How to create a financial forecast for a software as a service firm?

Creating a financial forecast for your software as a service firm, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows.
This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your software as a service firm is not that hard.
In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.
Without further ado, let us begin!
Why create and maintain a financial forecast for a software as a service firm?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your software as a service firm becomes handy.
Creating a software as a service firm financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your software as a service firm.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a software as a service firm is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your software as a service firm's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

What information is needed to build a software as a service firm financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start a software as a service firm, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the software as a service firm on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing software as a service firm, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your software as a service firm's financial forecast.
The sales forecast for a software as a service firm
From experience, it is usually best to start creating your software as a service firm financial forecast by your sales forecast.
To create an accurate sales forecast for your software as a service firm, you will have to rely on the data collected in your market research, or if you're running an existing software as a service firm, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Economic conditions: Changes in the overall economy, such as a recession or economic boom, can impact the average price of your software as well as the number of monthly transactions. In a recession, businesses may be more hesitant to invest in new software, leading to a decrease in both price and transactions. Conversely, during an economic boom, businesses may be more willing to invest in new technology, resulting in an increase in price and transactions.
- Competitor pricing: The pricing strategies of your competitors can also affect your average price and number of monthly transactions. If a competitor offers a similar software at a lower price, you may need to adjust your prices to remain competitive. This could lead to a decrease in your average price, but potentially an increase in transactions as businesses are attracted to the lower price.
- Software updates and upgrades: As your software evolves and new features are added, you may be able to justify a higher price. Additionally, offering frequent updates and upgrades can increase the perceived value of your software, leading to potentially higher prices and more transactions.
- Customer feedback and satisfaction: Positive customer feedback and high satisfaction rates can lead to an increase in both price and transactions. Satisfied customers are more likely to renew their subscriptions and recommend your software to others, allowing you to charge a premium price and attract more customers.
- Industry demand: The demand for software in your specific industry can also impact your average price and number of monthly transactions. For example, if there is a growing demand for software in your industry, you may be able to increase your prices and attract more customers. On the other hand, if demand is declining, you may need to lower your prices to remain competitive and maintain a steady number of transactions.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

The operating expenses for a software as a service firm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your software as a service firm on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for a software as a service firm will include some of the following items:
- Staff costs: This includes salaries, bonuses, benefits, and any other compensation for your employees. As a software as a service firm, you may have a team of developers, customer support representatives, sales and marketing staff, and administrative personnel.
- Accountancy fees: You will need to hire an accountant or accounting firm to manage your financial records, taxes, and other financial aspects of your business. This can include bookkeeping, tax preparation, and financial advice.
- Insurance costs: Running a software as a service firm comes with certain risks, such as data breaches or system failures. You will need to have insurance to protect your business from these risks. This can include general liability insurance, cyber liability insurance, and professional liability insurance.
- Software licenses: As a software as a service firm, you will need to purchase software licenses for any programs or tools you use to develop and deliver your services. This can include software development tools, project management software, and customer relationship management (CRM) software.
- Banking fees: You will need a business bank account to manage your finances, and this may come with various fees such as monthly maintenance fees, transaction fees, and wire transfer fees.
- Web hosting: Your software as a service firm will likely have a website and an online platform for delivering your services. This will require web hosting services, which can come with monthly or annual fees.
- Marketing and advertising costs: To attract and retain customers, you will need to invest in marketing and advertising efforts. This can include social media advertising, content marketing, and paid search advertising.
- Office rent: Depending on the size of your team, you may need to rent office space to house your employees and conduct business operations.
- Utilities: You will need to pay for utilities such as electricity, water, and internet to keep your office running.
- Professional development: In order to stay competitive in the software industry, you will need to invest in the professional development of your employees. This can include training, workshops, and conferences.
- Legal fees: As a business owner, you may encounter legal issues or require legal advice. You will need to budget for legal fees to protect your business.
- Travel expenses: If your software as a service firm operates globally or has clients in different locations, you may need to budget for travel expenses for business meetings and conferences.
- Office supplies: Your employees will need basic office supplies such as pens, paper, and printer ink to carry out their daily tasks.
- Telecommunication costs: You will need to pay for phone and internet services to facilitate communication with clients, employees, and other stakeholders.
- Maintenance and repairs: Your office equipment and software may require regular maintenance and occasional repairs, so you will need to budget for these expenses.
This list will need to be tailored to the specificities of your software as a service firm, but should offer a good starting point for your budget.
What investments are needed to start or grow a software as a service firm?
Your software as a service firm financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For a software as a service firm, these could include:
- Servers: These are essential for a software as a service firm as they host the software and allow users to access it remotely. You may need to purchase or lease multiple servers depending on the size and demand of your business.
- Software Development: As a software as a service firm, your main product is your software. Therefore, investing in software development is a necessary capital expenditure. This can include hiring developers, purchasing development tools, and maintaining or updating existing software.
- Data Storage and Backup: Since you are providing a service that relies heavily on data, investing in data storage and backup solutions is crucial. This can include purchasing servers, hard drives, and cloud storage services to ensure your data is secure and easily accessible.
- Networking Equipment: To ensure a smooth and efficient operation of your software as a service firm, you may need to invest in networking equipment such as routers, switches, and firewalls. These are essential for maintaining a secure and stable network for your users.
- Office Space and Equipment: While not directly related to your software, having a physical office space and necessary equipment is still a capital expenditure for your business. This can include furniture, computers, and other office supplies that are necessary for day-to-day operations.
Again, this list will need to be adjusted according to the size and ambitions of your software as a service firm.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

The financing plan of your software as a service firm
The next step in the creation of your financial forecast for your software as a service firm is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a software as a service firm?
Now let's have a look at the main output tables of your software as a service firm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your software as a service firm's expected growth and profitability over the next three to five years.

A financially viable P&L statement for a software as a service firm should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
The projected balance sheet gives an overview of your software as a service firm's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your software as a service firm. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.

The cash flow projection
The cash flow forecast of your software as a service firm will show how much cash the business is expected to generate or consume over the next three to five years.

There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the software as a service firm's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your software as a service firm is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your software as a service firm's financial plan.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

Which tool should you use to create your software as a service firm's financial projections?
Building a software as a service firm financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial projection software to build your software as a service firm's forecast
The modern and easiest way to build a forecast is to use professional financial projection software such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional software as a service firm financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your software as a service firm's financial forecast?
Creating an accurate and error-free software as a service firm financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own software as a service firm, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.

Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your software as a service firm.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a software as a service firm. Don't hesitate to contact us if you have any questions!
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

Also on The Business Plan Shop
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- Sample financial forecast for business idea
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