Managing an organization is hard work – not guess work. The more you have going on, the harder it is to keep track of it all. A good financial forecast is like your trustworthy “BFF” (best friend forever) that’s got your back, no matter what. Here’s why:
1) Tells You When Something’s Wrong (even if it’s not what you want to hear) – A carefully maintained financial forecast model should track profits, cash flow, capital planning, and debt. Analyzing trends and variances can help predict bad news before it happens. What are the net impacts of declining revenues and rising costs – or extremely fast growth? Perhaps more importantly, when will your organization start to feel those effects? How will you manage spending, investments, and staff, to adapt? Exactly how will debt and financing strategies affect the outcomes?
2) Gives You The Inside Scoop To Evaluate Opportunities – This is the flip side to the early warning system above. Opportunities do come along, sometimes even falling in your lap. Hesitation, false perceptions, or even fear of the unknown could make you miss that opportunity. Your interactive financial forecast model enables you to run various scenario analyses. You’ll have the insights to take quick action and seize the moment. Or, you can steer away from a potentially bad deal. Whether it’s a significant capital investment or potential acquisition, you’ll have the confidence to make the best decision.
3) Makes You Feel Better – It’s ironic, but understanding your financial forecast – good or bad – reduces stress for most leaders. It’s the uncertainty that can worry you or paralyze your decision making process. Even if your situation is challenging, having that certainty can help you focus on action. We often prepare for the worst, but things are usually better than they seem. Your forecast “friend” will help you see that.
4) Motivates You To Be Better – There’s something empowering about a good financial forecast that inevitably makes you want to beat it. Maybe it’s our internal competitive streak or the “over-achiever” mentality of most leaders. Regardless, the increased effort almost always drives better results. Your “BFF” will bring out the best in you.
5) Makes You Look Good – If communicated well, your financial forecast creates “one version of the truth.” Combined with a detailed strategic plan, this helps leadership, staff, and stakeholders get on the same page. Clear actions, priorities and teamwork replace confusion and personal gripes. Changing the “water cooler” conversation can change the culture of your entire organization. Your collective focus and determination will be noticeable among staff, customers, and partners. You’ll look good!
6) “Introduces” You To Good People – Your financial forecast could be part of your first impression for lenders to evaluate you for a loan. It’s also used by brokers to value companies and their securities. Both scenarios could be pivotal for your organization’s progress.
7) You Can Be Completely Honest With Each Other – Close friends have their inside jokes and can share hopes and dreams without judgment. Similarly, you should be able to explore your organizational vision, including your business dreams and stretch goals. Your financial forecast can objectively “listen” and evaluate those ideas with various scenario analyses. You’ll avoid unnecessary debate among your team and encourage strategic action when you discuss these ideas in the context of your forecast.
A good financial forecast is an extremely dependable ally that will support you for many years in all your endeavors. Isn’t that what friends are for?