Due to the above research and others, continuous forecasting has been considered the gold standard for several years. But recent events have caused it to shift from an ideal to a necessity.
In the past, annual forecasts with quarterly updates were sufficient, but that just doesn’t cut it in the current climate. Finance teams need to update their forecasts at least monthly to better anticipate changes in the market, manage costs, and enable frequent strategic decision making.
Know where you are, not only where you’ve been
In order to develop a strategy for the future, you need to have a firm grasp of where you are now. That means knowing how much money has been spent to date, as well as the funds that have been committed but not yet spent.
The ability to access real-time data will help you understand your current business and its standing in the market. By having a clear starting point, you’re better equipped to make decisions and implement new strategies.
In uncertain times such as these, five-year plans are a thing of the past. Companies need to consistently reassess their model against the market landscape in order to identify where they can reduce costs and improve efficiency.
Base predictions on up-to-date data
In many cases, by the time you look at your company’s financial data, it’s old news. This rear-view mirror approach requires Finance to develop forecasts based on stale data that can quickly become irrelevant.
Simply increasing the frequency with which you revise your forecasts is not enough. Updating your predictions more often does little good if you’re using last month’s numbers to do it.
That is why maintaining real-time visibility into financial data is so important. By leveraging present data, your forecasts will be more accurate and timely. This means more productive conversations about where to cut spending, reallocate capital, and maximize ROI.
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C-suite executives and board members are also changing the cadence of their interactions. Whereas these parties tended to have a high-level meeting once per quarter in past years, current uncertainties demand more frequent collaboration.
By continuously forecasting, “you always have a set of figures that you can show your board [and] your senior people,” notes Asoka Karandawala, an independent finance director at AKCA Consulting in London.
This allows Finance to have a seat at the table. Your team can provide clear insights about risks, profitability, and investment opportunities at every turn, and share valuable analysis to help set your business strategy.
Stay focused on the here and now
Continuous forecasting with real-time data allows you to live in the present—instead of weeding through data from the past or jumping ahead in an effort to predict the far-off future. By staying laser-focused on providing relevant, targeted insights that evolve as time goes on, Finance can emerge as a guiding force for how your business can act now.
Here are some best practices for forecasting in 2020:
- Integrate and automate your data. Collecting data from multiple sources can result in wasted time, errors, and, consequently, inaccurate forecasts. Use a cloud-based system as a single platform for real-time data collection, and maintain real-time visibility so your data is always up-to-date.
- Update forecasts once a month. Compare your forecasts with actual results on a monthly basis, digging into the “why” if your predictions were way off base. Check in on your financials weekly to track financial performance, and revise forecasts as needed.
- Incorporate non-financial data. Your forecasts don’t have to be purely quantitative. According to research by FSH and Workday, “more than half of CFOs and senior executives who make good use of non-financial data are able to forecast within 90 to 95 percent accuracy.” Product quality issues, conversations with sales, HR trends, etc. are a few examples of non-financial data that your forecasts could benefit from.
- Leverage finance automation technology. Free your team from manual work by investing in automated tools that streamline your finance processes. Proactively control the money that leaves your organization and track spend in real-time for greater accuracy.