A new survey shows the top concerns over the next two years for the Finance departments. Do they sound right to you?
Improvements to business planning and forecasting are the two biggies, according to a KPMG survey of 358 senior finance executives. About 72% of those polled said they expect financial planning and analysis to be the biggest area Finance will look to improve, while about 60% said management-reporting systems and business-planning and forecasting tools were the biggest priorities.
Xena Ugrinsky, a partner in the enterprise performance and analytics group at KPMG, said in an interview with CFO Journal that companies are feeling pressure to get a better grip on cash flow forecasting due to the fact that investors are putting more pressure on them to use the cash they have been saving up during the recession.
“Companies are now looking at not just being able to quickly report out to [Wall] Street, but to accurately provide guidance to the Street,” Ugrinsky said.
Better cash flow forecasting
Whether or not you’ve got investors breathing down your neck, it can never hurt to refine your methods for cash flow forecasting. We’ve got some principles that you’ll want to make sure you stick to:
Keep department heads accountable
It’s absolutely vital that every head of your department or location is thinking big picture. Simply reporting the numbers when they’re due is not going to lead to accurate forecasting for the Finance department as a whole. So, sit down with your managers and go over their revenue numbers and compare them with last cycle’s forecast. A real wake-up call can come when they actually realize what their real break-even point is.
Consider (or reconsider) how you allocate
Sometimes the way you’re allocating can prove to be a hang up for accurate forecasting. Take, for example, a construction company with multiple branches that’s using an outdated system to allocate costs based on labor hours, while equipment costs fall under one account. It would make more sense to not focus so much on labor costs and instead allocate equipment costs related to how much equipment a branch manager had on site. The point is to take a step back now and then to see if changing allocation methods could help you get a better picture of the company’s finances.
Review allocations every six months
A good rule of thumb to follow in order to make sure everything is accurate. Especially if there are multiple locations reporting revenue. This will give a proper understanding of which location is using the most resources, etc.
Do you have any steadfast rules for cash forecasting? Let us know in the comments below.
