Businesses need budgets and forecasts for a variety of reasons. But a poorly prepared forecast based on erroneous assumptions or flawed modelling can be far more harmful than beneficial.
In many cases, the business does not possess the resource or capability to carry out the forecasting process. Accounts teams are often stretched to carry out the day to day accounting function and do not have the time to produce suitable forecasts.
The events of early 2020 showed how vital forecasting is to business. Not only was it necessary to be able to manage cash flow at a time of high stress to many businesses but it was also necessary to model the effect of a temporary slow down, contraction or closure.
Those businesses with well-established forecasts were able to react quickly to identify the impact of critical business decisions and then manage the cash flow resulting. All businesses making applications under the Coronavirus Business Interruption Scheme needed to provide some rigorous forecasts to support their application.
This process highlighted for many businesses the key difference between profit and cash and stressed the importance of preparing and using both forecasts as an integrated part of the management process.
While the technical challenges of producing a forecast are considerable, the adoption of the correct methodology simplifies the process considerably.
The critical first step is to obtain the relevant historical financial information and agree on the key assumptions underlying the forecast. It is at this stage that I identify what the key variables are in the forecast and what the users of the forecast require from it. Once identified, the assumptions enable me to build the forecast with necessary input options and ensure the results are presented in an easy to understand layout.
It is imperative, for this process to be worthwhile that the forecast becomes a living tool that can be easily updated and allows the management to explore a range of scenarios with “what-if “analysis.
Notwithstanding this, forecasts do not need to be complex integrated affairs. The forecast prepared should be appropriate for the business to which it relates. Having worked with numerous business of varying size and complexity across a wide range of sectors, I have the experience, tools and templates to ensure the forecasts are prepared appropriately efficiently and cost-effectively.
