Financial Forecasting: Why February is Perfect For It

We’re halfway through February, which means we're at the midpoint of the first quarter. How is this quarter shaping up so far?

If you haven't looked at your numbers yet, the time has come. With one full month of figures in the system, you must take stock of how your proposed business budget lines up with actual information.

Are the numbers close? Have you overestimated (or underestimated) where you'd be at this point in the year?

How do you compare to the same time last year?

You're not only looking at the past month, but at the future as well. How does the rest of the quarter look to be shaping up? Have new opportunities presented themselves which weren't taken into consideration when the budget was created (months ago, if not longer)?

These seem like simple questions, but the accuracy of your budget depends on both realistic assumptions and figures. Unfortunately, many businesses take a "set it and forget it" approach to their annual budget. This can lead to problems down the line, including missed projections, underperformance, and an appearance to investors of overall poor planning.

What's the solution? One way to get a jump on the rest of your year is to use this time to start running financial forecasts for the coming months.

It's never too early to forecast

Once those actual numbers start rolling in, you have a solid base to start forecasting for the future. You don't have to wait until the end of the first quarter to begin thinking about the rest of the year.

In the past, one of the biggest hurdles businesses faced with forecasting was that it was clunky. The process of forecasting often took multiple departments, an ever-increasing number of Excel spreadsheets, and months to prepare.

Because of that, forecasts became a great support tool, but not something many relied on heavily for decision-making.

Even today, many businesses still use these older, outdated methods. FP&A software has enabled the advent of flexible and repeatable forecasting. Now, with the right tools, forecasts can update on a monthly, weekly, or even daily basis.

It's becoming easier to pull together historical data, actual numbers and predictions. This allows for a much more complete snapshot of where a business is right now, and can help inform strategic decisions for the future.

Once those actual numbers start rolling in, you have a solid base to start forecasting for the future. You don't have to wait until the end of the first quarter to begin thinking about the rest of the year.

Accurate financial forecasts improve decision-making

Another huge benefit of thinking about financial forecasting early in the year is that it gives you the potential to create a variety of forecasts based on different sets of data.

Forecasting today isn't the forecasting of old: now data can be broken down even further, covering sales, cash flow, revenue, and capacity-driven projections. You can create forecasts tied to your pipeline or sales cycle. When you combine these numbers with past performance data, your company will have a much more realistic look at the overall picture.

When they can get much more granular on the details, decision-makers can identify patterns, opportunities, and where things might go wrong. All of these are crucial factors when it comes time to make a call later in the year that could affect the bottom line.

Consider running financial forecasts now to be an early warning system, of sorts, for potential risks and issues that could appear during the year. It's in these situations that having timely and accurate forecasts matters.

No one can predict the future, but when you incorporate consistent forecasting into your financial strategy, chances are your business is going to be much better prepared for it.