Companies that tend to create a blueprint to success typically set goals and make forecasting plans for the future. What many fail to realize is that those same companies understand the importance of shifting viewpoints when things aren’t going as originally planned.
FP&A Managers consider forecasting to be a key component to the success of any company. Understanding the FP&A trends and market analysis throughout a year can save your business money and time.
The more detailed your SaaS forecasting process is, the less likely you will need to make adjustments when an unforeseen complication arises. When there is a shift in the market and it has a profound effect on the company’s progress, this is the typical time the marketing and finance teams will complete the reforecasting process.
What is Reforecasting?
Reforecasting is one of the core principles of strategic finance—it's the process of revising your existing annual budget, especially when there's a significant fluctuation from projected spending or income. If you're looking to move into a new market or grow your revenue streams, you'll likely reforecast throughout the year to ensure your vision still aligns with your core principles. Organizations reforecasting quarterly see 19% higher EBITDA margins than annual-budget peers. This approach is even more crucial as you plan for reforecasting in 2025.
You're always considering strategic finance. Strategic finance simply means providing a long-term solution for ongoing growth and development. When you're devising your financial plan, you'll want to keep these caveats in mind:
Shorter-term gains
Asset reduction
Policy changes
Although it's an important aspect of your business, it doesn't mean it'll be liked by your public shareholders. Sometimes your reforecasting and scenario planning go against what you intended, but they may help you reach the bottom line you want. As an FP&A Manager, you must always remember that strategic finance and reforecasting are about creating profit for your business and ensuring a quality return on investment. This works by taking your longer-term strategies and quantifying them to meet your short-term goals. When deciding if there's a need for reforecasting, here are a few keys to look closely after.
When Should You Reforecast?
There are three clear situation where you should reforecast:
When there's a significant change in a vital contributor to your annual budget. If your core product or service starts to decline regularly, you'll need a slight adjustment to improve those conditions and bring back demand.
When you're acquiring a partner who can fulfill an important role in your company. A reforecast helps you shift resources from one area to another.
Another common reason for a reforecast is to gain a fresh perspective on analytics for your company. That's often what leads to new customers and ultimately more revenue or fewer expenses.
Why Does Reforecasting Matter for the Success of a Business?
There's significant value for you when you use strategic reforecasting to adapt to changing conditions. If you prioritize budgeting and forecasting, you'll likely see more stability and can effectively execute your maturation plans without risking financial security. The true value is peace of mind—knowing you've taken the necessary steps to get the results you really want.
It also helps keep your organization on track for its monthly, quarterly, and annual goals. A true reforecasting process adjusts your path as it's happening, making changes in real time. This means it'll change assumptions and address unforeseen complications that weren't accounted for during the original forecasting process.
How to Reforecast a Budget?
You take real-time numbers and make necessary adjustments as often as you can to update your entire budget with new information. You can maintain your forecast as a live document, letting you compare and contrast your original decisions and effectively meet your early predictions.
Drafting a budget and forecast that's accurate can be time-consuming, but knowing your actual data and checking your budget regularly can help you exceed goals and avoid unnecessary expenses.
How to effectively use reforecasting to create your financial plan?
As a growing company, just reviewing your numbers based on normal accounts isn't all you have to do to stay afloat. Reforecasting your budget regularly can help you avoid unwanted costs. It also lets you adapt to unexpected events that might disrupt your cash flow.
For instance, imagine your SaaS company experiences a sudden 10% drop in monthly recurring revenue. With the right reforecasting approach, you'd quickly identify the cause, adjust marketing spend, and pivot your strategic initiatives to recover lost subscribers.
Acquiring updated information for your budget is critical to making sound decisions for your business. A detailed look at your profit and loss statements helps you see where you're lagging and where you're thriving. This insight lets you make the necessary changes to improve or focus more on the areas that drive results.
The correct data is ammunition for your critical decisions. Whether the data is good or bad for your company, it's still an important part of your growth. A properly reforecasted budget helps you and your organization's decision-makers leverage funds, decide where to allocate new capital, or move resources from non-producing aspects of your business.
Things to remember about reforecasting
This process isn't just for marketing and finance. You can use a reforecast in most areas of your business. The ability to make subtle adjustments can be the difference between sustaining hard times or seizing the opportunity during a business boom. As an FP&A Manager, you can't expect your assumptions to last all year. That's why including this process in your regular budget is the most effective way to stay on track and meet your yearly goals.
During vulnerable times, especially like what occurred during this global pandemic, you're likely to take a closer look at where your resources are allocated through an in-depth budget reforecast. You may have to answer tough questions about your organization's direction, such as:
Where exactly are you making the most money?
What expenses can you cut to save money?
What marketing strategies could you use to meet your original budget goals?
When should you make the necessary changes, and how long will it take for them to affect your company?
These questions give you the data you need to push through slow periods. What we've learned from the pandemic is that most businesses are vulnerable and require sound decision-makers who can adapt to any circumstance.
The more you understand about the reforecasting process, the less likely you'll run into situations you aren't prepared for. Preparation is a key component to success. Knowing where you're going and how you want to get there can save you time and money in the long term. Developing a strategic finance plan can set you apart from your competition, give you the confidence to maneuver in your sector, and keep you focused on your bottom line.
After learning the basics of reforecasting, your next step is to automate this process using financial forecasting software so you can spend less time on it and focus on critical decision-making.
With Abacum, we empower finance teams at high-growth tech companies to become true strategic partners in the organization by driving time-to-insight with powerful finance automation and seamless collaboration.
