Use Rolling Forecasts and Waterfall Reporting For A More Accurate Look Your Company’s Financial Future

Even in stable environments, it can be extremely difficult to forecast the future for your business. And yet, running a business without a plan can be disastrous. At best, you may be leaving opportunities on the table. At worst, you may not see a catastrophe looming until it’s too late to change course.

Our advice is to do away with the traditional budgeting process around an annual planning cycle. The point of any exercise must be to add value in managing the business. Traditional budgeting often fails this test for several reasons:

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Waterfall reporting and rolling forecasts make for a more foreseeable financial future

  • Traditional budgets often take months to prepare and become obsolete quickly
  • Companies build too much detail into the budget, making revisions and reviews overly cumbersome
  • Traditional budgets are often based solely on last year’s numbers and don’t encourage the management team to analyze competitors or the market
  • The budgeting process tends to focus only on items like “revenue” and not on things like “customer satisfaction”, which is one of the key drivers behind revenue
  • Traditional budgeting leads to game-playing where managers try to negotiate low targets to reach maximum benefits
  • Traditional budgeting involves “forecasting to the wall”; companies create one budget for 12 months and as time passes, the wall looms ever closer. What benefit is there to have a 12-month forecast in January, but only a 3-month forecast in September? (more…)