Focus on Forecasting: Keeping Your Business on Track

Budget forecasting is an essential part of good financial management, yet many companies rely on their once-a-year projections throughout the year. Although that strategy may have worked in the past, it’s no longer effective. Things are moving too fast: Technology, government regulations and artificial intelligence are only some of the disruptors businesses are subject to on a regular basis.

Ongoing Monitoring
Today, good financial health relies on ongoing monitoring of key business metrics and the ability to shift assets to meet current needs — and that means regularly comparing annual forecasts with real-time key performance indicators (KPIs).

Needed Adjustments
Technology has made monitoring your company’s KPIs relatively simple. By taking advantage of this ability and monitoring important trends on a frequent basis, you and your management team can quickly make needed adjustments. Consider these examples:

• The container ship with your inventory on board is delayed because of bad weather, so you need to shift your current inventory to satisfy your clients.
• A salesperson brought in a large order from a new client. The order’s size and promised delivery date may strain your resources, but you’ve been wanting to land this client for a long time and you want to meet every deadline.
• A client is late paying its invoice. This puts a strain on your cash flow.

Real-Time Data
Annual forecasts won’t catch these types of glitches quickly enough for you to make the strategic adjustments needed to prevent adverse effects on your business. But a dashboard can give you access to real-time data that allows you to react to unexpected changes as long as you coordinate departmental reporting standards and methodology. Lack of a standard system or methodology for data collection, analysis and reporting will affect accuracy.

The following KPIs should be closely monitored:

• Cash flow. Depending on your business, cash flow may vary through the year. For example, retailers often rely on the Christmas season, whereas grill manufacturers are busiest in the summer. Comparing your monthly data to your annual forecast will help you plan for the future. Even the best estimates must consider the unexpected — a client pays late or cancels an order. For you to stay current, you need to account for those kinds of contingencies.
• Sales data. Establishing sales targets across the company will help move the company forward. For example, if sales of black trench coats are trending on the east coast but are flat in the Midwest, having the relevant data at your fingertips will help you forecast new orders. The data will help you assess staffing (such as whether a sales territory needs to be expanded or condensed) and pricing (are unexpectedly lower sales due to price sensitivity or some other factor).
• Workforce data. This information is used to optimize your organizations’ human resource management, including hiring and recruiting trends, career-path initiatives, and risk management (e.g., employee engagement).

​Today’s technology allows company leaders to monitor important information on an ongoing basis, which allows for more precise and agile decision making — and a more profitable business. If you want to better understand how to better anticipate your company’s growth, contact us today.