8 Steps to Master Financial Planning and Forecasting (Plus Budgeting Tips)

Effective Financial Planning and Forecasting are critical for organizations looking to drive strategic growth and stay ahead of market shifts. In this article, we’ll explore 8 key steps to streamline your Planning, Budgeting, and Forecasting process.

There are many intricacies involved in learning about  budgeting and forecasting.The tips we’ll share aim to simplify a rather complex topic and offer insight into the most important aspects of financial planning, forecasting, and budgeting. 

Following the 8 steps below are in line with the best practices for planning, forecasting, and budgeting. The intent is to use these steps to improve the overall management of financial planning processes as a means of enhancing total business operations.

Step 1: Define Your Financial Planning and Forecasting Strategy

Budgeting and forecasting can do a lot to direct business activities, but only if the original data is accurate.

Planners will want to include all relevant payables and receivables. They’ll want to note various financial positions and provide for project costs.

In other words, the inputs are critical. To be effective, the budget and all other forms of financial planning must  be based on a solid foundation of hard numbers and data. It’s not enough to ballpark numbers or lead from intuition.

How professionals go about acquirig this data is integral to improving the overall workings of financial planning. One of the best ways to make sure you have the right data for your needs and that the data is accurate is to use enterprise planning software with.budgeting, forecasting, reporting & analytics.

Step 2. Facilitate Business Driver-Based Planning

This aspect of financial planning has to do with considering measurable metrics and setting goals. In these cases, the goals themselves help  direct the planning and the outcomes. Planners can look at a goal like establishing a certain level of brand visibility for a product, and then they can assess the amount of money it takes to reach that goal. 

People refer to driver-based planning as a modern approach or model useful for business. At its core, this involves identifying what drives business success and using those elements to guide  your financial planning activity.

Also involved are various metrics that play integral roles in driver-based planning as it relates to using budget and forecasting software. People sometimes refer to these as key business and value drivers, several of which often include: 

• The size or growth of a customer base
• Market share
• Sales price and volume

Planners may also look at other customer metrics like the cost of an average customer acquisition, as well as customer lifetime value as part of their analysis for key business and value drivers. Once they have a better understanding of these metrics, executives then reorganize the information to make the numbers fit the objectives.

Step 3. Proactively Evaluate Past Performance

This is where predictive analysis comes into play.

The simplest way to explain this concept in layman’s terms is to say that knowledge breeds power. Businesses that analyze their own historical data are better able to  forecast for the future. 

For effective planning, forecasting and budgeting, planners have to have core data in hand. For example, businesses can really value these types of items in planning:

• Past sales numbers in prior quarters
• Specific product successes
• Measurable department growth

Experts may also use linear regression and other techniques, as well as averages, to project future performance based on past data.

Step 4. Brainstorm Data Access Techniques

Making  data more presentable and digestible sounds simple, but some of the latest approaches involve using advanced technology as powerful drivers of business intelligence. Many of these, including real-time reporting tools and self-serve SQL platforms  can help businesses  develop a particularly competitive edge. Tool with a data visualization component help business users to see both opportunities and obstacles that may impact profit. 

For example, take semantic layer communication. Using semantic layers can help with the process of getting core data into useful reports.

Experts explain the semantic layer as ‘sitting between a database layer and a report solution.’ In a way, it’s similar to how compilers and programming script engines sit between machine code language on a computer, and the end result that the human user gets from an operating system.

Another way to explain semantic layer modeling is that it improves access. Without a semantic layer, the alternative is that the average business user has two choices. He or she can put in a ticket for an engineer to retrieve information, or they can ‘become a self-service engineer’ by going it alone, trying to drag data out of the database without a great knowledge of SQL or other protocols. With the right assistance, however, these processes are more accessible. The semantic layer provides key translation that helps with data accessibility processes.

Then there’s the general principle of online analytical processing  or OLAP: using techniques like cube queries, professionals use OLAP to, again, redefine access to data.

Other resources that may also help include:

• Self-service platforms
• Automated report formatting
• AI or ML insight drivers
• Supply chain planning software

Step 5. Factor In Non-Financial Costs in Planning, Forecasting and Budgeting

In using these new technologies for data access, there are some things to keep in mind. One is whether the system is intuitive enough for less technically minded employees to use. Another is whether the business has the time and resources to train employees on a given system.

Many professionals are accustomed to using financial data for budgets and forecasting, but what about non-financial data?

Although the boundary can be fairly ambiguous, non-financial data wil typically include  external information about things that may not hve a direct impact monetarily, at least not in the immediate sense. At the same time, these considerations in budgeting process steps can impact the business’s bottom line. Here are some examples:

• Average time required for onboarding new hires 

This is where turnover can cost a business a lot of money. It’s a mistake to ignore these employee metrics when you’re making a budget or forecast. Factor in how employee retention provides the company with more solid financial results

• Cost of customer support 

It can also be helpful to try to measure the cost of customer support tickets. This is especially important in a service business where a major part of labor costs might be involving settling customer concerns. There are also the element of company efficiency metrics, which will be discussed later

• Overall employee productivity level 

Experts have known for a while now that employees typically have discretionary productivity in their hands. That’s part of what’s done away with the old hierarchical model of management and built a new system where managers listen to employees. In examining productivity, you’ll need to understand what motivates people. This goes much more into the sphere of people skills than it does accounting. But it can still be incredibly useful in budget and forecast planning.

• Customer Retention and Conversion Rates 

It always  pays to assess at the value of a customer. Think about the customer lifetime value as an expression of how much profit is driven by a single customer account when someone is loyal to the company with return business.

• Company efficiency metrics

Efficiency metrics have to do with how well business processes are completed. Again, this is one of the ‘soft revenues’ in an accounting system, but it can provide for some form of input.

Step 6. Regularly Revisit Budget Results Through Iterative Group Discussions

Throughout all of this, collaboration is key .

Those who are experienced with this kind of planning stress the importance of frequent and thorough commuication through different discussion vectors. This is where a  combination of top-down planning and bottom-up planning becomes relevant. With this approach, management sets the goals and objectives after having listened to the feedback from those directly in the field.

Equally important is getting  input from key players  across various business sectors and departments.

There is a kind of crowdsourcing element to this type of planning that can also greatly benefit business. It’s important to make the time investment, regardless of how difficult it may seem. 

Step 7. Consider Shortening Budget Cycles

Budget cycles are essential for financial planning, but how they are built can help determine results.

Actually, the best processes don’t have to do with necessarily shortening a budget cycle, but by re-engineering the budget cycle to make it work better for the business’s needs.

One way to do this is by avoiding a continual budget rush based on arbitrary deadlines. If an annual system isn’t working out well, try something else. Don’t be afraid to build in flexibility in order to make processes easier and more efficient.

In general, it’s important to avoid excessive back-and-forth and additional labor in budget planning. That means refraining from the urge to  fix what isn’t  not broken, and facilitating constructive interdepartmental collaboration.  This is where financial planners can take a ‘devops’ approach – (where this new software development term references key interdepartmental work) – and practice better financial diplomacy across the organization.

Step 8. Keep Budgets Flexible By Considering “What-If” Scenarios

All businesses fear the unknown, which isn’t a bad thing. In fact, this is the basis behind the popularity of “ risk mitigation” as a major  buzzword in business today.

We all know that there will be unanticipated impacts on business. The key is to make the planning, forecasting and budgeting versatile enough to accommodate these unknown changes as they occur.

Construction companies do this using change orders. Financial planning experts can do this with various tools like Kepion’s corporate performance software that offer comprehensive coverage of much that decision-makers do in financial planning. 

Quick Summary: 8 Steps to Financial Planning and Forecasting

• Step 1: Start with Clean, Reliable Data for Financial Planning
• Step 2: Use Driver-Based Models to Improve Forecast Accuracy
• Step 3: Review Historical Performance to Inform Forecasts
• Step 4: Make Data Easily Accessible Across Planning Teams
• Step 5: Include Non-Financial Factors in Your Planning Process
• Step 6: Implement Rolling Forecasts for Flexibility
• Step 7: Align Financial Planning with Operational Strategies
• Step 8: Use Technology to Streamline Forecasting and Budgeting