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Companies that tend to create a blueprint to success typically set goals and make forecasting plans for the future. What many fail to realize is that those same companies understand the importance of shifting viewpoints when things aren’t going as originally planned.
FP&A Managers consider forecasting to be a key component to the success of any company. Understanding the trends and market analysis throughout a year can save your business money and time. The more detailed your forecasting process is, the less likely you will need to make adjustments when complications arise. When there is a shift in the market and it has a profound effect on the company's progress, this is the typical time the marketing and finance teams will complete the reforecasting process.
Reforecasting is one of the core principles of strategic finance. The process of revising the existing budget, especially when there is a significant fluctuation from projected spending or income. A company that is looking to dive into a more distinct market or looking to find ways to grow their revenue streams tends to reforecast throughout the year to assure their vision still aligns with their core principles.
All companies consider strategic finance. Strategic finance simply means providing a long-term solution for ongoing growth and development. When devising your financial plan you hope to expect these caveats:
- Shorter-term gains
- Asset reduction
- Policy changes
Although it is an important aspect of your business, it doesn’t mean that it will be liked by your public shareholders. Sometimes your reforecasting goes against what you intended but it may help you reach the bottom line you desire. As an FP&A Manager, you must always remember that strategic finance and reforecasting are about creating profit for the business and ensuring a quality return on investment. This works by taking your longer-term strategies and quantifying them to meet your short-term goals. When deciding if there is a need for reforecasting here are a few keys to look closely after.
When to Reforecast?
- When there is a significant change in a vital producer to the budget. This means if your money-making product or service begins to decline regularly, a slight adjustment may be needed to improve those conditions.
- When acquiring a partner capable of fulfilling an important role in your company. A reforecast would suit this well because you can take resources away from one area and put their focus on another.
- One of the common reasons for a reforecast is to simply provide a fresh perspective for your company. This fresh perspective can lead to new customers/clients and ultimately more revenue or fewer expenses.
Do you understand the value?
There is significant value for companies who undergo strategic reforecasting. Companies who prioritize budgeting and forecasting tend to see more stability, and can effectively execute against maturation plans without risking financial security. The true value is peace of mind and knowing that you have taken the necessary steps to ensure your company sees the results it truly desires.
It also aids in keeping your organization on track for its monthly, quarterly, and annual goals. A true reforecasting process adjusts your path as it is happening. This means it will change the assumptions and unforeseen complications that were not accounted for during the original forecasting process.
How do companies create a budget reforecasting?
Companies take real-time numbers and make necessary adjustments as frequently as possible. They typically use your forecast as a live document which allows you to compare and contrast your original decisions making it an effective way to meet earlier predictions on the budget. Drafting a budget and forecast that is accurate can be time-consuming, but knowing the details and checking your budget regularly can help you exceed goals and stave off unnecessary expenses.
How to effectively use reforecasting?
As a growing company, just reviewing your numbers based on normal accounts is not all you have to do to sustain. Reforecasting your budget regularly can be an effective strategy to avoid unwanted costs.
Acquiring updated information for your budget is critical to making sound decisions for your business. Just taking a detailed look at your profit and loss statements can help you understand where your company is failing and the exact areas where you are thriving. This allows you to make the necessary changes to improve where you need and/or focus more on the areas that are bringing results.
The correct data is ammunition for important decision-making. Whether the data is considered good or bad for your company, it still serves an important part of its growth. A budget properly reforecasted can assist you and the decision-makers within your organization with leveraging funds, deciding on where to allocate new funds, or how to move funding from non-producing aspects of your business.
Things to remember about Reforecasting
This process isn’t just reserved for marketing and finance, many companies utilize a reforecast for most areas of their business. The ability to make subtle adjustments to improve can be the difference between a company sustaining hard times or taking true advantage of times of a business boom. As an FP&A Manager, you can not expect your assumptions to last an entire year, taking that naive approach is not recommended. That is why including this process into your regular budget is the most effective way to stay on track and meet your yearly goals.
During vulnerable times, especially like what has occurred during this global pandemic, companies are taking closer looks at where their resources are allocated. Companies have had to answer tough questions about the direction of their organization such as:
- Where exactly are we making the most money?
- What are some expenses that can be cut to save money?
- What are some marketing strategies we could use to reach our original budget goals?
- When should we make the necessary changes and how long will it take for said changes to affect the company?
These questions provide the organization with the data it needs to push through in slow periods. What we have learned from the pandemic is that most businesses are vulnerable and require sound decision-makers who can adjust to any circumstance that arises.
The more you understand about the reforecasting process the less likely you will run into situations you are not prepared for. Preparation is a key component to success, knowing where your business is going and how you want to get there can save you time and money in the long term. Developing a strategic finance plan can set you apart from your competition, provide you with the confidence to maneuver in your sector, as well as keeping you focused on your bottom line goals.
After learning the bases of reforecasting, the next step is to automate this process so you can spend less time on it and focus on decision making.
With Abacum, we empower finance teams of high-growth tech companies to become true strategic partners in the organization by driving time-to-insight with powerful automation and seamless collaboration. Request a demo now to see the product live and start your own transformational journey.