Why agility is key to financial forecasting

In today’s business world, change is the new constant. Workers have never been more mobile or companies more hybrid.

And while changing dynamics can create incredible opportunities for business owners, they also present a significant challenge for CEOs and CFOs who base their biggest decisions on models and forecasts.

When nothing is constant, forecasts change by the week and the only thing certain is uncertainty, how can businesses plan for the future? How can business leaders engage in meaningful financial forecasting and respond to shifting trends, while capitalizing on the opportunities and avoiding the pitfalls?

That’s where agility comes in.

Effective financial forecasting requires intentional agility

While there isn’t an official definition of agility in terms of financial forecasting, it has been insightfully described like this: “Business agility means a company is always in a position to take account of market changes.”

That means the business has a system in place to recognize market changes and initiate a new direction before it’s too late. It also means the business has a culture of change, where adjustments are welcomed, and the team has the bandwidth and resources needed to manage frequent reporting and analysis.

Agility is the ability to shift directions quickly and effectively. It’s the gift of making change, sustainable. And it’s the superpower of successful CFOs.

The problem is, at many companies and small businesses, the leaders are resistant to change. They’re hesitant to leave old ideas or ways of thinking behind, even as leading indicators reveal the old way is now obsolete.

As a result, these businesses are caught on the back foot when dynamics change. What started as ignored leading indicators, becomes weeks, months, and quarters of missed opportunities, dwindling revenue, and shrinking market share.

Because while one company may be less-than-agile, there’s always another company out there operating with greater flexibility and more responsive financial forecasting.

The need for planned agility is more obvious than ever

While the need for agility — in your budgets, financial forecasting, and long-range planning — is nothing new, the pandemic served as a reminder to business owners that it’s not just a best practice, but is completely necessary for survival. At the height of the pandemic-induced volatility, the business landscape changed day-by-day.

New mandates, stay-at-home orders, changing spending patterns, and labor shortages upended every company’s long-term plan. And businesses faced the choice: Choose agility or pack up shop.

One small change, like another federal interest rate hike, a spike in energy prices, or a new bill with tightening regulations, can derail your entire financial forecast in an instant. That has always been the reality for business owners.

But the pandemic taught us how to build agility into our plan. And it awakened entrepreneurs and business owners by disrupting the slow and steady market they had enjoyed since the last national economic crisis in 2008.

All at once, companies shifted from forecasting and budgeting once a year, to carrying out these activities weekly or even daily. For the companies that successfully improved their agility, this new level of responsiveness, speed, and communication is likely what saved their business.

The pandemic revealed how agility can future-proof your business

At most small businesses, the CEO, CFO, and leadership team annual plan once a year. They build out the budget for the coming year, set yearly and quarterly goals, and make projections.

They may update their 3-5 year plan, review market data and plan upcoming capital projects. And at many companies, this annual planning session is the only time they build out these critical financial forecasts, projections and goals.

The remainder of the year is spent executing that plan and comparing the results to the original plan— which grows older by the day. These businesses, where future planning and financial forecasting only happens once a year, are missing a huge opportunity.

Even as the pandemic’s market impact has lessened, the world changes by the day. Agility, the ability and willingness to recognize and respond to changing factors efficiently, not only protects businesses from damaging trends, it enables them to capitalize on opportunities more quickly.

While agility looks different at every business, there are a few common ways to improve the responsiveness at yours

Luckily for small businesses, agility can be taught, learned, and encouraged. Here are a few ways you can help your finance team respond more quickly to market trends:

• Go digital. If your financial forecasting relies on paper reports, look for software or organization systems that allow the necessary data to be accessed online.

• Use automations when possible. In the age of machine learning and AI-everything, many tedious reporting tasks, like data entry and reporting, can be completed automatically and without human error almost instantly.

• Decrease decision-making time. Look for ways to speed up the approval process for budget and forecasting changes. Not only does this improve your business’ agility, when decisions become faster and simpler, changes become empowering for your team— instead of frustrating.

If you want to position your business for success, this year and in the years to come, look for more ways to bring agility into your financial forecasting. Not only will it help protect your company from market disruptions, but you might also just discover your new big opportunity.

Want more? Escalon provides comprehensive back-office solutions to strengthen firms in a downturn. Escalon’s services support firms with outsourced finance, accounting, human resource, risk management and compliance. Talk to an expert today.