Everything SaaS businesses need to know about budget reforecasting to survive and thrive

Imagine for a moment that you’re in a car on a highway, driving fast (but not too fast). Soon, you come upon another car going slower than you. You’ve got an important meeting to get to so you decide to pass it. As you move into the passing lane, you see a traffic jam up ahead (which is probably why the car in front of you was slowing down). Hard to tell what’s going on, the cars are backed up as far as you can see. As you slow down to almost a crawl, you get that sinking feeling…

You’re going to be late.

So, while you wait for your turn to drive another few feet, you whip out your smartphone, open up Google Maps, and chart a new course from the next exit.  

This is what budget reforecasting is all about. It’s charting a new course based on the unexpected. For businesses operating in the dynamic and hyper-competitive SaaS industry, budget reforecasting may be the only way to correct course when faced with significant and unexpected challenges or figure out how to best invest in new unforeseen opportunities. 

This article will help you understand budget reforecasting – what it is and when you might need to consider it. We’ll also tell you about some of the challenges you can expect to encounter if you need to do a budget reforecast and give you some tips for how to overcome them.     

What is budget reforecasting? 

To understand budget reforecasting, you first have to understand the relationship between budgeting and forecasting.  

Strategic budgeting is a meticulous planning process that sets clear limits on spending by each department or function and ensures that all spending aligns with the company’s priorities and available resources. The budgeting process typically occurs once a year to lay out a company's projected income and expenses for the next 12-months or fiscal year. 

Forecasting, in the broadest sense, is the process of predicting what will happen in the future. SaaS companies use forecasting on the front end of the budgeting cycle to inform the annual budget. Once the budget is developed and approved by company leaders, it remains static for the year with spending levels locked in.  

Budget reforecasting, in contrast, can be done at any time to understand how unexpected changes are impacting your operating budget. It’s an opportunity for businesses to revisit earlier decisions based on current performance and new information to help them adjust their financial strategy while keeping their original budget as a reference point.

Some companies reforecast on a regular basis, such as quarterly whereas others do so only on an as-needed basis, when changing circumstances require it. 

In practice, reforecasting involves analyzing recent performance, new data points, and potential changes in the business environment to produce a more accurate financial forecast for the remainder of the period. This is particularly crucial for SaaS companies, where volatility in demand, growth opportunities, and customer behavior can significantly impact cash flow and profitability.

Budget reforecasting vs. a rolling forecast 

Rolling forecasts are another approach that helps SaaS companies stay on track with their budgets. Budget reforecasting and implementing a rolling forecast are both important to financial planning to help guide strategic decision-making throughout the fiscal year. However, they differ in purpose, structure, and frequency.

A rolling forecast is an intentional practice – a forward-looking approach that continuously extends the forecast by a set period, usually monthly or quarterly. Instead of forecasting just to the end of the fiscal year, the company always maintains a 12-month (or other set period) view into the future.

Rolling forecasts are updated regularly based on the period chosen. As each period ends, a new period is added, keeping the forecast “rolling” forward.

In contrast, a reforecast is a specific update to the budget or forecast in response to significant changes in business conditions or performance. It’s often reactive, triggered by events like unexpected shifts in revenue, market changes, or new strategic priorities. 

Reforecasting typically occurs on an as-needed basis, though some companies reforecast quarterly or biannually. Reforecasting usually revises the original forecast for the entire budget or portions of it to reflect the new reality, helping companies adjust for the remainder of the fiscal year.

Rolling forecasts can help minimize the need to reforecast

Remember, your budget is a spending plan for the year. Annual budgets are based on the information you had at the time. Once created, your budget is “locked”, meaning it won’t change. 

The budget not only guides your spending for the year but also provides a baseline to help you stay on track by comparing your budget vs actuals (BvA).  

A BvA (also known as a budget variance analysis) helps you understand why your financial spend was different than what you planned for in the budget. As time goes on, deviations can grow and can throw you way off track of your targets. Conducting BvAs on a regular basis, can help you proactively identify problems before they get too far out of hand. 

A rolling forecast makes this possible. A rolling forecast is a second document, based on the original budget, that you can adjust as time goes on and you get more information. This allows you to make adjustments in your spending to ensure that you don’t get too far off your original plan and can still meet your targets. The rolling forecast is a “living” document that you will change every month based on the previous month’s actuals. 

The whole goal of a rolling forecast is to avoid unpleasant surprises at the end of the year. It’s based on the idea that by making incremental changes in your financial strategy when you encounter new bumps in the road, you can still get to your target destination. 

Perhaps the biggest difference between these two approaches is that budget reforecasting is reactive in nature while implementing a rolling budget is proactive. Both are important tools for financial planning, so check out the table below to learn about the other important differences between them.  

As you can see, for companies in rapidly changing markets (like SaaS) where continuous adaptation is required for sustained growth, implementing a rolling budget in your business is an excellent way to stay on track and because it helps you stay in step with your market in real time, can often help avoid the need for budget reforecasting.  

That said, budget reforecasting is still an important tool for SaaS CFOs when the circumstances call for it. In the next section, we’ll look at when you might need to consider pulling it out of the toolbox.

Reasons why you may need to reforecast your budget

Certain situations or events can trigger the need to revisit your budget:

• Significant market changes: Economic downturns, emerging competitors, or shifts in customer behavior that can affect your business. 
• Variations in key SaaS metrics: A significant, unexpected change in SaaS-specific metrics, such as monthly recurring revenue (MRR), annual recurring revenue (ARR), or churn rate, can signal a need to reassess your budget assumptions. 
• Product launches or expansion: Ideally, new product launches and expansion would be planned well in advance. However, in a rapidly evolving market like SaaS where companies need to be agile, this often isn’t possible. In these cases, reforecasting is helpful in aligning resources with expected revenue changes.
• Changes in customer base or pricing: If customer segments or pricing strategies change significantly, revisiting your existing budget to more accurately reflect your expected revenue and cost structures may be needed.
• Inaccuracy in the budget: With forecasting, there’s always a tradeoff between the time required to create your forecast and the accuracy you’re able to achieve in the process. If you have reason to believe that your budget was based on inaccurate assumptions and/or trend data that suggests that it does not meet your standards for accuracy, a budget reforecast is likely in order. 

While a budget reforecast would typically occur after there has been a significant deviation from projected spending or income, there are some exceptions to this. 

Most established businesses can forecast their budgets based on past trends and historical data with a high degree of accuracy, whereas early-stage startups and fast-growing SaaS companies often have less data to base their budget forecasts on and as a result, struggle with a lack of predictability in their business. 

In addition, market shifts often have an outsized impact on early-stage startups and fast-growing SaaS businesses. Therefore, many of them will budget just six months ahead to get a sense of their plan for the coming year, essentially reforecasting every six months.    

Another exception is publicly traded companies. The U.S. Securities and Exchange Commission (SEC) requires quarterly financial disclosures to reflect the current financial status of all public companies. While budget reforecasting is not required as part of these disclosures, doing so can inform them and help companies ensure their internal financial projections align with the realities of their financial performance.

How to implement a reforecasted budget

It’s important to note that when you reforecast your budget, you’re not creating a whole new budget, nor are you revising the one you have. You’re using the information your reforecast provides to adjust your financial strategy while keeping the original budget as a reference point. Thus, reforecasting doesn’t change the original budget. It informs how the organization operates within it. 

When allocations need to change, you’ll make exceptions to your original budget. This can be handled in a couple of ways: 

1. When you encounter significant unexpected expenses, the first and ideal response is to determine if you can cover them by cutting expenses elsewhere in the business. You should always try to stay within the original budget if possible. 
2. If sticking with the original budget isn’t possible, the next step is to reach out to your stakeholders to get their help in figuring out how to get the necessary resources. 

Benefits of budget reforecasting for SaaS

Reforecasting is common practice in SaaS, where flexibility and adaptation are necessary to stay competitive. SaaS companies, especially those backed by venture capital, frequently reforecast to reflect the rapidly evolving market and performance conditions. 

For SaaS companies, reforecasting is more than just a budgeting exercise — it's a survival strategy. SaaS businesses operate in a unique environment characterized by rapid growth, high customer acquisition costs (CAC), and an intense focus on customer retention. 

Reforecasting helps SaaS companies adapt to unexpected changes in a business environment where predictability can be elusive. A well-timed reforecast can guide more strategic decisions in response to those changes, helping SaaS companies stay grounded in realistic expectations while pursuing growth.

Budget reforecasting can directly impact a SaaS company's success in the following ways:

• Enhanced agility: Reforecasting allows finance teams to quickly adjust and redeploy resources to areas with the highest potential returns.
• Informed decision-making: With reforecasted budgets, management has access to accurate, up-to-date financial information. This leads to more informed decision-making regarding hiring, product investments, and other expenditures.
• Better cash flow management: Reforecasting helps companies anticipate cash needs, reducing the likelihood of cash shortfalls and enhancing cash runway visibility.
• Investor confidence: Budget reforecasting can reassure investors that the company is keeping a close eye on performance and able to adjust strategies to remain on target.

Challenges of reforecasting your budget

Despite the benefits noted above, reforecasting isn’t without its challenges. For one thing, it’s pretty resource-intensive – a time-consuming process that usually requires input from multiple departments. Finance teams may need to collect and analyze data from sales, marketing, customer success, and operations, making it a resource-heavy endeavor. Other challenges are discussed below.

Data accuracy and accessibility

One of the main challenges in reforecasting is the accuracy and reliability of predictions. Inaccurate or outdated data can lead to faulty assumptions – siloed teams and manual processes for data consolidation can hinder the availability of accurate and timely data. In addition, early-stage startups may not have enough financial data to make accurate projections. 

Complexity

Determining the level of granularity necessary, combined with the accuracy level of the data you have, for the reforecast can be a big challenge. Detailed analyses yield valuable insights but are typically time-consuming and also overload your teams. It is important to strike a balance and establish parameters for acceptable variances and define specific triggers for a reforecast. 

Model flexibility

The financial models used for budgeting and forecasting have to be really flexible (and simple) to allow for adjustments at a later stage, such as when you’re reforecasting. This is because when you change any one data point, those changes must be reflected across the entire model. The larger and more complex the model, the more challenging it can be to ensure all the necessary data are properly entered, especially if you’re using a spreadsheet-based model. 

Risk of short-term bias

Overly frequent reforecasting can lead to a focus on short-term fluctuations rather than long-term strategy. Combining reforecasting as needed with a rolling forecast can help eliminate this problem. 

Change fatigue

Another problem associated with frequent reforecasting is that it can lead to change fatigue among teams, particularly if they’re expected to pivot strategies or priorities often. Clear communication and a well-structured reforecasting process can help to mitigate this.

Tips for reforecasting your budget effectively

Effective budget reforecasting requires careful planning and collaboration across the organization. Here are some tips to ensure success:

• Involve cross-functional teams: Reforecasting is most effective when it involves inputs from various departments, including sales, marketing, product, and customer success. Collaborating with these teams ensures a comprehensive view of factors influencing revenue and expenses.
• Communicate with stakeholders: Transparent communication about why reforecasting is necessary, the assumptions that will go into it, and the rationale behind any changes helps to build alignment and ensure everyone is working toward the same goals. 
• Choose the right timeline: Depending on your business needs, you may reforecast on a quarterly or semi-annual basis. Or, given the level of effort it requires, you may instead decide that you’ll only reforecast when circumstances indicate a problem or new opportunity. Developing a deep understanding of your market as well as revenue and expenditure trends can help determine the reforecasting timelines best suited for your organization.
• Track variances: Conducting variance analyses on a regular basis not only help you  determine if you’re still on track with your spending, it can also provide highly actionable insights, such as trends that can indicate when you may need to reforecast. Using a business budgeting software can automate and streamline the work involved in variance analysis, making it easier to incorporate into your regular FP&A processes. 
• Use scenario planning: Scenario planning, or what-if analysis, allows you to prepare for different outcomes when you’re reforecasting. For example, plan for “best case,” “worst case,” and “expected” scenarios based on customer acquisition rates, churn, or major product developments. This method offers a cushion against unexpected shifts and provides more flexibility in decision-making.

How to get all the benefits of budget reforecasting without the heavy lift

Given all the data it requires and the inherent complexity in SaaS budgets, reforecasting can be an onerous undertaking, especially if you’re using spreadsheet-based models. 

Companies that leverage financial planning and analysis (FP&A) tools like Drivetrain are able to reforecast in a fraction of the time it takes when using spreadsheets and gain more accurate insights in real time. Drivetrain provides a comprehensive financial forecasting solution that has the following features to support budget reforecasting:

• Automated data consolidation and validation: With 200+ integrations, Drivetrain ensures a seamless, real-time data flow from all your source systems into the platform, providing a single source of truth to facilitate alignment across all teams. 
• Robust budgeting features: Implement a rolling forecast that’s automatically updated with actuals on whatever frequency you need. Easily compare budget to actuals to identify variances.  
• Sensitivity analysis and what-if scenario modeling: Explore any number of different scenarios to make more informed decisions.
• Trend Analysis: Identify emerging trends with the ability to drill down into your data in different ways and multiple dimensions. 
• Collaborative Tools: Enhance teamwork and communication across departments with in-app communications tools and fine-grained role-based access controls to ensure every team can access only the data they need.
• Version control: Easily create and manage multiple versions of your budget.

‍Learn more about how Drivetrain can enable you to generate valuable insights to improve budget analysis and streamline your budget reforecasting process.