Cash Flow Forecasting for SaaS in Excel

Cash flow forecasting is essential for SaaS companies to manage growth and financial stability. This guide simplifies the process using Excel, focusing on SaaS-specific metrics like MRR, churn, CAC, and LTV. Here's what you'll learn:

Track Key Metrics: Monitor Monthly Recurring Revenue (MRR), churn, and customer acquisition costs (CAC).
Calculate Burn Rate & Runway: Understand gross/net burn rates and how long your cash reserves will last.
Build an Excel Model: Set up a 12-24 month forecast with inflows (revenue sources) and outflows (expenses).
Use Advanced Strategies: Run scenario analyses, apply accrual accounting, and integrate forecasts with other financial models.

With this step-by-step Excel approach, SaaS businesses can anticipate cash shortfalls, make data-driven decisions, and safeguard financial health.

Key Metrics for SaaS Cash Flow Forecasting

Tracking MRR and Churn

Monthly Recurring Revenue (MRR) is the cornerstone of SaaS cash flow forecasting. For example, if your base MRR is $100,000 and you have a 5% churn rate, you can expect $5,000 in monthly losses. To keep this organized, set up an Excel sheet with columns for:

Base MRR
Revenue from Upgrades (Expansion)
Lost Revenue from Downgrades
Revenue Lost to Churn
Net New MRR

After you've tracked MRR and churn, add metrics like Customer Acquisition Cost (CAC) and Lifetime Value (LTV) to create a more precise cash flow forecast.

Impact of CAC and LTV

CAC reflects the money spent to acquire a customer, while LTV shows the revenue a customer generates over their lifetime. A solid 3:1 LTV to CAC ratio indicates that your acquisition strategy is profitable and supports growth. Use Excel to calculate and monitor these numbers, and analyze how they influence your cash flow trends.

Calculating Burn Rate and Runway

Two key metrics to monitor in your forecasting model are:

Gross Burn Rate: Your total monthly operating expenses.
Net Burn Rate: Monthly operating expenses minus monthly revenue.

For example, if you have $600,000 in reserves and a $50,000 monthly burn rate, your runway is 12 months. Use Excel formulas to calculate these burn rates and project your runway based on current reserves. Experts like Phoenix Strategy Group recommend keeping at least six months of runway to handle SaaS-specific challenges.

When building your forecasts, don’t forget to account for seasonal trends and growth-related costs. These metrics are essential for creating accurate cash flow forecasts, which we’ll explore in the next section.

Creating a Cash Flow Forecast in Excel

Gathering Financial Data

To start, gather the financial data that reflects your SaaS business's key areas:

Revenue Sources: Include historical MRR (Monthly Recurring Revenue), revenue from upgrades or add-ons, one-time payments, and subscription billing cycles.
Operating Costs: Factor in salaries, software subscriptions, marketing expenses, and office-related costs.
Customer Metrics: Pay attention to churn rates and customer lifetime value.

Once you've collected this data, it's time to organize it in Excel for better clarity and usability.

Setting Up the Excel Sheet

Set up a timeline covering 12 to 24 months across the top row of your Excel sheet. Then structure the sheet with these key sections:

Section	Categories	Time Period →
Opening Balance	Starting cash	Month 1-12
Cash Inflows	MRR, Expansion revenue, One-time payments	Monthly totals
Cash Outflows	Operating expenses, CAC, Infrastructure costs	Monthly totals
Net Cash Flow	Calculated difference	Monthly results
Closing Balance	End-of-period cash	Monthly totals

This setup helps you track cash movements and anticipate future trends.

Entering Cash Inflows and Outflows

Start by inputting your recurring revenue streams. For SaaS businesses, focus on these key areas:

Operating Expenses: Include both fixed costs (like salaries) and variable costs (such as commissions).
Growth Investments: Account for spending on marketing, R&D, and infrastructure expansion.

"Putting in place and revisiting a cash flow forecast can help businesses find new finance or take other measures before they run out of cash." - Valme Claro

Using Excel Formulas for Calculations

Leverage Excel's built-in formulas to automate your calculations and ensure accuracy:

Use SUM to total monthly inflows and outflows.
Apply IF statements to model conditional expenses based on revenue levels.
Create running balances by linking cell references for monthly calculations.

Key formulas to include:

Net Cash Flow = Total Inflows - Total Outflows
Closing Balance = Opening Balance + Net Cash Flow
Running Cash Balance = Previous Month's Closing Balance + Current Month's Net Cash Flow

These formulas will help you maintain accurate projections, especially for SaaS-specific metrics like MRR and burn rate. Once your sheet is set up, you can dive into advanced strategies to fine-tune your cash flow forecast.

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Advanced Strategies for SaaS Cash Flow Management

Scenario Analysis and Sensitivity Testing

Model different scenarios - optimistic, realistic, and pessimistic - to understand how key variables affect cash flow. Adjust factors like CAC (Customer Acquisition Cost), MRR (Monthly Recurring Revenue) growth, and churn rates. For instance, test CAC at $100, $150, and $200 to see how it impacts your cash runway. Excel's Data Table feature can be a great tool for running sensitivity tests.

After running these scenarios, fine-tune your financial forecast by applying accrual accounting principles. This provides a more accurate view of your company’s financial standing.

Applying Accrual Accounting

Accrual accounting offers a clearer financial picture compared to cash-based accounting, which only reflects immediate money movement. Here's how the two approaches differ:

Category	Cash-Based Accounting	Accrual Accounting
Annual Subscriptions	Records full payment upfront	Spreads revenue recognition monthly
Sales Commissions	Recognizes full payment immediately	Allocates costs over the customer lifetime
Infrastructure Costs	Logs monthly payments	Matches expenses to revenue generation

By aligning revenues with the expenses tied to generating them, accrual accounting provides deeper insights into profitability and cash flow trends. Once this system is in place, you can connect it to other financial models for a more complete financial analysis.

Linking with Other Financial Models

For SaaS companies, integrating financial models is key to aligning subscription revenue with operational and growth plans. Connect your cash flow forecast to your P&L (Profit and Loss statement) and balance sheet for a unified financial outlook. Key areas to link include:

Balance sheet projections to track cash positions
P&L statements for accurate revenue recognition
Customer cohort analysis to monitor retention trends
Unit economics to evaluate profitability

Use Excel formulas to dynamically link these models, ensuring updates are consistent across your financial framework. Companies like Phoenix Strategy Group specialize in creating integrated financial models tailored to SaaS businesses, helping align cash flow forecasts with broader financial strategies.

Conclusion and Next Steps

Key Takeaways

Cash flow forecasting is a critical tool for SaaS companies to manage growth and maintain financial health. Keeping an eye on key SaaS metrics like MRR, churn, CAC, and LTV is essential for creating reliable forecasts. Incorporating accrual accounting and connecting forecasts to financial models ensures projections are accurate and aligned with your overall strategy. Your Excel model should seamlessly link cash flow projections with other financial documents, forming a cohesive financial system that adapts as your business evolves. While these tools lay the groundwork, expert advice can take your cash flow management to the next level.

Getting Expert Help

If you're looking to improve your financial planning, professional advisors can offer tailored solutions to address the unique challenges of SaaS businesses. Financial experts can customize forecasting systems to fit your needs. Once your Excel model is set up, working with professionals can help fine-tune and expand its functionality.

Phoenix Strategy Group is a trusted name in SaaS financial planning, offering services like cash flow modeling and strategic integration. When choosing an advisory partner, prioritize firms with proven experience in SaaS models and a history of helping businesses grow. The right partner should have expertise in Excel-based forecasting and a deep understanding of the financial nuances of subscription-based companies.