When done well, accurate financial forecasts can be one of the biggest contributors to positive business growth. However, when done poorly, they have the potential to negatively impact your entire business.
Some businesses struggle to improve their forecasts. Without improving them, they can find it difficult to stay competitive, losing opportunities that may otherwise be readily available to them. If you find yourself in this position, we are here to help. We’ve listed eight practical strategies to help improve your financial forecasting and build more reliable financial plans.
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1. Keep your forecasts flexible
Because of the many different external variables in business, a forecast can very quickly become outdated before it even has a chance to guide your decisions. This could be changes in the market, for example.
By keeping your forecasts flexible, your business can quickly adjust projections as soon as new information becomes available. By regularly revisiting your assumptions and updating these figures, you can be sure that you’re one step ahead of any risks or opportunities.
2. Build multiple forecasts for different scenarios
One of the best ways to improve your financial forecasting is through scenario planning. It can be detrimental to have just a single projection. Instead, you can create several plans to prepare for multiple outcomes.
Typical scenarios include:
- Best-case scenario – this will show your strongest potential growth
- Worst-case scenario – this will show an outcome with lower revenue or higher costs
- Most-likely scenario – this will show the most realistic outcome based on current trends
By considering multiple possibilities, you can begin to better understand your business. You’ll soon see how different variables affect your business in different ways, with the added benefit of having a back-up plan for almost every situation.
3. Communicate and collaborate with your team
Financial forecasts are more reliable when all of your team are contributing effectively.
You might have employees working in sales, marketing, operations, and finance – and all of these teams have valuable information about your business activity. When these groups collaborate well, the insights gained are enormously helpful for your forecasting accuracy.
4. Use historical data to guide your predictions
There is nothing more beneficial for your financial forecasts than your historic performance.
When you analyse your historical data, your business can identify any patterns that might repeat themselves in the future, such as seasonality or recurring costs. These insights are grounded in real evidence, rather than having you need to guess.
If your business needs further improved accuracy you can use advanced analytics or statistical modelling, turning your historical data into predictive financial models.
5. Consider external factors
While internal data is essential for your forecasts, external factors can play just as large a role in shaping your business’ future. If economic conditions shift, your costs will change. If your industry goes through new developments, it can impact everything.
By carefully monitoring these external influences, you can make sure that your business adjusts projections quickly, preparing for anything external that could affect your inflow or outflow.
6. Use industry benchmarks
Comparing your performance with similar businesses in your industry can massively improve the realism of your financial forecasts.
Industry benchmarks can provide useful reference points for your key performance indicators (KPIs). These comparisons will help you to set achievable targets for your business. Targets in seasonal business will be different to those in manufacturing, for example.
By using these benchmarks you’re ensuring your business doesn’t just focus on internal expectations – you’re also focusing on the broader market.
7. Regularly monitor and update your forecast
No business should have a static financial forecast. We all know how much a business can change, so your forecasts need regular updates to remain useful.
By comparing actual financial results with your projected figures, your business can identify any gaps between what was expected, and what was realistic, helping you to adjust your forecast for more accuracy in the future.
Frequent reviews make forecasting a continuous process rather than a one-time exercise.
8. Move beyond spreadsheet-only forecasting
While spreadsheets are still the standard for financial forecasting, they can be limiting your efficiency and accuracy.
Spreadsheets commonly have their own challenges. It doesn’t take much to accidentally enter a manual error. If you’re working collaboratively, different versions can cause confusion. Modern financial planning tools don’t encounter these issues. They have more advanced capabilities like automated calculations, or simple one-click report creations. They can be worked on across multiple locations or by different users simultaneously.
Switching to dedicated forecasting software can streamline your forecasting process and reduce the risk of potential errors.
Make forecasting easier with Brixx
If your business is looking to improve financial forecasting, using a specialised tool could be all of the difference in the world. Brixx is designed to simplify financial modelling, scenario planning, and long-term forecasting.
By moving beyond traditional spreadsheets and using a dedicated financial forecasting platform, your business can gain clearer insights into its future performance. Use Brixx to help your team collaborate more effectively, run multiple financial scenarios, and make data-driven strategic decisions.
Get started today with a free 7-day trial to see how Brixx can work for you.
