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How can you develop a financial forecast as an executive manager?

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As an executive manager, you need to have a clear and realistic financial forecast for your business. A financial forecast is a projection of your future income, expenses, cash flow, and profitability based on historical data, market trends, and strategic goals. It helps you plan your budget, allocate resources, identify risks, and evaluate opportunities. In this article, you will learn how to develop a financial forecast as an executive manager in six steps.

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1 Gather relevant data

The first step is to gather all the relevant data that will inform your financial forecast. This includes your historical financial statements, such as income statement, balance sheet, and cash flow statement, as well as your current and projected sales, costs, and revenue. You should also collect data on your industry, competitors, customers, and external factors that may affect your business, such as economic conditions, regulations, and technology trends. You can use various sources, such as market research reports, surveys, interviews, and online tools, to obtain this data.

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Shiv Gupta

Chief Financial Officer I Strategic Business Partner I IPO Readiness I Go to Market Strategy I International Finance Operations I CA, CPA (USA) & IIM Ahmedabad Alumnus | CXO Incubator 2024
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Some of the critical factors in developing a financial forecast are historical trends, market and industry trends, key assumptions and sales forecast. Build your financial forecast model considering these inputs and try to make it dynamic and revisit and adjust it to reflect changes in business environment and key inputs.

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Joe Medlin
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Except for brand new businesses without history, work closely with the sales professionals within the company. They can provide the info used to build a sales funnel ($ amount, margin, timing and probability of close). Added to this look at the historical core business - how much is recurring revenue? Finally, do market assessment on one-off or disruptive opportunities that will be in play.

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2 Set your assumptions

The next step is to set your assumptions based on the data you have collected. Assumptions are the key drivers and variables that influence your financial forecast, such as growth rate, market share, price, margin, inflation, and exchange rate. You should make your assumptions as realistic and accurate as possible, based on historical trends, industry benchmarks, and expert opinions. You should also document your assumptions and explain how they are derived and justified.

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3 Build your model

The third step is to build your model using a spreadsheet or a software program. A model is a mathematical representation of your financial forecast that shows the relationships and calculations between your assumptions and your financial statements. You should structure your model in a logical and transparent way, using clear labels, formulas, and references. You should also use different scenarios, such as best case, worst case, and base case, to test the sensitivity and robustness of your model.

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4 Review and refine

The fourth step is to review and refine your model and your forecast. You should check your model for errors, inconsistencies, and outliers, and make sure it aligns with your strategic goals and expectations. You should also compare your forecast with your actual performance and industry standards, and adjust your assumptions and model accordingly. You should review and refine your forecast regularly, as new data and information become available.

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5 Communicate and present

The fifth step is to communicate and present your forecast to your stakeholders, such as your board, investors, lenders, and employees. You should prepare a clear and concise report that summarizes your forecast, highlights the key findings and insights, and explains the assumptions and scenarios behind it. You should also use charts, graphs, and tables to visualize your forecast and make it easy to understand. You should tailor your presentation to your audience and their needs, and anticipate and answer their questions.

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6 Monitor and update

The final step is to monitor and update your forecast as your business evolves. You should track your actual performance against your forecast and analyze the variances and reasons for them. You should also update your forecast with the latest data and information, and incorporate any changes in your strategy, market, or environment. You should monitor and update your forecast on a regular basis, such as monthly, quarterly, or annually, depending on your business cycle and needs.

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Randall DuBois

Senior Leader ◆ Business Strategy | Operations | Turnaround Leadership | Product Management | General Management ◆ Strategic business unit leader driving results with a people-centric approach
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The first financial forecast you make will be inaccurate. Like learning any new skill, over time, it can become extremely precise if you put in the work to continuously analyze the variance and discuss the rationale between your forecast and actual data. As you closely monitor and update the data, you will also learn key historical trends which will help future forecasts be more accurate.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Hendrith Vanlon Smith Jr, MBA

Investor | Board Member | Corporate Advisor
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When making forward looking statements, there is wisdom in taking an all things considered approach, factoring in numerous variables, possibilities and nuances while keeping on a single narrative.

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Dr. Aidan Goddard FCMA CGMA

International C Suite, GM, CFO, COO, Company Director
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Forecasting is that that difficult - one only has to understand the respective life cycles of products and markets. Start by collecting data on the quantity sale of products and analysis trends to assess where those products may be in their life cycle journey. Still in growth or maybe already entering maturity or perhaps entering decline? Once this can be assessed with reasonable confidence - future likely trends can be extrapolated. The better one understands a business- the more accurate assumptions about life cycle positions one can deduce.

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Ali Reza Sajedinia

Global PMO Lead & Strategic Service Provisioning Architect @ New Era Technology | Workflow Optimization, Problem Solving
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As a PMO leader, I collaborate closely with account executives to analyze the sales pipeline and project the probability of winning new business. Simultaneously, I engage with project and program managers to forecast project revenues and expenses throughout the year. This dual approach gives me a comprehensive view of incoming and outgoing financial flows. It enables me to maintain consistent gross profit margins on projects and provide accurate insights into the financial health of the PMO function for leadership decision-making. This practice is essential for developing effective financial forecasts in an executive management role.

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How can you develop a financial forecast as an executive manager?

1

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3

4

5

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7

1 Gather relevant data

2 Set your assumptions

3 Build your model

4 Review and refine

5 Communicate and present

6 Monitor and update

7 Here’s what else to consider

Executive Management

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How can you develop a financial forecast as an executive manager?

1

2

3

4

5

6

7

1 Gather relevant data

2 Set your assumptions

3 Build your model

4 Review and refine

5 Communicate and present

6 Monitor and update

7 Here’s what else to consider

Executive Management

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