It can be challenging for companies to keep track of how well they’re faring when it comes to meeting their business goals. Financial forecasts help assess present and projected business situations, measure performance against benchmarks, and come in handy in periods of uncertainty.
And because financial forecasting predicts the future based on the past and present, it is beneficial in predicting future revenue and trends that may impact business objectives or strategic goals. For businesses and organizations, the annual budget process typically includes forecasting.
Why Is Realistic Financial Forecasting Vital?
A financial forecast is a financial plan that forecasts a company’s expected income and costs, and it includes both macroeconomic and company-specific elements. This comprises short-term and long-term outlooks on factors that can influence business revenue. Using financial forecasts in company planning, budgeting, operations, and funding helps executives and stakeholders make better decisions.
It guides business leaders in making crucial financial choices, such as funding specific projects, staffing increases, and support for funding requests. Businesses also use financial forecasts to inform their balance sheets and other disclosures.
It provides organizations with coherent reports, allowing finance departments to set realistic and achievable company goals. It also helps managers understand how the firm has done in the past and how it will perform in the future.
Financial forecasts are also vital in investor interactions and loan applications. Even banks and other funders use forecasts to make decisions.
Financial Forecasting Advantages
Aside from the apparent benefits, creating a financial forecast pushes finance teams and line-of-business partners to consider the importance of rolling projections.
The CFO must also decide whether to adopt a fixed or rolling model and check whether the projection should be incremental, building on last year’s, or if it needs to be a zero-based budgeting exercise? CFOs will also need to determine which product or service lines have evidence demonstrating this feasibility and should be forecasted.
Financial forecasts also have a significant impact on performance. Companies that lack a finance team should not stop them from financial forecasting or modeling because a realistic financial forecast can:
- Assist those who make critical financial decisions
- Become the basis for budgeting choices and show investors that your company has a strategy and is prepared for unanticipated occurrences that may influence revenues.
- Establish a plan for the best and worst-case circumstances
- Set up controls and improve awareness of a wide variety of internal and external variables
- Help business executives avoid being caught unprepared for the unexpected
- Assist companies with increasing demand for their goods and/or services
Performance Canvas: Realistic Financial Forecasting Software
Financial forecasting is now both more accessible and more complex with changing consumer purchase habits, the need for fraud detection, real-time stock market data, and more. This is why more advanced financial forecasting software now incorporates AI into forecasting to ensure better data accuracy.
More importantly, fast-growing businesses require more than spreadsheets to collect, process, and consume data. Financial forecasting and re-forecasting become faster and more accurate when all stakeholders have access to the same data set.
This is where Performance Canvas can help. It is an FP&A software that can help streamline your financial planning and forecasting or simply be an add-on to your company’s current ERP system, for example, Dynamics 365 platform. It’s also an all-in-one unified solution for financial budgeting, financial reporting, consolidation, and even performance metrics tracking and management.
If you’re looking for a reliable financial forecasting software that’s well-suited to adapt to your growing business, get in touch with the team at Performance Canvas and book a software demo today.