What Is Reforecasting?

What Is Reforecasting?

Reforecasting is the practice of revising an existing financial forecast or budget to reflect updated data, emerging trends, or unforeseen changes in business conditions. Unlike an initial forecast, often set at the start of a financial period, reforecasting allows organizations to adjust their financial roadmaps to align with current realities.

This iterative process is crucial for businesses operating in fast-paced or uncertain environments. For mid-market companies and SaaS organizations in particular, reforecasting helps teams maintain accuracy in their financial planning, make informed decisions, and stay aligned with strategic goals.

Why Should Businesses Reforecast?

Reforecasting is more than just a financial exercise; it is an opportunity to ensure a company’s operations remain agile and responsive to market dynamics. Mid-market businesses and SaaS firms, which often face fluctuating revenue streams or evolving customer behaviors, stand to benefit greatly from regular reforecasting.

Here are key reasons businesses prioritize this practice:

1. Improved Forecast Accuracy: Reforecasting incorporates actual performance data to update assumptions, more accurately reflecting the company’s financial outlook.
2. Informed Decision-Making: Timely adjustments to forecasts allow decision-makers to allocate resources more effectively and evaluate potential risks or opportunities.
3. Mitigation of Uncertainty: By frequently revisiting their financial models, organizations can better anticipate revenue shortfalls or rising expenses, reducing the likelihood of budgetary surprises.
4. Enhanced Collaboration: Reforecasting fosters alignment among finance, sales, and operations teams, ensuring all departments work toward shared objectives.

For organizations striving to maintain their competitive edge, reforecasting transforms financial planning into a dynamic, data-driven process.

Why Does It Matter for SaaS?

Reforecasting is significant for SaaS companies, whose subscription-based revenue models demand precision and flexibility. These businesses must continuously balance growth initiatives with customer retention efforts, making regular financial plan updates necessary.

Key benefits for SaaS firms include:

• Adaptation to Customer Behavior: Fluctuations in customer churn, acquisition costs, or upsell opportunities can significantly impact revenue forecasts. Reforecasting allows SaaS teams to adapt their strategies accordingly.
• Scalability Planning: Rapid scaling, whether in customer base or infrastructure, requires constant revisions to budgets and resource allocation.
• Data-Driven Adjustments: SaaS organizations often rely on metrics like monthly recurring revenue (MRR) and customer lifetime value (CLV). Reforecasting ensures these metrics are accurately reflected in their financial plans.

By integrating reforecasting into their financial planning and analysis (FP&A) workflows, SaaS companies can maintain financial stability while pursuing long-term growth.

Typical Pain Points of Reforecasting

While reforecasting offers clear benefits, the process is not without challenges. Many businesses face obstacles that can complicate or delay the process:

• Data Gaps: Reliable, real-time data is essential for accurate reforecasting, but incomplete or outdated information can hinder progress.
• Manual Processes: Spreadsheets and other manual tools increase the risk of errors and consume valuable time.
• Interdepartmental Misalignment: Coordinating input from finance, sales, and operations can be challenging, particularly if teams work with disparate systems or priorities.
• Complex Financial Models: Updating intricate forecasting models can be time-intensive, requiring specialized expertise and robust tools.

These pain points emphasize the importance of using advanced FP&A software like Firmbase, which simplifies and accelerates reforecasting by automating data collection, calculations, and reporting.

Reforecasting a Budget in 7 Steps

Step 1 – Review Your Variances

The first step in reforecasting is identifying where actual performance deviated from the original budget. Variances in revenue or expenses should be scrutinized to uncover their underlying causes, whether operational inefficiencies or unexpected market changes.

Step 2 – Consider Continuing Trends

Next, assess trends that are likely to persist. For instance, consistent shifts in customer demand or supply chain delays should be incorporated into updated forecasts to enhance accuracy.

Step 3 – Reassess Revenue Drivers

Evaluate core revenue drivers, such as customer acquisition, retention, and pricing strategies. By understanding how these factors influence financial performance, businesses can make targeted adjustments to their budgets and forecasts.

Step 4 – Revisit Cash Flow Projections

Accurate cash flow management is crucial for maintaining liquidity. Reforecasting should account for changes in payment cycles, unexpected expenses, or delayed receivables to ensure the company remains solvent.

Step 5 – Adjust Revenue Streams in Your Budget

Revisit all revenue streams and recalibrate them as needed. For example, if a SaaS company experiences slower-than-expected growth in a specific subscription tier, this should be reflected in the revised budget.

Step 6 – Modify Expenditure

Scrutinize both fixed and variable expenses to identify areas for cost savings or reallocation. By fine-tuning expenditures, businesses can better align their spending with current priorities.

Step 7 – Build Upside and Downside Scenarios

Finally, develop contingency plans that account for both best-case and worst-case outcomes. Scenario modeling helps decision-makers prepare for uncertainties and remain adaptable to change.

Best Practices for Effective Reforecasting

To maximize the benefits of reforecasting, organizations should follow these best practices:

• Establish a Standardized Process: Define timelines, roles, and methodologies to ensure consistency and efficiency across reforecasting cycles.
• Leverage Advanced Forecasting Tools: FP&A platforms like Firmbase enable businesses to apply sophisticated modeling techniques and integrate real-time data into their forecasts.
• Engage Key Stakeholders: Collaboration across departments ensures all perspectives are considered, leading to more accurate and actionable forecasts.
• Monitor Metrics Regularly: Continuous tracking of key performance indicators (KPIs) allows businesses to identify trends early and make timely adjustments.
• Automate Wherever Possible: Automation reduces manual errors and accelerates the reforecasting process, freeing up resources for strategic analysis.

By adopting these strategies, businesses can elevate their reforecasting efforts and drive better financial outcomes.

Reforecasting is an indispensable tool for businesses seeking to maintain financial precision and adaptability. Whether responding to market shifts, adjusting revenue expectations, or reallocating expenses, this process empowers organizations to make data-driven decisions that align with their strategic goals.

Firmbase offers a modern FP&A solution designed to simplify and enhance the reforecasting process. By automating workflows, integrating real-time data, and enabling seamless collaboration, Firmbase helps mid-market companies and organizations create more accurate budgets and forecasts. 

To learn how Firmbase can transform your financial planning, book a demo.