The force is described as an energy field created by all living things. It surrounds us, penetrates us, and binds the galaxy together aptly outlined by Obi-Wan Kenobi in Star Wars Episode IV. There are many parallels to this framework and the business world when you break it down, especially how it pairs to finance.
The budgeting versus forecasting process has been an ongoing debate between professionals in the finance industry for some time now. While both terms often times get used interchangeably with regards to dissecting the company's overall financial health, the proper way to use them both is not particularly as a substitute for one another. Simply put, forecasting is the financial tool used to help determine the financial status of a company.
Budgeting is seen as a financial planner, where the forecast will take this plan and compare it to the current financial direction of the company to predict where the company will end up by the end of that year. In layman's terms, the forecast is used to see if the company will meet or exceed the expectations from the budget.
The truth is that at times, forecasting is as much an art as it is a science. That means there is no perfect way to go about creating one, but making a habit of looking ahead will prepare your company for both unexpected road bumps and future success.
Too many companies get hit with a seemingly unexpected tidal wave from the market because they haven't taken advantage of a forgotten skill: forecasting. Here are 3 tips to better forecasting.
Planning Systems Can Save You Time
Having a high-performing planning system can help you align your top-down financial targets and bottom-up plans to marry them with your operational goals to get the full picture. It's imperative in this fast-moving marketplace to have instant insight to better understand the opportunities ahead of you. By simplifying data collection and validation, you can dramatically shorten budget cycle times as well as improve the accuracy and relevance of results. None of this is possible without having real-time data readily accessible to you.
Include the Entire Roster
The best model is a consistent one. Look to create a model and remain consistent with it every year to help standardize the process. An accurate forecast process is easy to review every year. If you want to have a birds-eye view of your business, then bring the whole roster on board to review it instead of just leaving it to your managers. Set specific time aside every month to review your forecasts and go over the data together to touch base on any high-level decisions to get a clear picture of where your organization is heading year over year.
Have a Plan B
We often hear the phrase, having a Plan B can muddy Plan A, which is sometimes the case if companies rely too heavily on their safety net. However, creating a contingency Plan B in case the forecasts haven't been met can greatly mitigate risks, and having a clear plan in place in case the initial forecasts haven't been met. Simplify your process and don't get too inundated with specific forecast models.
Experts say it sometimes takes months of tweaking, adjusting, and learning before you can have an accurate guess at how the forecasting will look in the future.
In order to have your ducks in a row, it is imperative in this rapidly expanding marketplace to have a system that anchors your financial planning processes. Align your top-down financial targets and bottom-up plans with your operational goals to get the full picture with Limelight. Book a free demo right here to see how to protect your bottom line while increasing your top line.