Accurate financial planning and forecasting help businesses plan for future growth whilst simultaneously helping them to prepare for potential economic challenges. However, developing an accurate forecasting model can be very difficult because even the most careful and sophisticated plans can be torn up and made redundant by unexpected or unprecedented events.

Indeed, we’ve seen just how severely the COVID-19 pandemic, and more recently the conflict in Ukraine, has caused disruptions that are affecting the way businesses and finance departments to conduct forecasting. The past few years have brought new demands and challenges for finance teams, requiring them to constantly run scenarios and plan for contingencies, while creating new models and rethinking data sources and strategies. Indeed, according to a recent Deloitte “Dbrief” webcast, forecasting and planning are now cited as primary concerns among companies, second only to continued uncertainty in demand and revenues.

With the post-pandemic rate of recovery being strongly interrupted by the war in Ukraine and sky-high inflation rates, however, forecasting for the next month, the next quarter, and the next year has never been more challenging. Customers are canceling or terminating their contracts, firms are finding it harder to attract new clients, and revenues are fluctuating substantially, naturally causing cash reserves to become more critical than ever for those affected. Businesses are also absorbing new costs that did not exist only a few weeks ago, and budgets are being tightened as profit margins shrink. More importantly, by the time a finance department brings the most recent predictions and budgets to the C-suite, they’ve become obsolete, with financial models still being based in static spreadsheet models, rather than real-time data.

Real-time forecasting is becoming a priority amidst market uncertainty

One of the main challenges that businesses are having to face in order to build resilient and dynamic forecasts is integrating rapidly updating datasets across every area of operations, as well as external sources. It’s often the case that when finance teams have finally finished integrating and analyzing their data, it’s already irrelevant. This challenge has been made all the more of a pain point in the post-pandemic world where businesses are not only assessing data relevant to their own operations but also their entire ecosystem, from their own customers to first, second, and third-tier suppliers. Whilst asset light companies such as SaaS start-ups do not have to worry about suppliers as much, they also need to have a close eye on the market to calibrate their expenditures on sales and marketing and to accurately predict top-line growth. Understanding such larger effects has necessitated stronger collaboration between FP&A and sales and operations planning as a required input to financial planning, bringing to light the need for a more dynamic connection.

According to a recent survey of CFOs by Accenture, real-time financial planning is now a priority for most finance teams because it can provide resilience in the face of disruption. However, with the current spreadsheet-based processes it also adds additional work to finance teams, which need to spend hours searching down the latest sales numbers and evaluating accounting data. The sheer volume of data, its rapid rate of change, and its dispersion across numerous teams and departments provide finance teams with a whole set of challenges when it comes to accurate planning. Nonetheless, it is business critical.

Why real-time forecasting is important

Although it might sound obvious when we say that real-time forecasting is inherently better than the old-school method of sitting down once or twice a year to draw up a budget based on historical data, it’s always worth pointing out why this is the case.

Crucially, real-time forecasting allows teams to adjust on the fly. It’s impossible to predict exactly what a business is going to be exposed to in a given time period. Similarly, it’s impossible to predict how a business is going to react to the things it’s exposed to. Let’s say you have five solid months of sales and then suddenly, the bubble bursts and you’re now operating way below where you thought the business was going to be as a result. With real-time forecasting, you can easily look at how this one bad month will impact your budgeting for the remainder of your period and pivot your planning. This isn’t something you can do with static forecasting methods.

It also enables teams to weather economic downturns. The current pandemic & war-defined, recession-impending economic environment is as much of an opportunity as it is a threat. Some of the world’s biggest success stories found their feet during the recessions and economic downturns of days gone by. Given the current state of play, it’s of crucial importance that finance teams understand the mechanics of their business and have the right tools to develop robust financial frameworks to help them deal with whatever’s coming their way. Fast, real-time financial forecasting partly enables this and makes it easier to stay on track.

Assessing your forecasting tools

To enable real-time forecasting and stay ahead of these challenges (and, by extension, the competition), finance teams must be willing to adapt and take advantage of available technology and tooling so that their forecasting becomes more manageable. With the right tools, businesses can quickly respond to emerging challenges and update their plans as new information flies in from across the planet. But many finance teams like to stick to old-school spreadsheet models. Let us tell you this: there are better alternatives available.

Of course, not all options are great and in some cases a spreadsheet-based set-up has advantages. So, before tossing it all out of the window, you should fairly evaluate your current toolset.

Some of the important questions to ask include:

  • How long does your annual budgeting process take? If its a matter of weeks (or even months!), it can definitely be improved.
  • How much time do you spend on your monthly reforecasting process (if you were to implement it)? If it takes more than 1-2 days, this can definitely also be improved with modern tooling.
  • Can your tools integrate data directly from systems such as your accounting tool and CRM data or do you have to do this manually?
  • Do your tools allow you to collaborate seamlessly with colleagues involved in the process or do you still have to send around emails and chase people individually?

The technology and tools required for real-time financial planning should enable finance teams to access cross-departmental and external data for more accurate predictions and analysis, as well as to pull data swiftly and frequently while guaranteeing better collaboration and communication. However, finance teams in start-ups and SMEs in particular are still stuck with spreadsheet software such as Excel and Google Sheets. They thus spend hours each month manually gathering and cleaning financial data from their accounting system and other systems such as their CRM. Models are error prone and inaccurate and collaboration is cumbersome, typically involving several Excel files being send back and forth via email. A tool like Pectus can help.

Accurate financial planning and forecasting with Pectus

Now more than ever Finance Teams, Founders and CFOs need a tool like Pectus, capable of integrating with accounting software such as Datev and CRMs such as Hubspot, allowing users to directly access all their most critical financial and non-financial data through only one system, rather than having to manually gather csv export files. Moreover, Pectus offers flexible reporting, controlling and collaborative forecasting functionalities, allowing Finance Teams to toss away spreadsheet models and instead have one integrated system with all their relevant data, reports and forecasting models. Finance Teams, Founders and CFOs want to minimise manual, repetitive work whilst at the same time getting a strong hold of their business’s current and future financial performance. Pectus can help to achieve just that. Get started by booking a free demo here.

 

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