How To Build a B2B SaaS Financial Model: Step-by-Step Guide

The role of finance in B2B SaaS businesses is evolving beyond conventional number-crunching. It’s now fueling growth, enhancing performance optimization, and participating in data-driven decision-making. 

An integral part of this strategic evolution is financial modeling. This process involves charting a road map of your SaaS company’s revenues and expenses, revenue forecasts, and essential KPIs.  

Financial models help in decision-making, cost management, cash flow optimization, and growth planning, and provide data for revenue forecasting. 

If you’re looking to build such a tool, you’re in the right spot. In this straightforward guide, we’ll walk you through the key steps of creating an actionable financial model for your B2B SaaS business. 

1. Pick the Right Tool

First, choose the right platform to build your financial model. 

While spreadsheets offer flexibility and easy formatting, they lack built-in intelligence. As your company scales, its financial models can quickly become complex, and spreadsheets might not cut it anymore. Financial modeling software provides advanced features for forecasting, scenario analysis, charting, and more.

Additionally, modern subscription management tools can also help. As Attrock outlines, these tools offer features that support financial modeling for B2B SaaS businesses.

2. Start With Key Assumptions

Before creating your financial model, make educated guesses about important aspects – assumptions – of how your business will operate. 

Some key assumptions include:

• Capital raises – How much capital will you need to raise and in what portions?  
• Sales cycle – How long is your typical sales cycle from lead to close?
• Gross margins – How much money will you make per customer after accounting for costs? 
• Pricing
• Sales & marketing costs
• Customer churn rate
• Hiring plan

These assumptions drive the whole financial model. Clarifying them upfront will save you time and make the model useful.

3. Build a Top-Down Revenue Forecast

An expert Younium guide on revenue forecasting stresses the importance of revenue forecasts for effective budget allocations. Simplify the process by constructing a top-down model focused on two key elements:

• Monthly new customers added
• Average revenue per customer

First, estimate how many new customers you think will join each month and how this number will grow over time. Then, take your pricing and multiply it by expected usage levels per customer to calculate the average revenue per customer.

To determine total revenue, add the revenue from new customers to the revenue from the previous month. Then subtract any lost revenue from customer churn.

4. Add Granular Operating Expenses

Now that you’ve forecasted your revenue, it’s time to add in all the business expenses that will eat into that revenue.

These costs can include: 

• Sales and marketing like CAC, salaries, and advertising
• Product and engineering like salaries, infrastructure, and hosting
• General and administrative like office space, legal, and accounting
• Capitalized research and development, such as software development

Tie headcount-related expenses, like salaries, to your hiring plan. Most importantly, account for any expected increases in costs over time, like if prices go up due to inflation.

5. Forecast Balance Sheet & Cash Flows

With your income statement fleshed out, forecast the balance sheet and cash flow statement.

For the balance sheet, start with accumulated retained earnings from the income statement. Then add line items for cash, accounts receivable, accounts payable, debt balances, and equity capital.

For the cash flows, start with operating cash flows. Then add line items for changes in working capital, capital expenditures, debt draws, and principal repayments. 

Finally, link cash flows to the cash balance on the balance sheet.

6. Make It Dynamic

Now that you’ve built the basic model structure, the next step is to make it interactive.

Add input cells for your major assumptions and link them to the revenue, expenses, and cash flow forecasts. Now you can easily change the assumptions and see how it impacts the whole model. This allows you to test different scenarios and see how changes affect profitability and cash needs.  

While making the model dynamic takes a bit more work, it makes the model way more useful.

7. Set Up Valuation Analysis

Valuation analysis helps to estimate how much your business could be worth.

Set up a monthly or annual valuation based on revenue multiples, EBITDA multiples, or discounted cash flow. Then calculate the implied equity value, add cash, and subtract debt to derive an equity valuation.

Next, add ownership percentages for founders and investors to see how much their stakes could be worth in the future. Then, create best and worst-case scenarios to know how the valuation changes based on different assumptions.

Adding valuation helps show investors how much money they could make and helps you make data-driven decisions.

Final Thoughts

Building a financial model for your B2B SaaS business takes time. However, the effort is worth it since the model provides you with a roadmap for financial success. 

Implement our 7-step guide today to help with your decision-making and seize business opportunities.

About the author:

Reena Aggarwal is Director of Operations and Sales at Attrock, a result-driven digital marketing company. With 10+ years of sales and operations experience in the field of e-commerce and digital marketing, she is quite an industry expert. She is a people person and considers the human resources as the most valuable asset of a company. In her free time, you would find her spending quality time with her brilliant, almost teenage daughter and watching her grow in this digital, fast-paced era.

Social connects: LinkedIn, Twitter

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