Start today with these 5 requirements
Financial forecasting is an essential part of running a business. You need to have a good understanding of how your business is going to perform in the future. This will provide you with information you need to ensure sales are going in the right direction.
When you manage your company based on financial data, it will also help you accurately plan resources and funding to reach your goals. All this combines to make your company more competitive.
However, this is not a simple process.
The world of business is fast-paced -- which means your forecasting needs to be too. A forecast needs to be executed quickly. But it also needs to be accurate.
Technology makes this a little easier.
Software can process huge amounts of data -- both internal and external -- helping you improve the accuracy and efficiency of your forecasts.
But if you want to ensure your financial forecasting is successful, you must also answer the following questions:
1. Is your management team on board?
Financial forecasts often fail because of the people involved (or not, as the case may be).
The simple truth is this: Creating a forecast is pointless if your management teams aren't going to act upon it.
One way to overcome this is to get them involved in the process. Hold relevant meetings between your management teams and the data suppliers. This ensures the key players receive the forecast and will be involved.
When everyone is on board with the forecast, drilling down into clear targets and KPIs becomes a relatively painless process.
2. What are the key drivers of your business?
Although the forecast centers on your company's finances, they aren't the only thing you need to consider. If you want to ensure your forecast is effectively connected to the operation side of your business, you need insight into the key value drivers of your business.
Your drivers include anything that significantly impacts the performance of your business. These will vary dependent on your business, but may include things like:
- How many salespeople work for you.
- What your profit margins are for each product.
- How much stock you hold.
You should also consider non-financial data. For example, the traffic to your website isn't strictly financial. But it can have a huge impact on your bottom line.
To create a successful forecast, you need to drill down into this list until you have a refined list of all key business drivers. These drivers influence your bottom line more than anything else in the business. As such, they are key to a successful forecast.
3. What is the source of your financial forecasting data?
A financial forecast based on unsound data will never be successful.
If you want to ensure your forecasting has valid results, you need to prioritize the integrity of your data.
Work with an integrated platform with the data coming from one source. That way, you can react rapidly to any changing business conditions.
4. How does your workflow guarantee reliable data?
The source of your data isn't the only thing that determines its reliability. Even when you prioritize the integrity of your data, a poorly defined workflow can sabotage the end result. One way to achieve reliable data is to have a clearly defined workflow with the right validations.
Spend some time thinking about this, integrating validations into the workflow to maximize reliability. Anticipate where mistakes could arise, and take steps when defining the workflow to prevent them.
5. Is your system up to the task?
It is important to to ensure the computing power of your system can cope with the financial forecasting demands placed on it.
When working in a multinational company, you're likely to be processing huge amounts of data to determine your forecast. If your systems aren't up to the task, you simply won't get the forecast you need.
Ultimately, this all comes down to using the right platform for the job. A successful forecast requires the anticipation of any macro-economic developments, changes to the sales funnel, resource capacity and changes to pricing. An integrated platform helps you achieve all these goals together.
Are you ready to take the next steps to successful planning and forecasting? With our Professional Forecasting whitepaper you will get all the information you need to determine your roadmap. Download it below.
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