The Importance of Business Forecasts

Business Forecasts are an essential Service and Duty to any responsible CFO. Many of my clients ask me what the purpose of business forecasting is. More traditionally, the role of CFO has been that of a historian, in that they told the business owner financial results from the past. While knowing what happened in the past can be useful for sure, what business owners really need to know is where they’re headed. A CFO should be able to tell the business owner what they think is most likely to happen in the future. Basically, tell the business owner today to bring a raincoat tomorrow because it’s going to rain, don’t tell them tomorrow that it’s raining while they stare at you drenched and disgruntled. Trust that business owners generally know where they have been. Today’s Chief Financial Officer should let the business owner know about what direction the business is going to take in the future.

 

A business forecast answers this major question: will the existing business model achieve the desired results, or not? Obviously, if the answer is not, the business model will need to be changed. A CFO should not only be able to prepare a forecast on a business’s existing business model, but also be able to prepare a forecast on a new model if the preexisting one does not work. The CFO needs to have knowledge of the industry and a sharp over all understanding of business that can only be achieved through the experience of owning a business themselves, and accurate forecasting tools at their disposal in order to do this.

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