Why Business Advisors Need to Focus on Forecasting
Posted on 13th July 2017 in Advisory
Written by Freya Hughes
Running a business can be as gruelling as a triathlon. Business advisors need to come into it prepared and ready for exhaustion – and it’s not all about pace. Instead of training for the endurance test that is business, there are tools that exist to help you navigate the path. The most important? Forecasting. Compliance will always have its place but clients are focused on the future and, with forecasting and insights, you will have a genuine impact on their everyday operations – this is the next big shift in the industry.
A statistic from PwC states that 83% of CFOs think the cloud is the only way to be working. That’s an enormous majority and we couldn’t agree more. When you’re working effectively and freed from admin you can turn your attention what matters most – looking ahead. Business advisors need to ensure their clients are on the right path. Forecasting different outcomes about future growth or cash flow will be your secret weapon.
If it isn’t already, cloud business forecasting should be at the top of your ‘to-do’ list because it allows you to effortlessly change the conversation from past to present and future. What do clients really care about? Things they can control. The importance of forecasting is something to be upheld by business advisors, and you should be shouting from the rooftops about how crucial it really is.
Running a company is a test of a person’s endurance. There are times you’ll need to sprint, and times a jog will keep things ticking over. As long-distance runner Haile Gebrselassie, known for his capacity in marathon running famously said: “When you run the marathon, you run against the distance, not against the other runners and not against the time.” You’re in your own race as a business owner, and as a business advisor, it’s your job to steer them on the right path. Control what you’re able to and learn from what you can’t.
Get paid for your knowledge
Clients want to pay you for your knowledge and guidance, not hours wasted on administrative tasks. When you’re helping a client to look backwards, you are very limited in the relationship you can foster. Get your client talking about their future and you’ll have to stop them talking too much. Rather than asking questions blind, you could create a simple forecast in minutes which looks at the performance over the last 12 months. In FUTRLI, this takes less than a minute but so it won’t take long for you to produce a meaningful, credible starting point to guide your conversation.
If you have been working with your client for years then use this as an opportunity to get “back to basics”. Everyone likes to be given the opportunity to speak so ask them for an update: How is business going? What are they most excited about in the next 3-6 months? How are the team doing etc? You can read more in this 7-part framework curated by FUTRLI Co-Founder Amy Harris and Head of Advisory for BDO New Zealand, Adam Davy.
Xero Award Winning Firm, Illumin8 Cloud Accountants, in Australia, spend entire days with their clients to understand their mission. The firm’s Owner Andrew Van De Beek takes a very transparent approach to forecasting for clients: he shows them his actual figures in FUTRLI and explains how the forecast has allowed him to do a number of things in a given time frame. Read the case study here.
Unlock the metrics that matter
What levers can you client pull that will make a dramatic difference to your client’s bottom line? Do you know? Do they? You might be starting from scratch or you might be helping them to prioritise. Every business needs a budget and a forecast and monitoring KPIs alongside this information will give you the best window into the business’ financial health.
As you’ve probably guessed, we’re obsessed with business metrics, so if you need some inspiration check out our KPI Library and our industry-specific top KPIs. For example, your retail client is going to need to know their average profit per site. Without that information, how will they know where to focus their attention? Do they need to spend more time on one of their sites to ensure it’s improving? Does it need new managers? Get them identifying these factors so they can act on them before it’s too late.
Financial Director explain that CFOs who make good use of their non-financial data are more than 1.7 times more likely to forecast earnings within plus or minus 5%. This level of accuracy has helped businesses across the planet to get a handle on the agility of their business. In addition, they were two times more likely to be able to forecast beyond the 12-month time horizon, and 2.5 times more likely to be able to respond to market change.
Henry Irving, Head of Audit and Assurance Faculty at ICAEW said: “As important as financial statements are, business accountability is not based entirely on the balance sheet. Investors, and others also want to know about company’s corporate social responsibility, carbon emissions, diversity or ethics.”
Non-financial data is a crucial aspect of any business and it really paints a picture of prosperity when measured against an operational forecast.
Up your firm’s agility
Our partners tell us that being more agile as a business is a top priority which is getting their attention this year. The ability to be flexible and change with the ever-evolving tech sector will give you an edge over your competitors.
“Alarmingly, 77% of CFOs admit that major business decisions have been delayed due to stakeholders not having timely access to data and report significant delays with respect to tasks like reporting and ad hoc analysis.” writes Owen Gough for Smallbusiness.co.uk.
It’s not just stakeholders that need this access – your clients are the owners of these companies, so if they have no idea what’s going on, and are unable to react to change, their business’ strength will be compromised. Forecasting their figures will allow them to see when their cash peaks and troughs, meaning they’ll be able to reinvest cash at opportune times. Joining this up with ‘what-if’ scenario planning is going to put them in a position to ride the waves of business and come out unscathed.
Specialise in making the uncertain, certain
Make forecasting your unique selling point. Of the business owners that approach us direct, 97% come to us for forecasting and 80% are doing this themselves. So many firms will offer help with audit, tax and compliance but what about improving gross profit% or support controlling the cost of sales? Is the 90% of revenue for your client coming from one large customer? How sustainable is that? Budgets, forecasts, KPIs and monitored progress allow you to make a difference today – not report on something you wish you’d had a better grip on 6 weeks ago. Time passing is missed revenue or exposed risk.
As a business advisor, it’s your job to hold your clients’ hands through the hard times and the good – but you can’t do that if your client knows more about their figures than you do.