Manifest it!

“As from now gentlemen, the clock is running and we are keeping score” from the original TOPGUN movie, not everyone’s genre but the line stuck with me, and I have often repeated it to myself humorously when adding attention to a time limited task or project deliverable.

Credit : British Cycling and Dame Laura Kenny

Keeping score and knowing where you are is vital for success in any organisation. We have previously highlighted how data savvy professionals are coming out on top in all walks of life not just cycling (Mr Brailsford). See Growth CEOs & data smart cultures

More formally, “users” of statutory financial information get confidence on the preparation of that intelligence from the reporting standards, the contribution from the accounting professionals historically, the law makers and “best practice”.

This provides an regulated environment where company management can implement “statutory standard” monthly reporting that benefits governance and onward reporting to external stakeholders.

Beyond the primary statements, an  increasing narrative is emerging on what is a “data rich” environment and the interpretation of data and KPIs.

A plethora of memes on smart use of KPIs has appeared  on social media such as LinkedIN and Instagram such as @data.chatter below.  https://www.instagram.com/data.chatter/

This is all a positive contribution to how we understand and compare businesses or take away from the literature or social media out there. On top of this we see great work done by data savvy professionals promoting their software and services.  All vital input for growth and success.

Forecasting

We wish to draw attention specifically to forecasting and how understanding  the financial and commercial control of the businesses day to day week to week depends on the ability to forecast and how that skill integrates to yes the wider budgeting and reporting routines but also the human conversations being had within departments, the setting of the objectives and 1-2-1 reviews or other possibly project or team reviews and moreover general commercial updates on phone calls and in meetings.

Credit: Intuit quickbooks

https://quickbooks.intuit.com/r/running-a-business/budget-vs-forecast/

The key control tool

Given that we want to deliver a certain outcome from an investment or project the finance text books tell you that the number one control is “budgeting”. The process by which we forecast, review and thus control and improve.

The forecast bit is where we anticipate likely income, expense, asset movements and funding for a period. We then periodically review actual performance against this projection and seek to understand where the variances have comes from and is that an ongoing variance (possibly misunderstood in the budget setting) or a irregularity (caused by an event not envisaged when the budget was set). This circular and iterative stage of the process gives improvement in our understanding of performance and improvement in control.

Often simply called the “budget” or the “plan”, the books don’t lie, this discipline sits fairly with the old adage  “plan to prepare or prepare to fail”.

We were very pleased that this got an increased profile in our view in the word of the year choice made by the nice people at Cambridge Dictionary where the word  “manifest” got a refreshed and more current definition as follows:

“to use methods such as visualization (= picturing something in your mind) and affirmation (= repeating positive phrases) to help you imagine achieving something you want, in the belief that doing so will make it more likely to happen”

So the budget or annual plan is an attempt to “manifest” a certain outcome.

(The annual financial plan process is a blog for another day, but its accuracy, relevance and thus value is without reservation linked to , how systematic or sophisticated the forecasting capability is and how resident this discipline is within to the wider team and other systems or conversations around the business or does it tend to rest solely with “someone in accounts”).

History, forecasting and the “forecaster”

No one around here can remember forecasting as a concept getting much syllabus space to any extent at college, university or on the accounting or banking  professional training routes. Yes it was mentioned but not really elaborated on and never any training on a practical application that your CEO might recognise or might get you through the interview for an analyst role in a company or PE house.

Forecasting has thus been historically left to the  individual to develop their skillset here based on their accounting training. Rarely do we see a non-financial manager build forecasting into their toolkit. Furthermore amongst the finance professionals, forecasting systems have often been left to the “forecaster” that accountant within the finance team with stronger spreadsheet skills.

The “forecaster” is not a role in itself, routinely it’s swallowed up by the FP&A team, an analyst, treasury , systems accountant or group financial controller as part of their role, possibly because of their skills or position at the intersection of the teams or departments that are corralled in the budget or forecast processes (Often these routines make use of the same communication channels and methods).

I hope lots of colleges or training establishments will pull us up on this we will gladly give space to their offering in an updated version of this blog.

For now, we are saying we would be happy to give more profile given to forecasting, it’s link to valuable budgets, to enriching commercial conversations across departments and the tools out there to make it happen.

People & Intelligence

Maybe we have encouraged above a step change in the learning environment and elevation of forecasting as a subject matter in itself.

Alongside this we must highlight that good forecasting results from the competent skillset and systems and very importantly “intelligence” bring the quality of communication links / relationships between the “forecaster” and all possible sources of numerical information or otherwise to increase the quality of information going into a forecast on a timely and accurate basis (whether weekly monthly or whatever).

So the forecaster needs spreadsheet skills we think, accounting knowledge of how intelligence gathered plans out in a financial transaction and a significant dose of emotional intellect. The ability to build and maintain relationships with non-financial managers is key to forecaster success.

Similar to our succession planning message, see Can you multitask?, we think that the ambitious accountant could pick up valuable skills and relationships during a secondment or sideways step to occupy the role which encompasses group forecasting, skills to help in interviews for more senior roles internally or elsewhere.

Again the win for the company is to rotate staff into the role to give coverage on the skillset and also wash it around the business thereby enhancing group forecasting as the secondee takes the skills back to their department, it’s win win.

This emotional intellect can take different forms, but the forecast has to forge relationships with non-financial managers such as the head of sales and head of operations/ production. We have seen this connection fostered by something as simple as sharing a cigarette break ( less healthy than a water fountain moment we know, but from nothing we evidenced a divisional FC  build a link to operations never before thought possible ).

We see most companies at some stage on the reconciliation of finance personnel’s understanding of financial control objectives (inc forecasting) and that of their non-financial counterparts. (maybe another post on its own).

The forecaster can’t deliver in isolation, we are advocates of the idea of sharing the airport-book “ finance for non-financial managers” within managers helping the forecaster approach to receive a soft landing.

Examples of what’s out there

Firstly it’s about timely, accurate and relevant information commensurate with the scale of the operation and the keep it simple adage reigns.

Many groups of significant scale continue with spreadsheet forecasting content with the flexibility within, the ease of adoption of such within non-financial managers now and appropriate controls, checks and balances. It works with minimal disruption and application

The forecasts are more often headline numbers only, income statement focused giving a view on sales, GP and net profit. Less often are they prepared with a balance sheet emphasis and cash generation. Other applications include forecasting prospecting pipelines.

Dissenting for a moment, Can a business operate without budgeting?. Well no. It will change from business to business depending on scale and complexity but no one seriously begins a journey without some anticipation of what to expect along the way and at the destination.

But the success of the process is intrinsically linked to your resident culture and the discipline of the team. Writing this after many years engaged at all levels, including managing resources 12 hours away, for now, sans AI, it’s your key leaders who drop the fairy dust into the forecasting hopper and digest the outcomes. So choosing the right leaders, those who can integrate forecasting into other control mechanisms such as department meetings, 1-2-1 reviews and really give it sufficient bandwidth.

Single Use

We see the forecast data is often dumped one week to the next as the management get comfortable with what it tells them and react to any potential “red flags” within. “Single Use”

We see less attempts to correlate this week’s forecast of week 48 of the year for example to any prior forecast for that week and how perhaps one source or data is repeatedly more accurate than another, rolling out the lessons from that analysis.

We do come across slick forecast systems updated weekly, stored in data cubes (and consolidation software like Hyperion), rich in default reports with intelligent comparison of input source accuracy, notes on variances/anomalies and feedback routines.

More simple forecasts are more commonplace, from finance department origins and we have shared a much used short term cashflow template “STCF” before. We see more trading groups deploy something similar to this on a rolling 13 week basis and consolidate the returns from divisional input up into a group position including the handling of different currencies. We are happy to guide you through how this can be set up.

Systems

The provision of systems in this area is growing as software houses recruit “forecasters” polished in the application side and wash that into their product offering. The ability to tap into SaaS (software as a service) then makes the entry point attractive even for the smaller organisations.

Businesses going through step change transactions may have benefited from engaging the corporate finance teams within their accounting relationships who bring rigour to this area and may leave tools that can be readily maintained internally post transaction. (Again mostly spreadsheets)

Where external equity providers like VC or PE are involved they will bring analysts (or sub contract forecasters) to devise any necessary  tools on forecasting to fill gaps and support their engagement/investment decision. To a degree this gets adopted but has to pass the operational empathy test outside the finance function to a become habitual.

We often see these tools rest in the finance function only and whither post the investment round due to time cost to maintain or obsolescence (perhaps the  risk area under the spotlight no longer exists)

Finally, the end of this particular journey

Forecasting is no longer overlooked by companies and professional advisors and left outside of the financial reporting systems.

The best CFOs feed the education process and build relationships and understanding amongst the non-financial managers making the environment outside of the finance function increasingly receptive to the information and time demands of a best in class reporting and forecasting system.

Talented finance personnel are rotating in and out of the forecaster role to build their profile in the group,  develop a greater understanding of  forecasting and ultimately benefit the value of the forecasting itself and its knock on value to the budgeting process, senior FP&A duties, internal and external reporting and enhance the data content in commercial conversations in the business.

The investment to integrate appropriately scaled, simply maintained and commonly understood forecasting routines adds material value to your teams knowledge of the trading activities, it augments the human interaction in all financial control areas (connecting the non-financial and finance teams) and as such the internal and external reporting leaps forward. The business as a hole moves up the scale of data richness with all the merits that holds in the business growth journey.

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