Ascertaining your SaaS Business’ financial forecast

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Ascertaining your SaaS Business’ financial forecast
At a Glance

Forecasting and managing the risks faced by your SaaS business will ensure your survival and profitability in the long run. The extremely competitive nature of the modern-day markets has increased the financial risks for SaaS enterprises considerably. Therefore, it has become essential for the management to undertake financial risk management and forecasting for the SaaS business.

When you take risks, and it works out, they lead to new capabilities never seen before.

Tom Soderstrom

You might have often heard the phrase, ‘Higher the risk, more the financial profit.’ Quite surprisingly, that is only the case in 1 out of 10,000 SaaS business ventures. It is exceedingly difficult to make financial forecasting in your SaaS Business in a dynamic and unpredictable business environment. With the rapidly evolving technology leading to frequent changes in customer requirements and expectations, it becomes particularly important for you to undertake important financial risk management steps for your SaaS enterprise before starting to dedicate your resources and efforts for the same.

SaaS Financial Risk Management

Firstly, understand what financial risk management is to be able to deal with it better. It is a process to deal with the uncertainties resulting from the financial markets that directly affect your SaaS enterprise. It involves analyzing the current company policies to deal with the evolving trends of the market. Addressing financial risk proactively can provide your company with a competitive advantage to make financial forecasts for the future.

As the old saying goes, the process of financial risk management will always be an ongoing one. Strategies and policies need to be implemented and refined as the market and requirement changes to accurately predict the company’s financial forecast.

What Is Financial Forecasting?

It is certainly not unusual to hear management of a SaaS enterprise speak of the word ‘financial forecast,’ “Our sales did not meet the expected number,” Or “We feel confident in our forecasted financial growth and expect to exceed our targets.” That being the case, all financial forecasts are informed guesses and presumptions regardless of whether they specify the business dynamics. Forecasting is undoubtedly important to SaaS Enterprise as it allows them to make advantageous and competitive decisions.

Financial Forecasting has fundamentally informed guesses in simpler terms, and there are risks involved in relying on past data and methods that cannot include certain variables. Forecasting involves qualitative as well as quantitative approaches.

How Financial Risk Management helps Forecasting in your SaaS Business?

Financial risk management has an important role to play in helping you make forecasts for your SaaS business. Mentioned below are the two financial risk management techniques and how they can help with forecasting in your business.

●    Qualitative Financial Risk Management

The first risk management technique for your SaaS Business is Financial Forecasting through qualitative means. This model is used to making short-term financial forecasts. But qualitative measures have just short-term success for the service of your SaaS Business. As there are limitations due to reliance on opinion over measurable data. Qualitative measures include –

Market Research

This is the simplest method to ask questions from many respondents and get their opinion on whether or not they will use this service.

Delphi Method

Asking the field experts for expert advice. And not just a couple, but several experts to compile their opinions to make a financial forecast for the company.

●    Quantitative Financial Risk Management

The second financial risk management technique is quantitative. This approach tries to throw out human efforts from the analysis. This is concerned solely with data to make financial forecasts for your SaaS enterprise. This approach includes –

Indicator Approach

The indicator approach, as the name suggests, depends upon certain indicators for their relationship. For instance, GDP and the unemployment rate remaining relatively unchanged over time. By following the relationship and then following the leading factors, you can estimate the lagging indicators’ performance.

Econometric Modeling

This is a more rigorously mathematical version of the indicator approach. Econometric Modeling is applied to create custom indicators for a more targeted approach. However, this modeling financial risk management technique is used in academic fields to evaluate economic policies.

Time Series Methods

Time Series uses past data to predict future events. The difference between Time Series Methodologies lies in the fine details. By tracking and analyzing what happened in the past, you can hope to predict the future better than the average rare. This is the most common type of Financial Risk Management Technique implemented for forecasting by SaaS Businesses.

Problems with Forecasting in your SaaS Business

Some elements can create problems with forecasting in your SaaS business. Some of the most common issues that can lead to issues with your forecasting are: –

Outdated data

The data you track and analyze will be old and according to the previous market trends. There is no guarantee that the conditions that prevailed in the past will also continue in the future.

Unexpected situations

It is impossible to make or implement a financial risk management technique in an unexpected situation. Even if you try to be quick, presumptions can be as dangerous as anything else and can have devastating effects on your SaaS Business.

Inherent inaccuracies

Forecasts cannot integrate their impact. By having forecasts, accurate or inaccurate, businesses’ actions are influenced by a factor that cannot be included as a variable. In the worst-case scenarios, entrepreneurs focus more on what has happened in the past and cannot make a timely move to prevent any forthcoming financial risks in the future.

The SaaS industry is rapidly growing, and while this presents several opportunities for expansion of your operations, it comes with certain inherent risks. Therefore, you must have a robust forecasting and financial risk management system in place to mitigate the threats before they start affecting your operations.

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