When you think of a forecast, you probably think about whether a person is predicting if tomorrow will be sunny or cloudy. They are not just guessing but are trying to use the available scientific information to determine a likely future outcome. However, business forecasting is a whole new ball game.
In the business world, forecasting is similar. You will hear businesses say they met or did not meet their business forecasting. Basically, at the start of the year or the start of the quarter, a business is trying to predict sales growth, economic growth, and other factors. They set their course based on meeting or exceeding a goal.
Getting a Better Understanding of Business Forecasting
Businesses do not make financial decisions in a bubble. However, they make their decisions based on current economic conditions and predictions about the future. All predictions are rife with uncertainty.
However, past economic data is used and analyzed to identify patterns indicative of what is coming. Artificial intelligence is a powerful tool that is improving the accuracy of business forecasting models.
Forecasting can be divided into six elements:
- Identify a data point or problem – For example, how many customers will need CIAM software by the end of the first quarter of 2021?
- Data sets and theoretical variables are chosen – Relevant variables are collected and decisions are made on how to collect additional data.
- Hypothesize – There is a limit to the amount of data that can be collected and analyzed. A forecaster will need to formulate possible outcomes, simplifying the process.
- Choose a data model – A data model, be it a qualitative model or a quantitative model, is selected. The choice is made based on the variables being considered and the assumptions that have been made.
- Analyze – This analysis is used when forecasting financial growth or milestones.
- Verification – In this phase, businesses will compare what actually happened with what the prediction was. This verification phase will improve the company’s ability in forecasting finance for the future.
How Can Software Help?
Business forecasting software shows the trajectory of a business. It offers an unbiased and unblemished projection that decision-makers can review and interpret.
After implementing software for a client, we can identify trends based on past data. However, it is the human accountant who is in control of assumptions about how past data will impact future growth.
This software allows businesses to create reports that are easy to use and understand. It includes a mixture of colors, graphs, and charts to present a picture of what the future may look like. The software can serve as a tool that leads to bigger conversations, such as what steps can be taken now to improve a company’s financial future.
After seeing financial forecasts, many businesses decide to change direction. This could include proactively managing issues with cash flow. If the projections are for increased cash flow, it could include determining how they are going to use their money effectively.
How Can We Help You With Forecasting?
We help our clients chart a financial path that aligns with their vision and goals. We do this by looking at financial forecasts and then creating KPIs on a weekly, monthly, quarterly, and annual basis.
We do not see accounting as something retrospective. Accurate financial data is better utilized to help businesses scale or improve their bottom line. You can click here to learn more about our business advisory services.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.