The Bottom-Up Budgeting process for SaaS companies allows for department-level ownership of each budget, allowing team members to make requests based on their major needs. The budgeting process is crucial in knowing where to allocate investment dollars, measure against the plan, and tie costs to expected new bookings and contracts.
An annual budget allows you to keep track of your costs so your business stays in the black. A third-party finance and accounting solution can assist in this process if you’re unsure how to develop an annual budget. Compass East is a budget development consultancy for SaaS companies, here to help you stay on top of your current finances and guide you toward growth.
What Budget Development Services Do SaaS Companies Need?
Your company’s annual budget shows its anticipated expenses and income over the next 12 months. You can choose to have your budget cover the fiscal or calendar year and have the option to incorporate your balance sheets and cash flow statements into it, along with your projected expenses.
The budget development services your SaaS company needs depend on its stage of growth and financial situation. Especially if your company has raised venture capital, it is crucial to manage cash burn and allocate resources in the most capital-efficient way. Without a Bottom-Up Budget for SaaS that is measured monthly to determine variance, spending can get out of hand and reduce your company’s runway. By building the budget from the bottom-up, you can incorporate your team members who are on the ground level and understand their specific needs for success. Budgets can also create an incentive for department leaders to measure against performance, save the company money, and potentially tie individual bonuses to how well those budgets are managed throughout the year.
An annual budget also becomes the baseline for the expense side of the financial model, guiding all kinds of strategic decisions from the Management Team.
Why Do SaaS Companies Need Budget Development Solutions?
Your annual budget highlights areas of concern for your company and gives you a chance to address them before they become more significant. You can also use your annual budget for basic planning purposes. With an estimate of your expected expenses and income, you can decide what’s next for your company.
For example, your annual budget can pinpoint areas where your expenses are too high. You may spend a lot to market your company to a particular niche — the only trouble is the revenue from that niche may be lower than from others. With that information in hand, you can adjust your marketing spend, focusing on a sector that is more likely to purchase a subscription.
You can develop new plans and initiatives with a big-picture view of your company’s expenses. Your revenue may have increased substantially over the past year, giving you the funding to launch a new product or market to a new demographic.
Your budget is revisited annually. You can use that information to plan for larger expenses, such as purchasing a building later on. Planning for future costs helps you stay in the black even when expenditures are higher than usual.
Compass East’s Budget Development Process for SaaS Companies
When we work with SaaS companies, we take a bottom-up approach to the annual budget by starting with what they need to operate and then reviewing other expenses. A bottom-up budget allows you to spend on the things you need most for business success.
At the start of the budgeting process, we identify the three expense categories your SaaS business is likely to have, including:
- Fixed expenses: These costs are consistent each month. They include rent, insurance premiums, and salaries.
- Variable expenses: Variable costs can fluctuate from month to month. They include bank and credit card fees, research and development costs, and the purchase of goods.
- Mixed expenses: Mixed expenses combine a set cost and one that can change monthly. Examples include employee salaries for those who earn a base salary plus commission and transportation costs if you lease vehicles and have to pay for fuel.
Once we’ve made a list of your company’s expenses, we rank them to determine which are most important. We can tailor your budget to your business’s specific needs, characteristics, and partnerships.
From there, we build a budget that addresses your basic requirements and allows room for growth and goal attainment. We use cash forecasting software to create a detailed budget as your company expands.
The Benefits of a Bottom-up Budget
The Compass East budget development approach for SaaS companies offers multiple benefits:
- Lets you plan based on your needs: The bottom-up method takes care of your company’s financial needs before it addresses your goals. Focusing on what’s necessary for your business’s day-to-day operations rather than on unrealistic or unachievable aspirations lays a foundation for solid business growth.
- Connects you to financial expertise: Our team has a varied background and years of financial experience. We can approach your budgeting needs with accuracy and confidence.
- Allows for ongoing collaboration: Our bottom-up budgeting method allows us to work closely with you so you’re fully involved in the process. We take on the details that require financial knowledge while working with you to understand your values and priorities.
- Optimizes your finances: Planning your expenses and revenue gives you a big-picture view of your company’s finances. With our bottom-up process, you can fully see your income potential from subscriptions and make decisions that allow your SaaS company to succeed.
Transform your SaaS company through a robust annual budget. For even greater control of your organization’s financial situation, you can combine our budget services with our other offerings, such as financial modeling and cash flow management.