Financial forecasting can take different forms but the end outcome everyone is trying to achieve is a view of what the firms financial future might look like in 12-24 or 36 months for now, on the proviso that we keep doing what we’re doing. And, we do this for the consideration of managements or our stakeholders, to aid their decision making capabilities.
The Traditional Method
Financial forecasts are usually prepared using the same methodology (export data from from ERP, and apply a growth factor for the future period, accommodating for exceptions etc) and these are usually done on a regular and consistent (monthly, quarterly or yearly) basis.
I’ve seen clients spend between 1 to 10 man days of each and every month getting their financial forecasts ready. The largest block of time seems to be spent slicing and dicing the forecasted data to fit the reporting format accepted for presenting historical financials. To aid this process, clients tend to procure add on solutions but for the smaller business these often cost more than their basic NetSuite license and so…excel wins.
Automate the Process
When it comes to automation, the accepted rule of thumb are that those things which are done ‘regularly and consistently’ possess the greatest potential for efficiency gain.
How about we simply create future dated transactions in the ledger based on our historical information with a growth factor applied (dynamic or fixed) automatically every month on the same day or as you like. Additionally, we could manually insert known future events into the forecast such as buying a new truck, taking on new capital, repaying a balloon debt, or remove a one off transactions from the past so that it doesn’t corrupt the forecast.
With this, the model can simply run with your normal financial statements (with full dimensions integrity) and normal financial KPI’s for ‘the next 24 months’, distribute them to management and stakeholders alike. What was a day/weeks worth of effort, now becomes an hour or two.
Too simplistic and naive or elegant and attractive?…I’m guessing that the output provided and the Efficiency gained by the overworked finance staff in smaller and medium size businesses would be a welcome relief.