Every growing business needs accurate financial forecasting to track how well the company is doing in meeting its goals and if it’s cruising steadily in the right direction. Still, many companies continue to skip forecasting altogether or continue to falter at it.
In this article, we’ll look into the top causes of inaccurate forecasting in many companies today.
Data Misinterpretation and Lack of Data Entry Standards
Inaccurate forecasts often come from misinterpreting data or simply from the lack of accurate information altogether. It can be next to impossible to create accurate forecasts when your teams freely apply their own data interpretation on what is expected at each stage of the forecasting process. For example, having multiple inconsistent interpretations of what makes a deal a qualified opportunity can lead to an inconsistent forecasting process.
Without accurate, complete, and relevant data to guide them, most finance teams or managers go into their forecasts blindly. For this same reason, organizations need to set required fields in their CRM or finance software and ensure the right data is added at every point in the process. Managers should have the responsibility to safeguard the quality and accuracy of data entered into the system to avoid any misinterpretation of data just for the sake of filling out required fields. Likewise, business owners need to ensure their managers and teams adhere to strict standards to ensure data is managed correctly. To address this, ensure you define and set clear data standards and that these are strictly adhered to at every stage in your pipeline.
Lack of communication with other departments
When it comes to an organization’s transformation initiatives, success relies on getting all departments aligned with what needs to be done to achieve these goals. Lack of alignment can be caused by miscommunication, which can also impact forecasting reports. Without clear communication, it can be hard for a business to get its transformation initiatives rolling.
Lack of Accountability
Another common cause of inaccurate sales forecasting is companies not measuring and analyzing the accuracy of their managers and salespeople when it comes to their forecasts. This can lead to bigger problems as not making people accountable for the accuracy of their projections means there is no incentive for them to check their performance and find ways to improve. Companies must not become too overly reliant on the probabilities created by their CRMs and must always look for tangible evidence that supports these forecasts. Actual performance needs to be measured against forecasts and the organization must work together to eliminate whatever causes any variance.
Being Too Focused on Goals Instead of Reality
Oftentimes, accurate forecasting is difficult to achieve because teams do not have a clear understanding of deal dynamics and how they can be properly identified as actual opportunities that are worth closing. Asking the right questions is crucial at specific stages of the buying process. This can be done by upskilling your sales and finance teams and making sure they are able to better qualify their prospects and have the right information to close the deal.
This problem is usually resolved by ensuring that the salesperson asks the right questions to the right people at the right stage of the buying process. This is more a skills training for the salespeople to make sure that they can interpret answers of the prospects properly and that they have the relevant information they need to be able to close the deal. More importantly, it is crucial to back up forecasts according to the deals they are based on and have enough data to understand buying intent.
Improved Financial Forecasting with Performance Canvas Financials
Inaccurate forecasting can lead to bad decisions that can send your company to a downward spiral instead of boosting your growth efforts. Profits that are reported too low can only undervalue your company. On the other hand, profits that are misinterpreted to be too high can lead to high tax liability costs. If a company is serious about growth, getting their data and forecasts correctly is the first step.
However, many businesses may have had to contend with inaccurate forecasts for years because they have no idea where to start. Business owners may only accept these reports at face value, which will prevent them from tracking profit and budgeting accurately. Even worse, problems with forecasting can eventually hurt the company’s credibility with investors.
But luckily, the latest FP&A software like Performance Canvas can help businesses with seamless and accurate forecasting. Performance Canvas is a fully integrated performance management solution that delivers financial forecasting, reporting, and budgeting capabilities. It is also easy to integrate with your selected combination of ERP and line of business systems.
If you’re curious to know more about how Performance Canvas can enhance your forecasting methods, get in touch with us today.