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. This could simply refer to the fact that at the start of a business year or the beginning of a new 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 and look into ways they can improve.
Understanding business forecasting
Businesses do not make financial decisions in a bubble. 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. There are a number of accounting and business software designed to track important metrics that enables a business to make deep financial decisions. Artificial intelligence is also gaining momentum and can be a powerful tool that businesses use to gain important industry insights and adaptable business models to improve business efficiency. Artificial intelligence business forecasting tools use time series data to estimate future developments for many industries and can enable businesses to make scientific predictions without requiring oversight.
Forecasting can be divided into six elements:
- Identify a data point or problem – For example, how many customers will need the services you offer by the end of the first quarter of 2023?
- 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 software can help
Business forecasting software shows the trajectory of a business. It offers an unbiased and unblemished projection that decision-makers can review and interpret.
Microsoft Power BI, for example, is business intelligence software that uses data to help you understand your business and a greater industry or economy, better.
Forecasting using your business or accounting software provides a holistic view of your business, giving you the tools to look into past performance while allowing you to understand what to improve on at present.
Forecasting software allows businesses to create reports that are easy to use and understand, and offers a mixture of colors, graphs, and charts to present a picture of what the future may look like. Forecasting-enabled software often enables 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, reassigning budgets and changing crucial financial path that aid in spending a business’s money more effectively.
While the software offers insights, it is advisable to allow a trained accountant to identify trends and interpret the data. At Fusion, 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. With the correct software and data interpretations, we can help your business get from where it is now to where you want it to be.
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.