4 Tips for Forecasting Business in Uncertain Times

September 07, 2023

By: Uzma

Rectangle 726

We’re living in turbulent times, and today’s leaders will need to wrangle with slashed budgets, a difficult fundraising environment, and rising…

We’re living in turbulent times, and today’s leaders will need to wrangle with slashed budgets, a difficult fundraising environment, and rising inflation as they steer their businesses to success. With no current end in sight for today’s volatile economy, how can CFOs provide useful forecasting, be flexible within their roles, and budget effectively within their businesses?

During our recent F Suite summit, Kerri Dam, CFO at Timescale, Macrina Kgil CFO at Blockchain.com, and Kevin Gsell, Managing Director at Nasdaq Private Market discussed these issues and more during a fireside chat about the role of the CFO during uncertain times.

Below are are their 4 key takeaways:

Keep your model flexible

As a CFO, you may be extremely committed to your model, especially if you’ve invested lots of time in developing one that has lots of inputs. However, in today’s climate, you need a model that’s flexible – which means that you’ll need to constantly challenge and change the model to fit your business’ needs.

“When I think about forecasting, I think about what actually is the purpose of forecasting. It’s easy to get into the weeds about building the absolute perfect forecast with a million drivers.”

It’s vital that CFO’s schedule regular meetings with leaders to make sure they’ve got the right KPIs and buy-in from leadership. Doing so will make it easier to understand what the top priorities of the business are so that there’s flexibility in other areas of forecasting when needed.

“Doing forecasting well means finding the right north star and making sure everything leads back to the business metrics that matter in addition to liquidity and capital allocation. We’re in a challenging environment, and we don’t know if it’ll last for 12 months, 18 months, or even longer.”

At the end of the day, your model needs to be a tool that gives mostly accurate results while also being adaptable. The second it becomes too complex or too rigid, it’s no longer a valuable tool for you and your team, so always keep in mind the 3 things that will ultimately drive cash out and keep senior leadership focused on those drivers.

Collaborate with the right partners for long-term and short-term forecasting

If you don’t engage consistently with your cross-functional business partners, you’ll end up forecasting in a vacuum. But who you engage with will change based on whether you’re doing long-term or short-term forecasting, so make sure you’re collaborating and getting feedback from the right teams for each forecast.

“Your long-term forecasting is done by collaborating with your CEO and the board. With these partners, you’ll likely think through what you want your business to look like when an external party is looking at it and doing a valuation. What are the metrics they’ll be looking at, and how are we going to maximize our valuation?”

With long-term forecasting, your model won’t need to be as malleable since your long-term business goals aren’t likely to change radically in a short-term period of time.

On the other hand, you’ll likely have to change directions quickly when it comes to your short-term forecasting. To accomplish this, you’ll need to collaborate and get input from teams and stakeholders outside of leadership.

“It’s important to have transparency with levels down from the management team to build consensus and switch direction if needed in a changing environment.

The more transparent you can be with your forecasting, the faster you’ll be able to get feedback and change strategies.

Spreadsheets are fine, but don’t forget the storytelling

Google sheets and excel remain the top tools for many CFOs due to their low barriers to entry and collaboration capabilities, but you should also be telling a story when you need leadership to really digest the numbers so that you can get buy-in from stakeholders.

“Don’t forget that storytelling is important. Sometimes you’ll need to move out of the spreadsheets and create a few slides to convincingly tell your story. Once that’s communicated, you can dive into the numbers and get more granular.”

Combat uncertainty with directness and action plans

No matter how hard you try, you’ll run into situations where forecasts will be inaccurate, milestones won’t be reached, and plans will have to change. How do you communicate the bad news and move forward?

When bad news is on the horizon, it’s important to always be direct with your business partners as soon as possible and to use any inaccurate forecasting as a learning tool to help you do a better job moving forward.

This is testing heading 5.

“Be upfront when the business is not going to reach what was originally forecasted. The purpose of the budget actually is not to make the variance as small as possible, it’s about learning where there were variances and why they were there. Ask yourself, where was I right, where was I wrong, and what does that mean about how we operate the business?”

Additionally, you should build action plans and contingencies into your models to make it easier to set expectations across teams. For example, forecasting headcount can be extremely tricky, so build it into your forecast as something that can be unlocked throughout the year if the business hits certain milestones. With this expectation set, you have fewer people in leadership asking why they aren’t going to get the headcount that was originally predicted.

“Think of it as setting expectations and building choose-your-own-adventure options into your forecasting. Always have an execution plan to prepare for both the worst and most likely outcomes.”

This is test blockquote