How revisiting your annual operating plan can make your business better

Imagine you’re on the road to an important meeting. You're making good time and all of a sudden, your GPS  announces “road closed ahead.” Fortunately, the app is able to quickly assess all the options and reroutes you on a different path to ensure you reach your meeting on time.

As a SaaS business leader, you need to adopt the same approach, using your annual operating plan as your guide but always being prepared to quickly assess unexpected situations and figure out how to navigate them successfully to reach your targets.  Revisiting your AOP is a good way to do that.

This article provides a clear understanding of when you should revisit your AOP, along with what situations call for reviewing and reforecasting your projections, to effectively achieve your business objectives and financial goals for the year. 

When should you revisit your AOP?

Many finance leaders struggle with the concept of adjusting their AOP mid-year:

• When should we revisit the AOP, if at all? What situations call for it?
• Should we modify the current AOP? It’s already been aligned with all the key stakeholders after multiple iterations. 
• Can we be flexible without compromising the company’s strategic objectives?

Right at the outset, it’s crucial to understand that once the AOP is finalized and signed-off for the year, it cannot be changed (quite similar to your company’s annual budget, in fact). You can, however, revisit your original financial forecasts used to develop the AOP and reforecast for the months remaining in the year. 

Most CFOs and finance teams typically and proactively review their AOP on a quarterly basis, sort of doing a SWOT analysis, to understand more about what is working well for the business and prevent any unpleasant surprises.

Reforecasting assumptions also enables them to take advantage of emergent opportunities and react to any problems identified more quickly. It adds more context to past projections vs. actual performance and ensures you have accurate data for future financial and AOP planning.

What situations call for reforecasting?

Reforecasting is the process of revisiting your existing annual plan and revising your financial forecasts:

• Proactively to understand your current financial situation and make the necessary adjustments to continue to stay on track, or 
• Reactively in response to a significant deviation from the projected outcome, caused by sudden economic shifts, emerging trends, or other macroeconomic factors.

The idea of flexibility in financial forecasting and the AOP is really just factoring in the right insights and outcomes for your business at the right time. After all, there’s no way to be certain at the time you’re developing your annual plan whether all your assumptions will hold true. So, it’s a good idea to revisit those assumptions as the year progresses. 

Reforecasting simply gives you better visibility into your financial health and your expected outcomes for the year, as compared with your current business performance.

Proactively revisiting your AOP and reforecasting 

Typically, a SaaS CFO reviews the AOP and financial projections every quarter and, in the light of emerging trends (both good or bad), new opportunities, or anticipated market changes, revises the assumptions used in the original forecast accordingly and creates a new forecast. 

1. Bad trends and market shifts

Any significant deviation in revenue or spending (from your projections) that affects the P&L could trigger a need to reforecast. Examples here include churn rates that are far higher than expected, a sudden decline in revenue from one or more of your products or services, or an unprecedented increase in operational expenses.  

2. Good trends and emerging opportunities

Proactive reforecasting also allows you to capitalize on upcoming opportunities. For example, let’s say your product launch in a new geography far exceeded your initial projections, resulting in revenue growth opportunities. Or maybe a new service offering has shown higher-than-expected adoption rates, leading to new and possibly more long-term customer cohorts. In these cases, reforecasting helps you see what’s possible and how best to achieve it. 

Reactively revisiting your AOP and reforecasting

Reactive reforecasting is a necessary response to unforeseen internal or external scenarios that could significantly impact your financial health and slow your cash flow in the near term. Common scenarios include:

• Internal organizational issues, such as legal complications or funding challenges
• External factors, such as economic downturns or market disruptions
• Ignoring missed revenue targets early on in the year 
• Unforeseen expenses that weren't accounted for the final AOP

How technology can improve annual planning and forecasting

The role of the CFO has undergone a major transformation in recent years, during which CFOs everywhere have taken on greater responsibilities in addition to their traditional role as leaders of finance and accounting teams. Modern CFOs are now highly regarded as strategic partners with an equal stake in driving business success. 

To help their companies make better, data-driven decisions, SaaS CFOs rely heavily on forecasting during the AOP process and reforecasting as needed throughout the year. They need to bring together the right people, ask the right questions, and use the right data to create a well-informed and strategic AOP. This is where strategic finance software or other annual planning tools become indispensable. 

Modern SaaS financial planning and analysis solutions like Drivetrain help streamline the your business’ financial planning and forecasting process by:

• Automating data consolidation: Drivetrain’s 200+ native integrations enable you to consolidate data from various systems, including CRMs and HRIS, into a single source of truth, reducing the scope of human errors and eliminating manual processes on unwieldy spreadsheets.
• Improving the accuracy of financial forecasts: You can access historical data, current trends, and future projections, on the single unified platform, to develop more accurate and data-backed forecasts.
• Generating real-time insights: You get access to real-time P&L updates and other business insights that enable timely and informed decision-making.
• Simplifying financial reporting: Customized templates help create insightful and accurate financial and business reports for key stakeholders/investors, while dynamic dashboards break down complex data into visually appealing and easily understandable charts and graphs .
• Tracking and monitoring KPIs: You can also track and monitor key SaaS metrics in real-time to identify performance trends and course correct as needed.
• Performing scenario analysis: You can leverage the power of advanced scenario planning and what-if analyses and be well prepared for any outcomes and situations, as they arise.

‍Learn more about how Drivetrain can strengthen your AOP planning with more accurate forecasts.