Forecasting and spend management in a cash-tight environment

At Acuity, we advise hundreds of small businesses on their finance and accounting operations. This past year, I’ve been telling our clients that the cheese has moved. Capital’s high cost means business leaders can no longer afford to focus primarily on growth. You need to keep a tight lid on your operational costs to stretch your runway.

As a former CFO who became a business owner, I empathize with the challenge of driving revenue without losing sight of expenses. The right tools and processes can go a long way to alleviating the pain. Here’s how we guide our clients to strike a healthy balance.

Pinpoint your latest business priorities

When was the last time you and your department heads revisited the top 10 needs for the area? It's my favorite question to ask clients because it often sparks a rich discussion with a business owner, the CEO, or a department head. It’ll inform what you need to be measuring and how often you need to run your reports.

Get accurate forecasts by connecting your data

Accurate data is key to your financial management. My clients like to use financial planning and reporting software like Jirav to model various scenarios because it lets them easily link data from different systems.

Jirav’s Senior Director of Professional Services and Support Adrianna DeLorenzo shared great advice in our recent webinar. She said, “You want to look at things like your balance sheet and general ledger, housed in QuickBooks, Xero, or other similar software. Bring in additional data from your CRM, be it HubSpot or Salesforce, to give you an idea of pipeline as you work through a revenue analysis.”

Linking your HR data can help you gain a more granular understanding of how your customer acquisition costs will shift over time. Adrianna’s tip: “QuickBooks is going to tell you your staffing expenses—but it's not going to tell you the individual people. Look at the individual employees, their roles, their departments, their start dates, and their wages as you plan.”

But avoid using spreadsheets for this kind of work. They won’t let your finance team connect data sources for more accurate forecasts. Manipulating raw data across disparate systems will chew up a lot of time and resources. It takes work to transition your spreadsheets to a financial tool, but when done well, you can be rewarded with broader visibility and more manageable month-end reporting. The rest of your organization will find it much easier to stay aware of your actuals.

Stress-test your strategies with what-if scenarios

I advise clients to track three reports at all times: 1) your annual budget 2) your quarterly forecast and 3) your live re-forecast that should be constantly updated as actuals come in. These views will allow you to easily report against how you thought you would do and help run your business day-to-day.

What-if scenarios help you further fortify your forecasts by modeling the impact of different business levers on both your revenue and expenses. In a tight macro climate, here are four key ones to consider:

1. Revenue patterns: Let’s start with days sales outstanding (DSO) ratio first, because it lets you check if you need to tighten billing and collections processes. Can you accelerate collections to improve cashflow?
2. Customer acquisition costs: If your goal is revenue growth, are you accounting for associated costs? Do you need sales headcount to close more deals? Do you need to increase your marketing spend to get leads for those reps?
3. Customer attrition: Your new business could be thriving, but are you keeping your retention rates in check? Can you reduce your churn to drive revenue further?
4. Software subscriptions: Ramp’s Q4 2024 spending data showed companies spent more on software and cloud computing vendors for six consecutive months. If you haven’t reviewed your subscriptions in a while, confirm whether each one is still necessary. For those you need to keep, consider renegotiating terms if your usage has grown or declined consistently.

Source: Jirav

Enforce your budget with spend management tools

Once you have your budget set, it’s time to give your teams the resources to execute—without losing control. Again, the right tools can help you do this efficiently.

I recommend giving each department two Ramp cards to help them separate one-off charges from recurring subscriptions. This allows department heads to closely monitor ‘one-time’ charges, ensuring they align with budgetary constraints and business needs. Dedicate a separate card to managing recurring subscriptions, such as sales and marketing tools. By using spend limits and vendor controls on this card, you can prevent budgetary ‘scope creep’ and tightly control fixed expenses.

The dual card approach gives you a structured way to review and adjust subscriptions based on actual business requirements and staffing changes at a granular level. Within Ramp, you are able to project our month-end expenses down to the department level—a good way to see how actuals tally with previous forecasts. You can also upload software contracts to benchmark costs. Ramp can extract pricing details and compare against other Ramp transactions for the same vendor to let me know if you have room to negotiate.

Next level of forecasting and spend management

Finance teams will have their sleeves rolled up for the rest of this year as they work to control costs without stunting further growth. Robust forecasting and spend management practices can make all the difference for teams managing that dynamic. Check out my webinar with Ramp and Jirav for more insights.