Determining Your SaaS Cash Flow Forecast

I’ve complained to some length recently about excessive ambiguity or complexity in the math behind some rather simple core metrics which service industries must work with. But, in the case of calculating a cash flow forecast, well, the ambiguity is a bit unavoidable, because some of the variables are very much all about your company and things which it very personally defines.

So, that said, we can at least cover the different items which can go into calculating your cash flow forecast, and maybe some suggestions on how to actually calculate those for potential forthcoming revenue.

Now, I’m not an avid mathematician, so anything more complex than base arithmetic to determine base metrics like this is just silly. So all of the suggested calculations that I’ll be giving you will be more basic (but just as effective).

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So, what are the things to factor in with your forecast?

#1 – Existing Contract Invoices

This tracks your active contracts and expired contracts. With this information, you have historical precedence to judge future trends. That in and of itself is its own calculation, and the further you go with it, the less resolution you will have with this.

However, active contracts (when your contracts are annual or longer, you’ll have a fair share of these) actually show you a solid upcoming bit of revenue by their ARR (which we recently covered).

#2 – Renewal Invoices

This, too has recursive and compounding ARR in forthcoming revenue to forecast, but beyond their next renewal, this information deresolves completely.

However, this is the one you’ll want to track the most, because it is your most solid information for low-range future forecasts that are genuinely accurate.

#3 – New Contract Invoices

These are like renewals, and give you ARR among other things, thus giving you ninety nine percent accuracy on baseline forecasts. This means that you can combine this with renewals and active contracts above to get a single, large baseline forecast to run on.

Now, taking those three metrics above and then combining ARR outcomes for a forecast gives you base numbers that are quite real. But, ambiguity comes about beyond this, in the rough possibilities of uncertainties further than the base. It’s quite a bit confusing.

I can’t pretend to advise on those beyond using the history you’ve learned from the first point as a possible likely trend that you can expect to continue to play out in the forthcoming period.

Still, while theoretical models like this are all well and good, that base forecast I first touched on is the best thing to base on really. It’s solid, very real numbers, and it’s bloody obvious in its calculation.

This is an easy thing to calculate, and it does actually give you a good environment a la finances for planning other strategies in upcoming times. You can plan your marketing, product management and many other things around what you predict is your economic climate both globally and directly applied.

So, while a lot of people give a very convoluted and baffling explanation of the cash flow forecast, it’s really pretty simple. Yeah, the predictability math some use is a bit weird, but there are apps to handle that for us if we need it.

Omri Erel
Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.
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