, and what should be maintained.

Implement zero-based budgeting  

Zero-based budgeting (ZBB) is a method where each new budget cycle starts from zero, and every expense must be justified for that period. Unlike traditional budgeting, which adjusts previous budgets, ZBB requires thorough evaluation and justification for every budget line item to ensure all expenses are necessary and aligned with business goals. Implementing this budgeting method can help with the following: 

• Eliminating unnecessary expenditures.
• Enhancing resource allocation efficiency.
• Encouraging cost-saving innovations.

How to implement ZBB?

1. Identify and categorize decision units: Break down your organization into smaller units responsible for their budgets.

2. Analyze needs and costs: Analyze the essential and non-essential activities and their associated costs for each department.

3. Justify budget requests: Each department must justify its budget requests based on current needs and priorities.

4. Prioritize and allocate: Sort budget requests across the organization in order of importance and allocate resources accordingly.

Notably, this method was used by the Indian Space Research Organization (ISRO) to achieve its moon mission on a limited budget. As Finance and Accounting specialist Divya Katyarmal explains, ISRO considered technology advancements, market trends, and potential risks to create a realistic budget aligned with their goals. It allowed them to achieve a successful mission with a budget of only 615 crores rupees (about $76 M), less than the cost of the movie Interstellar.

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Utilize data-driven forecasting models

You can leverage historical data and predictive analytics to help create accurate forecasts to proactively anticipate revenue trends and adjust strategies.

For instance, combining top-down and bottom-up forecasting methods can provide a comprehensive view of your future income. The top-down approach examines macroeconomic factors, industry trends, and market conditions, while the bottom-up approach delves into granular details like individual customer metrics and product performance​.

Industry experts such as Daren Lauda, CEO at Outset, advocate for a process-centric, bottom-up revenue plan combined with top-down growth objectives, emphasizing the importance of cross-functional collaboration. 

As an example, Andy Hamer, CEO of Gorilla Team Associates, successfully uses both top-down and bottom-up approaches to forecast technology sales, combining strategic foresight with operational precision​​.

Regularly update forecasts

Ensure your forecasts are dynamic and regularly updated to reflect changes in the market, customer behavior, and internal operations. This allows you to stay agile and make informed decisions.

To do so, it is possible to implement various routines:

1. Set regular review periods: Schedule monthly or quarterly reviews of your forecasts.
2. Incorporate real-time data: Use tools that integrate real-time data to keep your forecasts current and keep an eye on key metrics (MRR, CLTV, conversion rates or churn). Here’s an example of what it can look like:
   
   

For instance, at Stripe, dynamic forecasting is key to their budgeting strategy. They integrate real-time financial data and conduct quarterly reviews to ensure their forecasts reflect the latest market conditions and internal performance. This approach allows Stripe to adapt quickly, optimize resource allocation, and support sustained growth.

Finally, Bilal Surahyo, CFO at Simpli Home Furniture, emphasizes the importance of calculating non-recurring revenue in addition to MRR for a holistic view of financial health​​.

Monitor key metrics and KPIs

Implement a holistic revenue forecasting approach

Shift from analyzing individual revenue components to understanding and optimizing the overall system. This means considering how various revenue drivers are connected within the company.

To implement this approach, you may want to encourage cross-functional collaboration – make sure departments like sales, marketing, and customer success work together – and integrate a non-recurring revenue analysis – including one-time fees, variable fees, and supplementary services in your forecasts.

By following these best practices and leveraging key metrics when relevant, you can create robust and adaptable forecasts, ensuring your SaaS business is well-prepared for predictable growth.

To learn more about forecasting, read our article on How to do revenue forecasting (best practices from the best startups).

Adopt financial management software

It can help to invest in financial management software. To implement it effectively, select a tool that integrates seamlessly with your existing systems (like CRM and ERP). 

Use the software to automate repetitive tasks such as expense tracking, invoice processing, and financial reporting, saving time and reducing the risk of errors. Additionally, leverage real-time dashboards to monitor key financial metrics and KPIs, allowing for prompt adjustments to your budget based on current performance and market conditions.

According to field experts, financial management platforms can provide businesses with a roadmap for future financial planning, helping guide decisions such as increasing headcount or launching new marketing campaigns. By integrating real-time data from CRM systems, you can continuously update your financial models and adjust strategies as needed.

Use scenario planning tools

Scenario planning tools are essential for simulating different financial outcomes based on various business decisions and external factors. This forward-thinking approach helps prepare for potential challenges and opportunities, ensuring resilience and strategic agility.

Here are a few tips:

1. Simulate multiple scenarios: Use scenario planning tools to create multiple financial scenarios (e.g., best-case, worst-case, and most likely) based on different assumptions. This helps understand the potential impact of various decisions and external factors such as market shifts, economic changes, or competitive actions.
2. Evaluate business decisions: Analyze the outcomes of different business strategies, such as entering a new market, launching a new product, or adjusting pricing models. Scenario planning provides a data-driven approach to evaluating these decisions’ financial implications.
3. Prepare for uncertainty: Develop contingency plans for different scenarios. For instance, if a key revenue stream declines, having a pre-planned strategy in place can mitigate risks and maintain financial stability.

For example, a company can use scenario planning tools to simulate the financial impact of expanding into a new geographic market. The business can identify the optimal entry strategy that maximizes revenue while minimizing risk by evaluating different scenarios. This provides a clear vision of potential challenges and helps secure buy-in from stakeholders.

📌 TL;DR – Implementing financial management software and scenario planning tools from day one will help you streamline budgeting and forecasting, reduce errors, and provide real-time insights. These tools automate tasks, integrate with existing systems, and help simulate financial scenarios to prepare for various outcomes, ensuring informed decision-making and strategic agility.

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In summary, effective budgeting and forecasting are foundational for the success of any SaaS business. Establishing clear financial goals, detailed expense categorization, and using innovative methods like Zero-Based Budgeting (ZBB) ensures every dollar is accounted for and justified. Accurate, regularly updated, data-driven forecasting helps anticipate trends and adapt to market changes, securing sustainable growth.

Implementing these best practices from day one sets your business on a path to long-term stability and success. Leveraging technology, such as financial management software and scenario planning tools, streamlines processes, reduces errors, and provides real-time insights. By adopting these strategies, you can make informed decisions, optimize resource allocation, and prepare for future challenges, ensuring your company thrives in a competitive landscape.

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