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Forecasting the Financial Future of Your Business

Learn how to improve your financial predictions in an unpredictable environment with this 4-step financial forecasting process.

Financial forecasting can feel like an absolute guessing game at times and this year has presented an especially challenging forecasting process for many businesses. The game feels like it’s at level 39 and you’re fighting the grandmaster!

There’s no magic 8 ball that will provide you the perfect solution but there are some best-practice tips and tricks that drive an effective forecasting approach and uncover better ways to help your business to adapt.  

Let’s lift the hood on the financial forecasting journey to identify fundamental ways to create efficiencies and remove that feeling of uncertainty, so you can be more in control when it comes to your financial future.

4 Steps to a Successful Financial Forecasting Journey

The financial forecasting journey can best be described in four key steps.We’ve grouped them together here into 2 main stages: looking back and looking forward.

Steps 1 & 2: What happened? Why did it happen? 

The first step in your financial forecasting journey is to look back at your historical financial data. This is extremely important and the integrity of the data is paramount to assisting in future business decision making. 

Is your financial/non-financial data:

  • Categorised accurately to assist in dissecting different financial activities?
  • Up to date and providing a real-time financial position?
  • Reporting financial metrics on the key drivers of your business?
  • Providing financial/non-financial information on your key stakeholders?
  • Providing insight into your customers and how they are buying and engaging?
  • Easy to access and review?

Feeding better quality information into your financial reports will lead to more accurate and insightful data analysis. This is the foundation for your quantitative and qualitative forecasting approach. If your foundation is not sturdy, then the house may fall down! So, complete an honest assessment of the health of your reporting and whether it provides you what you need to run your business.

Another indicator that you should be revisiting the way you are collating and reporting your financial/non-financial data is whether it’s too onerous and time consuming to obtain the information. Technology has never been more accessible to businesses of any size, to help support the day-to-day operations. Identify your information lags and identify what information you can’t access. Just like the world news, your business data should be at your fingertips.

The need to repopulate, manually update and configure data is becoming redundant in today's business world. If you can access and analyse data quicker, you will naturally implement changes quicker.

Steps 3 & 4: What will happen? How can we make things happen?

Now that we’ve reviewed our financial data, we can shake that magic 8 ball and feel a bit more confident in the suggestions.

When you’re working with financial predictions, there needs to be a multifaceted approach towards qualitative and quantitative forecasting. What you are predicting will naturally lead you towards what approach to take. As we are in uncertain times, a more subjective approach to your predictions becomes more and more relevant, which is due to your historical data becoming more unreliable.

Businesses are applying qualitative forecasting more than ever before. Below are some fundamental integrity checks that you should apply when you need to input predictions. 

Make sure that: 

  • The data is recent
  • It is consistent information
  • It is relative to your business
  • It is not biased information
  • It is benchmarked against comparable businesses.

Your forecast should be flexible enough to apply to multiple scenarios. Good/bad/ugly scenarios should be addressed, especially in unstable economic times, so make sure your model is adaptive and in tune with your supply chain and resources.

This then leads us to the difficult part of financial forecasting; where your prediction game goes to ‘expert level’. Firstly, think of the important business drivers that add the most value or have the biggest impact on your business. These factors may include:

  • Optimal staff productivity levels
  • Procurement requirements
  • Lead times and lag times
  • Cash flow requirements
  • Customer analysis
  • Debtor management

To be across all these data points in real time might feel daunting. But to react quickly, adjust your predictions and adapt ahead of your competitors, you need this information at your fingertips. You won't have time to manipulate a spreadsheet, repopulate data, or manually feed information to your stakeholders when things are moving fast and new opportunities are just around the corner. It just isn’t possible to truly achieve your growth potential if you’re taking too long to obtain information and reset as a business. Your proactive intentions become reactive to what is really happening in your business, leading to a disheartening process.

So what is the solution? Well, it is easy really…just do things better! That may sound smug, but it really comes down to:

  • Performing an in-depth review of your systems and processes
  • Identifying your financial/non-financial metrics and reporting needs
  • Procuring a system that increases the automation of collating and reporting information you need
  • Developing a reporting framework for your stakeholders

There is an abundance of accessible and affordable software and systems integrations that can really take your business to the next level when it comes to executing on the above. 

Whether it’s collecting better data, connecting siloed systems or collating data into an aggregated platform to deliver clever and useful business insights, BlueRock can really help to achieve a successful forecasting process. Please get in touch with our accounting or digital team to find out more.

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