Financial Forecasting and its Limits

Financial planning and analysis (FP&A) can be an incredible asset to any small business. FP&A allows business owners to create a plan and a roadmap to follow into the future. However, business owners need to be conscious that forecasting is not fortune telling. FP&A needs to be deliberate and well vetting on all the competing variables. If not, buy a pack of tarot cards and hold onto your seat.

A good financial forecast keeps in mind the business environment, the realities of the industry and macroeconomic trends. In today's inflationary environment it would seem reasonable to forecast for large growth year over year in revenue. However, is it offset by year over year growth in cost of goods and payroll expense creating a reduction in year over year net margin? As a business owner being fixated on revenue growth can be a siren song leading you to disaster. Business owners need to see how the puzzle pieces fit together, see the big picture, and be ready to pivot once that picture changes.

If you need assistance on seeing the proverbial "forest through the trees", please feel free to schedule a risk-free consultation at www.wade-consulting.com.