How to Improve Your Sales Forecast Accuracy

How to Improve Your Sales Forecast Accuracy

What is Forecasting and Why is it Important?

Forecasting is an essential part of every business as it helps you avoid unforeseen issues and manage your business more efficiently. The sales forecast is especially important, as it serves as the base for your company’s goals, profit and growth potential. But, to be able to depend on a sales forecast, you need it to be accurate.

Related Reading: Should Small Businesses Forecast?

Forecast Pitfalls

The problem for many businesses is that their sales forecast is based on data that isn’t accurate or realistic. Adaptive Insights’ CFO Indicator Q2 2016 report showed that only one in four CFOs met their sales forecasts. Relying on a sales forecast that is based on the wrong data can cause a lot of headache. If you are sick of coming up short on your goals, take a look at the steps below to improve your sales forecast accuracy.

Steps to Improve Sales Forecast Accuracy

1. Understand your buyer’s journey

A sales forecast is based on your sales goals and ultimately who ends up buying your products or services. While historic sales data is important, you also need to make sure you understand your buyer’s journey and each step of the sales process. Ultimately, the sales process only moves forward when your potential buyer makes a decision. Therefore, you should aim to outline each step of the buyer’s journey, what decisions are made along the way and what you can do differently at each stage. This will also allow you to make better predictions on your sales goals.

2. Incorporate external factors

It is common that companies only concern themselves with internal data and don’t realize the impact that external factors may have on your sales. As a result, their data is wrong. Because of this, you should research economic factors that have had a historical impact on your company’s sale and include in your forecasts.

3. Shorten your forecasting cycle

Finally, you should forecast more frequently, as it allows you to be alert earlier if expectations don’t match results. Consequently, you can take action quicker and prevent any arising problems.

“Consider pushing your annual forecast back to later in the year. We used to do our forecast in August but now have pushed that all the way back to November. And in the past six months, we’ve created a new forecast almost monthly. Creating that many new forecasts can take a lot of time, but sometimes it’s necessary. In the end, you don’t want to run a business off of a forecast you no longer have confidence in.”

 

– Jeffrey Hollender, Seventh Generation, in an interview with Inc.com

One approach to increasing the frequency of your forecasts is by using a cloud-based performance management systems (CPM). Using a CPM system allows you to constantly adjust and fine-tune your forecasts. This means you can view real-time data and make better informed decisions with your business.

In conclusion, you need to establish a framework that offers clear communication and no surprises. This will allow for an improved sales forecast accuracy that, at the end of the day, gives your business a better chance of succeeding.

What steps is your company taking toward improving forecasting accuracy?

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Should Small Businesses Forecast?

Should Small Businesses Forecast?

The short answer is ‘yes’. The longer answer is ‘absolutely yes’.

Seriously, there are multiple reasons why smaller businesses need to forecast and implement a FP&A (Financial Planning and Analysis) framework. First, cash is generally the most delicate asset of any small business, especially those under $20 million in sales. Cash (and the corresponding line of credit) has to use forecasting regularly so that potential shortfalls can be addressed as quickly as possible.

The second reason is not as readily apparent. Businesses who plan revenues, margins, and operating income regularly and compare actual results to these plans will do significantly better than those who do not. The former will seek answers to why plans fall short or are even exceeded. In such cases, strategies and action plans are the result of plans which are not met. Conversely, those businesses doing little to no planning are typically ‘winging it’ or flying by the seat of their pants.

A FP&A Checklist for Small Businesses

  1. Daily treasury management is a must. That means reconciling cash every day and drawing or paying down on the LOC each morning. Other daily processes need to be adhered to in the areas of billing, collections, purchases, and cash disbursement. No shortcuts allowed.
  2. Cash should be projected 8 to 13 weeks each week on a rolling basis, and this is not the job of the accountant or just the CEO. This should be done by everyone in the business who has an impact on cash (whether producing or consuming it).
  3. A few key metrics should be maintained and monitored weekly, but only a few which can lead to actionable change.
  4. Financials MUST be completed on a monthly basis within a reasonable time frame after month-end. There are no excuses to not making this happen.
  5. And finally, ensure your actual results are a part of your FP&A tool. What went right last month or quarter? What did not go according to plan, and why? Running a causal analysis is an incredibly powerful tool to use when answering these questions. At this time, re-forecast the P&L and relevant balance sheet items over the next 12 months.

Check out Harvard Business Review’s: Why Budgeting Fails: One Management System is Not Enough below to learn more about best budgeting practices. 

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Learn what is wrong with the current approach to budgeting and how to fix it. 

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4 Steps for Driving Business Agility and Growth

4 Steps for Driving Business Agility and Growth

Software executives know they need to operate their businesses with more agility because of the pace and volume of change due to innovation and new competitive offerings. C-suite executives grappling with how to turn plans into action faster than ever before need to focus on four steps in order to achieve agility and growth.

1. Rapid Decision Making

Driving business agility requires that leaders have accurate information to make fast, informed decisions. In a recent Sand Hill Group study underwritten by Intacct, CEOs and CFOs ranked “delivering real-time relevant financial information and KPI performance to all stakeholders to drive the business” as most important to their organization. With real-time financial data and KPIs, senior management and board members are in an advantageous position for sound decision making.

Knowing what’s working in the business and what’s not allows leaders to take immediate action, rather than waiting weeks for any real business insight. Having real time KPIs allows an organization to make decisions at the point of need for improved results. The difference between a three-day financial close and a three-week financial close may be the speed advantage a company needs to capitalize on a new opportunity and beat the competition. CFOs and finance teams can make their company more agile by speeding up the delivery of accurate, insightful financial data to key stakeholders.

2. Forecasting and Investing

Another process that is nearly as important to software CEOs and CFOs is quick and accurate revenue and expense planning/forecasting. Accurate forecasts rely on a variety of data sources, and CFOs that can unite disparate financial, business and market data in a single ERP application, automatically and in real time, can rapidly deliver holistic forecasts that enable business leaders to stay agile and ahead of the competition.

Let’s say, for example, a CEO wants to forecast the revenue impact of potential product features in order to prioritize engineering and marketing resources. A modern cloud ERP system lets the CFO analyze, in one place:

  • The revenue impact of recent product releases by line of business, by customer, by channel and more, creating a solid foundation for building a forecast
  • The revenue and profitability of new customers by size and vertical to assess the effectiveness of marketing spend

With this depth of visibility into different aspects of the business in a single location, the CFO and CEO are able to make an informed decision on critical investment priorities.

3. Cloud ERP Systems

When it comes to adding and improving financial systems, software business leaders in the Sand Hill Group study indicated their most likely action in the next 12 months would be to implement business process changes, and their second most likely action would be to implement a business intelligence/data analysis solution. Both of these choices make sense for fast-growing companies.

Growth requires change, and business and finance systems that are inflexible or cannot scale at the same pace as the company will not do. By changing business processes, software companies attempt to add speed and reduce wasted efforts, particularly in the finance function, in order to be more agile and responsive.

Likewise, growing companies require business intelligence solutions because they struggle to find the information they need to make informed decisions in a timely manner.

However, there is a way to solve both challenges. Modern cloud ERP systems allow the finance team to efficiently complete the processes they have to do, yet move beyond those processes to the visibility-creating activities that finance teams need to do such as data analysis, forecasting, and operational reporting. This creates a better outcome for the finance team as well as the company than either process change or adding business intelligence alone.

There are real-world examples of finance teams that take advantage of a modern cloud ERP system to streamline processes and perform deeper financial and operational analysis for more accurate forecasting and greater visibility into the entire organization’s performance. A fast-growing U.S. software company implemented a cloud ERP system that delivers segmented reporting and profit and loss statements by multiple dimensions like department, item, customer, vendor, location, project and employee. The system enables the finance team to be more productive by automatically and proactively providing each department with standard reporting for revenue by customer, spending by vendor and costs at a project level.

This allows business leaders to increase agility and optimize their performance by managing against plan and refining the forecast in real time. As a result of this insight, departments can get instant answers without having to ask finance for key financial information, and executives benefit from deep, real-time insights into the sales pipeline and collections for better forecasts. The added efficiencies from a modern cloud ERP system help a company’s finance team spend less time on transactional bookkeeping and compliance tasks and more time empowering the entire company to focus on strategic, proactive planning, and enhanced execution.

4. Raising New Capital

Software businesses at one point or another need to raise new capital. Surveyed executives in the Sand Hill Group study reported their biggest challenge in this area is modeling future revenue and net income growth. As noted above, accurate forecasts rely on a variety of data sources, and CFOs that can unite disparate financial, business and market data in a single ERP application, automatically and in real time, can rapidly deliver holistic forecasts that demonstrate the full value and potential of the company.

In addition, the study participants rated establishing and enforcing financial processes and controls as their second top challenge in raising new capital. Establishing a robust set of internal controls is something a company has to do in order to demonstrate the effectiveness of the company’s accounting and reporting for a financial statement audit and to earn investor and lender trust.

Proper financial controls ensure no single individual has control over all parts of a financial transaction — and generate the audit trail to prove it. A modern cloud ERP system enables CFOs to deliver error-free financial statements and forecasts built on well-documented, carefully organized and approved transactions that support a realistic forecast and high valuation. Well-documented and enforced financial processes and controls make it easier for software companies to raise capital because of the accurate, trusted financial data provided to investors.

With these four enablers of agility and growth in place, C-suite executives and their boards and investors can be confident that the business will perform to expectations – or even outperform.

Four Crucial Enablers for Driving Business Agility and Growth was originally posted on Sandhill.com.

Save Time and Capital With Managed Accounting

Save Time and Capital With Managed Accounting

What is Managed Accounting?

Free up internal staff to focus on your core business while saving time, resources, and capital. Managed Accounting is simply shifting the functions and tasks of basic and critical business processes, traditionally managed inside your company, to an external provider, such as an accounting firm. By taking advantage of the power of secure cloud-based technologies, your business would receive a comprehensive range of managed business services for its clients, from A/P and A/R to controllership and virtual CFO services and we provide the ERP system to scale with it all.

Related: 5 Myths About Outsourced Accounting

Benefits of Managed Accounting

Besides saving your company precious time, resources, and money by utilizing managed accounting services, you’ll also be able to free up and redirect your internal staff and resources to supporting revenue-generating core business functions, including strategic planning.

In addition, when you partner with a third-party, you won’t have to worry about software and hardware upgrades and maintenance, or security! And you won’t need dedicated IT staff to support an in-house ERP system. Cloud technology platforms are state-of-the-art and offer the highest levels of security in the industry. Your financial data and business information is always safe and secure. Most importantly your data is always accurate and in real-time.

Related: A Beginner’s Guide to Cloud Computing

With real-time access to your data, we can generate custom reports, forecasting, benchmarking, and real-time data analysis. Why settle for financial reports and analysis that are out of date the day they are printed? Now you can be sure you are always working with the latest up-to-date information at your fingertips, 24/7. Get a better picture of your business in real-time. 

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Financial controllers are increasingly taking on the role of financial operating officer. You’re ensuring that finance runs smoothly and that there are not surprises on audit day.

But what does “running smoothly” really mean?

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