Financial forecasting brings real value for advisory clients, but only if done in a way that is timely and directly relates to the business’s main drivers.
In today’s world, we have access to data at incredible speeds. Working together with your clients, you can take full advantage of this information by making decisions quickly before small blips become massive problems.
Without taking advantage of timely and relevant data, you won’t be able to provide the full value that FP&A advisory services can provide for clients. This makes clients less prepared for unexpected risks and potentially leaves money and growth opportunities on the table.
Plus, having standardized data reporting provides a general sense of financial well-being for clients and their teams. But beyond choosing a software tool to support this process, how can advisors provide higher value to their clients with active financial forecasting?
Advisors must become comfortable with a number of concepts to drive value for their clients.
There’s no perfect forecast, and that’s something advisors and their clients need to feel comfortable within the financial forecasting process.
So long as variances can be explained, companies can rest easy that their forecasts are relevant and able to drive value. Review the major differences and ask your clients questions if you’re unable to find explanations.
Help your clients understand the differences, and what can be learned which will have positive impacts on their business.
Over time, you’ll be able to improve your model, gaining more reliable and consistent results to further drive business strategies.
Of course, no one can ever predict trends fully. Be prepared to advise your clients during times of economic uncertainty using data to model multiple scenarios, quickly.
Drivers are the factors that most impact a business’s outcomes and decision-making. They vary for each industry and company, for example, the following may be drivers in different businesses:
Real-world numbers compared to your financial forecasts will be able to test assumptions held about those drivers.
Business trends change quickly, turning consumer behavior in the blink of an eye. Relying on traditional forecasting methods can safely predict future trends will not always work in your client’s favor.
Every month, revisit your forecast:
1) Try to find the correlation between different revenues, expenses, and operational data.
2) Check whether what you assumed drives the business had the expected effect. If not, what was that driving factor?
3) Don’t forget to look at external factors that could throw your projections off. Check with your client and try to dig for information that’s outside of the financial reporting that may have impacted the results.
Understanding relationships between different metrics is key to providing insightful financial advice. While correlation doesn't always imply causation, it's still essential to consider how changes in one area can impact various aspects of a business's operations.
Follow this process to uncover connections that drive value in your financial forecasting:
For instance, you could help a client predict upcoming staffing needs based on sales and production trends. By observing an upward trend in these metrics, you can advise your client to consider hiring before staffing shortages become a pressing issue. This might allow them ample time for hiring and training, finding the best candidates, and preparing them for success, instead of frantically hiring at the last minute.
Your next role is evaluating the outcomes of decisions made by the business. Now, it's essential to assess whether these decisions brought the intended results.
Jirav is your go-to solution for creating relevant, timely forecasts for your clients. Designed with you in mind, you’ll never want to go back to spreadsheets or clunky software that doesn’t meet your needs. Get in touch for a free demo today!