Financial forecasting helps organisations make informed financial business decisions about future revenue, costs and cash flow projections by analysing historical data, market trends and key assumptions. It provides a clear roadmap of possible financial outcomes that steer confident strategic decision-making. Beyond planning, real-time forecasts also identifies potential short-term issues, such as cash shortfalls or over-commitment of resources, so stakeholders can take early corrective action.
What is financial forecasting?
Financial forecasting is an essential accounting process which can predict future financial metrics. These include revenues, expenses, cash flow and profits. It is part of your organisation’s overall financial planning and analysis function.
Forecasting relies upon two key methodologies:
- Quantitative techniques: data-driven methods which rely on your business’ past performance. Time series analysis, moving averages and statistical regression models are examples of this kind of technique.
- Qualitative techniques: a focus on non-data methods such as surveys, market research and expert judgement. If you have limited historical data or there’s a significant change on the horizon, qualitative techniques are particularly helpful.
Most financial forecasting is a hybrid of the two methodologies.
The challenge of relying on spreadsheets
Research has shown that 96% of companies still use spreadsheets for finance forecasting – with 40% using them as their only tool. While spreadsheets remain the default choice for most organisations, moving to more sophisticated forecasting software offers far greater value. From CFOs seeking growth opportunities to finance and project mangers ensuring budgets and financial projections stay on track.
While spreadsheets are a familiar tool in the workplace, they come with several limitations that can impact accuracy, efficiency, and collaboration in financial forecasting:
- Spreadsheets are prone to manual errors. A single incorrect / broken formula or data entry can distort data predictions
- Multiple people collaborating across one spreadsheet. Centralised data leads to inconsistency. Understanding which version of any forecast is the most reliable can be tricky with multiple iterations.
- Spreadsheets are slow and sluggish when handling large amounts of data. They cannot handle the complex data sets needed for real-time analysis effectively.
- Scenario planning. Excel often relies on static data extracts rather than real-time integration with accounting systems, reducing accuracy and insight quality.
The Business Research Company found that the global market for financial services software, which covers forecasting tools, is projected to reach $225.08 billion by 2028, showing a compound annual growth rate of 9.8%. This growth shows how specialist technology is a priority for businesses managing their financial future.
Financial planning and analysis remain a key concern for decision-makers.
PwC reports that 58% of CFOs dedicate their time to financial planning and analysis, positioning it among their highest focus areas, alongside technology investment and performance management.
Benefits of financial forecasting software
Investing in financial forecasting software removes many of the challenges that come with using simple spreadsheets for your company’s financial planning. There are many clear advantages to specialist software, including:
Centralised financial data
Modern software makes it easy for departments to collaborate, as it brings all your critical information into one secure, central platform. Integrating data from multiple platforms, such as your accounting software, Customer Relationship Management (CRM) tools, and other operational systems, it creates one single data source, eliminating silo working and providing true collaboration across team departments.
Accurate projections
The right tools maintain consistent assumptions across different models and departments and integrate and validate data from operational systems by automatically including key financial data such as VAT, payables, receivables, and other variables that often get overlooked in manual spreadsheets. Financial forecasting software standardising calculations and applies the same assumptions across every model, delivering forecasts that are precise and dependable for informed decision making with confidence.
Real-time insights and agility
Purpose-built software and AI-driven analytics are designed to respond to market condition changes. Using ‘what-if’ scenarios, forecasts can be updated within minutes, allowing for agile decision-making.
Simplified reporting
Intuitive dashboards and automated reporting remove the hard work out of financial analysis. Instantly view performance summaries at a glance, such as up-to-date balance sheets and cash flow statements. Then customise your reports, and share insights with stakeholders, providing full transparency across your organisation and departments.
Financial forecasting is not a crystal ball
Unfortunately, there is no tool that can truly predict the future. Through the adoption of modern practices and investing in forecasting software, your organisation can enjoy a much clearer idea of where its finances are and where they are headed. Moving from manual spreadsheets to automated software allows you to make better decisions and be proactive as a business.
If you would like more information on financial forecasting software or a product demonstration call the team on 0203 758 3808.
