Improving Your Financial Year Forecasting

Day one of the new financial year begins working on a financial forecast for the year to come. Budgeting and forecasting allow us at Aurion to accurately plan for the fiscal year, with no surprises (well, no big ones anyway).

Here are ten rules to follow when working on your own forecasts, as well as how to improve current processes leading to the creation of a strategic plan that meets your business’s financial goals.

Keep It Simple, Stupid!

Stiff budgets and forecasts aren’t much use. The only constant is change, and you need to factor in those changes and how they’ll affect your business. If you’re basing your financial direction on best guesses made before then it will lead to costly mistakes.

In addition, if your metrics are based on out-of-date costs and information then that needs to be adjusted. Building flexibility into your forecasting will allow for more leeway. It’s best to have it and not need it than need it and not have it! Therefore always add wiggle room to estimates, and ensure your rainy-day fund is always topped up. You never know when you’ll need it.

Rolling Forecasts

As it’s the beginning of the fiscal year you can now update previous forecasts with hard data, and not on what your manager thought might happen several months ago. With this process, forecasting is done for the following quarter and not the entire year ahead. Each quarter the forecasts are broader since they too will need updating. Rolling forecasts lets you better align your budget with your original stated plan while also improving the accuracy of your forecasts.

Bring The Team In

Financial year forecasting should be done along with your team and not of your own accord, this means different departments have a clearer understanding of their needs. In addition to your finance team, including heads of other departments can give you the data needed to set a realistic budget. You need to gauge their goals and needs and see how that fits in with your own.

In addition, utilising your entire team allows for different perspectives on where your business currently stands, and where it’s heading. Collective intelligence is the approach I advocate on a daily basis.

Don’t Lose Track

From office supplies all the way to potential competitor buyouts, everything needs to be accounted for. Minor details can prove very significant in the long run. Once a budget is in place, allow for forecasting that looks at the many different scenarios that can and often will occur. This means keeping your eyes on things like client behaviour, market trends, and what your competitors are up to.

Budget According To Plan

Have a plan already in place and shape your forecast to it. Doing this means spending decisions are made based on real revenue, rather than opportunities that such spending may or may not lead to.  That money lives in a different account.

Rather than spending now and dealing with it after, budgeting to your plan ensures you deal with the potential impact of any expenditures that may affect the business.

Implementing this means the handling of your budget is really helpful in addressing costs that weren’t a part of the original budget.

Speak Up And Often

As forecasting and budgets affect every area of the business, you need to keep a constant dialogue with all departments. This minimises issues and fixes alignment between departments both organisational and operational.

I believe in open and honest communication across all forums. It saves time, reduces overthinking and creates a brand of how you operate. It’s a constant in an ever-moving target. How do we achieve when there are smoke and mirrors tainting every conversation? If we all work collectively and know where we all stand without any ‘grey’ we’ll be better off.

Goodbye Excel

Don’t rely on Excel to do your forecasts. Planning and finance software can go a long way in easing the process and freeing up the time to be spent better elsewhere. Cloud-based systems have now become the norm for all areas of finance. When used properly they allow for greater flexibility as well as increased security. They allow you as the budgeter to generate more accurate predictions and budgets quickly and with minimal errors.

Add Profit and Cash Flow Goals

Every budget should have profit targets and cash flow targets, as the two bottom line measures are very different. And both require different kinds of attention to control them. If you’re not keeping a close eye on both metrics then how accurate will your budget be?

To keep your company from missing out on its financial targets then set realistic goals for both your cash and profit flow.

Forecasting needn’t be a frightful task. It’s imperative you go into this new financial year with an idea of how you’ll be entering the next one. Set goals that you can achieve, and know that things won’t always go your way financially. Don’t expect the unexpected, you’ll never be disappointed! Keep it real and make it happen!