Even in the middle of the year, financial projections remain a shifting target. With so much uncertainty still lurking, how does your company plan for the future? What are the most significant trends to investigate? And how are external influences affecting your business in unpredictable ways?
These are the questions that CFOs need to assess and plan for in 2021 and beyond continually.
Financial forecasting best practices are adopted and maintained by business leaders who are better positioned to thrive and weather unanticipated setbacks. Although it is difficult to anticipate the future, as illustrated by the COVID-19 pandemic of 2020, adequately preparing against worst-case scenarios makes it easier for companies to recover.
The truth is that businesses do not become well-capitalized, with solid balance sheets and healthy cash flows by luck. To check for financial health, companies need software that can provide thorough data analysis, in-depth reporting, and up-to-date consumer and market intelligence. Finance teams that forecast correctly in good times benefit from the business performance.
Financial forecasting anticipates a business’s future income and expenses, and a sound economic forecast includes both macroeconomic elements and conditions unique to the enterprise. A comprehensive forecast includes, but is not limited to, short- and long-term outlooks on situations that may affect revenues, as well as contingencies for expenditures that are not now deemed necessary.
Organizations that develop reasonable financial projections rely on model specialists, whether on staff or a consulting basis, and combine their work product with insights from people who have a thorough understanding of the organization and the sectors and communities it serves. Similarly, information collecting and software are critical components of the financial forecasting process.
Comparing Traditional Vs. Rolling Forecasts
Traditional forecasts often involve a fixed financial plan calculated for a defined period, such as quarterly or annually. It estimates future business indicators based on historical observations since it is based on defined goals (sales/profit and other KPIs). They are often account-based, repetitive, and frequently tied to accounting cycles
On the other hand, rolling forecasts can be modified throughout the year to reflect market or business changes. Financial projections can be adjusted in real-time, and business targets are commonly adjusted based on external/internal events. This means resources can be reallocated according to these changes. It is heavily linked to business drivers and closely tied with operational changes.
An excellent financial forecast paves the way for reliable budgetary decisions so CFOs can demonstrate to investors that the business has a plan in place and is prepared for unexpected events that may impact the cash flow and spending.
Financial forecasts set up measures and raise awareness of a wide range of internal and external variables that can have short- and long-term consequences and provide a yardstick for leaders to make better financial decisions.
Investors can use it to assess that a company is prepared for both the best and worst-case scenarios and helps prevent business leaders from being caught off guard by events that could impact performance.
Performance Canvas for Financial Forecasting
Financial forecasting is both more accessible and more complex than it was just a few years ago. Companies can now access data in real-time, consider purchasing patterns, fraud detection, real-time stock market data, client segmentation, and more. This opens up new options, but it also adds a layer of complication.
Finding the right financial forecasting software that can provide accurate data, capture it, and seamlessly incorporate it into daily, weekly, quarterly or yearly reports is crucial. This isn’t easy to do without an AI-powered financial software solution like Performance Canvas.
To efficiently gather data and create reliable forecasts, fast-growing companies require Corporate Performance Management tools that can help them to scale more than limited spreadsheets. Performance Canvas can address this need by automatically collecting all financial and operational data and KPIs in a controlled environment, so financial forecasting and re-forecasting become faster and more efficient.
Get in touch with our team today for a free demo.
