financial forecasting strategies for economic uncertainty.

As we navigate the financial forecasting season, CFOs are met with a landscape that is tumultuous due to myriad factors such as: recession fears, talent scarcity, rising interest rates, changes in consumer and business spending, supply chain disruption, geopolitical influences, new regulations and technological disruptions.

Increasingly, we’re hearing from CFOs and business leaders who are sounding the alarm — and for good reason. The revenue forecast is the backbone of an organization’s strategy. So what does good financial forecasting look like during an uncertain economy? Simply put, it looks like being able to accurately predict the future of company finances, including revenue, profitability and budget.

Of course, this is easy to say and more difficult to execute. So let's address a few common challenges businesses are grappling with, and consider best practices for overcoming them.

navigating economic uncertainties

In any economic climate, forecasting revenue is a high-stakes undertaking. Uncertainties such as the pandemic, inflation and social unrest make the task more daunting . CFOs are also contending with revised standards from regulatory bodies such as the Financial Accounting Standards Board.

So how can CFOs stay the course? First, we recommend gathering insights from different sources for a holistic view of the situation. These may include:

• internal financial teams
• historical data
• ERP systems
• automation tools
• government agencies
• economists, external financial experts and strategists

Data on inflation, unemployment rates, GDP, consumption, industrial production, retail sales, worker productivity and consumer confidence can also help organizations gauge the state of the economy.

Next, develop a strategic — yet agile — approach to company financial planning. A successful tactic can be to shift from traditional monthly and quarterly forecasts to weekly or daily reviews. Consider implementing rolling forecasts, scenario modeling and other flexible approaches to budgeting. Reconfiguring processes and leveraging data-driven insights enables organizations to stay resilient. That said, organizations also need to have the right people in place.

enhancing data accuracy and analysis

Good data is the bedrock of accuracy in forecasting; inaccurate data will render a forecast useless.

The most common cause of inaccurate data is human error. Another challenge is connecting data points across the organization to extract meaningful insights. Data silos lead to unreliable information and, ultimately, inaccurate forecasts.

We’ve found the most successful solution is embracing automation tools. CFOs are increasingly leveraging cloud-based software and directly engaging with teams that impact data analysis.

Historical data is essential for forecasting. But pre-pandemic data can deliver a skewed perspective. Scenario modeling is a useful tool in this case for exploring different hypothetical possibilities. Understanding the factors that contribute to a company's growth will help determine how to allocate resources. Be careful to not overlook KPIs such as employee turnover and productivity, client conversions and retention.

Taking a reflective and analytical approach is crucial. To add value to the business, the finance team must be able to translate data into decisions. A noticeable shift in the past three years is the increasing demand for CFOs with a high degree of technical proficiency who can collaborate across the organization and especially with the CTO.

improving talent management

Budget constraints mean more companies are hesitant in hiring interim talent. Yet short-term decisions — like having unqualified staff execute a key project — can have substantial long-term costs. A proactive approach is key.

It’s also vital that hiring managers understand business goals and market trends. When a hiring manager is uncertain about recruitment, augmentation or forecasting, it affects results. That said, we don’t expect our clients to always know their exact needs. Quite the opposite. When working with our hiring managers, we emphasize that it's OK not to have all the answers. We listen intently, identify pain points and tailor our solutions accordingly.

Involving a strategic partner from the start of the forecasting process helps to mitigate short-term risk while increasing long-term rewards. While unqualified project talent can result in having to rehire or use internal staff when they can’t deliver — potentially leading to burnout and lower workforce retention rates.

overcoming labor market upheaval

The current labor market challenges are impacting financial forecasting in two significant ways. First, the national finance talent shortage, coupled with inflation, has led to a major migration into consultancy roles. Demand for successful forecasting consultants is high, so organizations that want to retain their finance employees or attract qualified talent must adjust salaries to meet inflation, provide robust benefits packages, and/or consider hybrid or remote work arrangements.

Second, low workforce retention rates can lead to inaccurate forecasts. Organizations often overlook HR data that can impact financial forecasting, so we recommend CFOs involve HR in the process. Here are some key areas to explore:

• talent retention rates
• employee performance metrics
• benefits offerings
• national or global labor market trends
• talent pipelines and emerging pools
• scenario workforce planning exercises

A proactive approach entails integrating a strategic partner on the front end of the project. When Tatum is involved, we sit down with our clients and look at projects together to determine the needs. We advise factoring in a real-time budget for talent to ensure organizations achieve the results they're planning for. Putting the best-qualified talent in place from day one is ultimately a more cost-effective approach. It’s also worth noting our retention rates are among the best in the industry.

anticipating disruptive tech

There are few industries that haven’t felt the effects of the advancements in AI and machine learning. Of course, innovative technologies will impact market trends and consumer behavior, making revenue forecasting more challenging. And with the increasing reliance on digital platforms, cybersecurity is an urgent concern.

Organizations must also continuously adapt to evolving regulations related to technology use, data protection and privacy, which can influence business strategies and revenue projections. Here are a few recommendations:

• Cultivate a flexible model that will enable the organization to pivot strategies.
• Encourage a culture of continuous learning and development that will empower your workforce to use new technologies effectively.
• Develop partnerships with tech experts to gain access to innovative solutions and insights.
• Make innovation a core component of your long-term organizational strategy. Budget for continuous investment in research and development.
• Develop a robust risk management framework that considers technological disruptions. Budget for increased cybersecurity costs, legal and ethical expertise.

strategic partnerships: a CFO’s compass for tricky terrain

Now, more than ever, CFOs are scanning the horizon for strategic partnerships to solve business challenges. When clients come to us for forecasting consultancy during those crucial early stages, we’re able to do what we do best — listen, identify fundamental needs and devise a people-focused approach.

Reach out to Tatum today to find out how we can partner with your organization.