Supercharge your business forecast with non-financial business drivers

Back of a car with lights, wheels, exhaust pipe #forecasting

If we were to visit a random sample of business’ on the high street here in Brighton, UK, and then start talking to them about their business planning, we know we’d get a similar answer. Most businesses are sadly running blind on out-of-date forecasts. If they are out-of-date then they can’t be used for decision making which means they have no value to your business.

There are some business owners, and their advisors, who will puff out their chests and tell you all about their epic ’52’ tab Excel spreadsheets with formulas of the highest order that took weeks and weeks to prepare. These spreadsheets are used quite regularly when they are first created but if said business forecast takes a lot of time and effort to update then in time… you guessed it, it won’t be.

How do we break this cycle and give your business a view far out into the horizon?

Go cloud

This is pretty simple, really. Rather than manually updating your accounting software daily, weekly, monthly or quarterly to your forecast spreadsheet, cut out the middleman (you!) and automate it. When your core financial metrics are flowing into your forecast it can be used as a decision-making tool not just for you but your entire business.

Knowing how you are performing against the targets you’ve set, different scenarios or your budget are vital for manageable and measured success.

Forecast your variables

Your future business operations will be affected by a whole range of variables, variables that are rarely set in stone. Often these will be driven by a non-financial element. Think units produced, the average cost of those units, staff levels, expected future client numbers. Your list will be endless.

Working out financial implications of changes in each of these variables is not only time consuming, but it also increases the window for error. Especially if, for instance, forecasted sales are a product of average price and production schedules but those production schedules are directly affected by staffing levels.

A better option would be to use this numeric data directly. To build a forecast that reads this and does everything automatically, behind the scenes, driving all of your reporting. This is exactly why cashflow forecasting in the cloud with Futrli will make your life so much easier.

The power of formulas

Let’s look at a simple example…

We need to upload ‘Units Produced’ and ‘Average Cost per Unit’ as non-financial data. Then using Futrli formula method we can multiply these together to get an accurate forecast of the Cost of Goods Sold. As time goes on, if the production schedule needs to change this data just needs uploading without any manual recalculations needed.
We can build on this to increase the relevance.

Let’s say that the units are sourced from the US and priced in USD. Then let’s say there has been some kind of significant event affecting the foreign exchange. We can incorporate this, adjusting the cost to incorporate the FX change.

The bigger picture: financial and non-financials working as one

These forecasts shouldn’t reference non-financial data in isolation. It’s when you combine this with your actual financial data, simultaneously, that you get the most powerful results.

Again, let’s use an example.

A company sells paint-balling days out and all sales are generated by salespeople. Due to the seasonality, it is good to base a forecast on the same period last year and adjust this for the number of salespeople relative to last year:

Here we take last year’s sales figure (£100k) and multiply it by the forecasted number of sales staff (8) divided by last years no of sales staff (5):
£100k X (8 / 5) = £160k

This can be taken further by adding a price increase to last year’s sales, let’s say a planned 5% increase in prices is expected to not affect sales:
(£100k X 105%) X (8 / 5) = £168k

There are countless ways we can use this non-financial information when forecasting. The time saved, and increased accuracy, are invaluable when planning to take your business to the next level.

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