FP&A Foundations
We are kicking off a series designed to cover the annual financial planning cycle for SaaS and technology companies. Our objective is to provide guidance for founders and finance leaders who are building the financial planning cycle for the first time, or inheriting one that was never fully put together, and who need to know what to build and in what order.
The series, much like the work, runs in a set order. It starts with the annual operating plan, which defines what the company will do next year and what it will be measured against. The financial model comes next, which prices those commitments and produces the budget. Once built, it becomes the rolling forecast you manage against each month. That rolling forecast, when properly executed and maintained, becomes the file next year’s planning cycle starts with.
Each of these key areas is covered in detail in its own article. Part 2 introduces the financial model at a high level. Parts 3 and 4 then go deeper on the two largest drivers behind it: unit economics, which determine whether the plan is viable, and the revenue forecast, which is the hardest line to forecast and the one investors examine first.
Explore the FP&A Foundations Series
The articles are meant to be read in sequence; each one builds on the ones that precede it.
01
How to Build an Annual Operating Plan
Reading your current position honestly, setting three to five goals appropriate to your stage, assigning ownership of the process, connecting departmental work to those goals, and putting a review cadence in place that keeps the plan alive past an initial kickoff, which for most companies is January.
Read Part 1Â
02
How to Build a Budget and Financial Model
Translating the plan into monthly revenue, headcount and spend. Departmental budgets, the MRR bridge, cohort retention, deferred revenue and billings, the three statements, and the scenarios that show what happens when an assumption is wrong. This article provides a high-level view of how the model comes together.
Coming Soon
03
Understanding Your Unit Economics
Customer acquisition cost, customer lifetime value, the LTV to CAC ratio, and payback period. This is the economic logic behind every assumption in the model, and the math looks different for subscription businesses than it does for transactional ones.
Coming Soon
04
How to Forecast Revenue for a SaaS Business
Sales channels and how CAC rolls up through each one, probability-weighted pipeline, cohort-based MRR models for each major pricing structure, and the ARR schedule that feeds the rest of the plan.
Coming Soon
Where Our Experience Comes From
Our team builds these financial models for our technology and SaaS clients to use for monthly board reporting, seed and growth stage fundraising, lender conversations, and diligence in exit transactions. Diligence in exit and investment transactions shapes this series more than any other. In a sale process, every assumption in the model gets examined by someone whose job is to find the weakest one, and the cost of shortcuts taken can be identified in the diligence process. Some examples of shortcuts we’ve seen include cohorts that were never built, a churn definition that changed twice, and revenue recognized on a convention that will not survive review. The companies that come through diligence cleanly are almost always the ones that took the planning work seriously long before anyone was buying them.
So the guidance here reflects what we see hold up under scrutiny, not just what looks correct in a spreadsheet.
As a full-service accounting firm with deep expertise in SaaS and technology companies, we offer fractional FP&A, controller, and CFO services at every stage of growth. If you would like help building your operating plan, financial model, or revenue forecast, or you are preparing for an investor conversation or a transaction, please reach out to your WG advisor.
