Introduction
In the fast-paced, uncertain world of business, growth is often the end goal, but growth requires more than just an excellent product or a good marketing technique. Sustainable growth is assessed through the lens of knowing where your company is financially today and where you will be in the future and planning accordingly. This knowledge is imperative when making strategic moves based on financial data. That is where financial forecasting and a Chief Financial Officer (CFO) come into play. While many startups do not view having someone in a high-level financial leadership role as necessary, having a chief financial officer either full-time, part-time, or virtual will have a significant impact on your business. Let us discuss why forecasting matters, and how every business should have someone with a CFO role when growing.
What is Financial Forecasting?
Financial forecasting is the ability to make predictions about a company’s future financial performance by maximizing relevant historical data, current trends, and insights that come from the market in which the company operates. Financial forecasting encompasses a projection of revenues, expenses, cash flow, and profitability for future periods, whether monthly, quarterly, or annually. What financial forecasting does for business owners is provide insights into future performance and allow them to plan for growth, manage their cash flow accordingly, and make expectations based off data.
Financial forecasting is different from budgeting in that it is much more flexible. Budgeting is defined as a pre-determined limit based on expectations while forecasting works with historical data that can shift based on the variables affecting business both inside and outside the business. It adapts to real-time business conditions to provide insight into where your business is going. This proactive way of forecasting can help you identify where to adjust or change before it is too late, rather than waiting for a problem to emerge in which you must react.
The CFO’s Role in Financial Forecasting
A CFO adds expertise, strategic vision, and financial leadership into the process. They take forecasting beyond the basics and integrate it into a tool for business success. Here is how a CFO takes your forecast to the next level:
Interpreting Data into Insights
A CFO not only prepares forecasts – but they also interpret them. They focus on how historical data has performed, highlighting the trends and external market conditions that affect your business performance and future projections. They have the flexibility and financial literacy to consider risks and opportunities that are not always apparent to others in your organization. A CFO will ensure that every financial decision is based on sound judgment and real-world facts.
Linking Forecasting to Strategy
An excellent CFO prepares forecasts that are tied to your company strategy. Whether you are planning to enter new markets, launch new products, or obtain additional funding, a CFO makes explicit the links to your financial plans. This is crucial for your decision-making as it will consider the weight of aspiration against necessity.
Forecasting Cash Flow
Cash flow is the lifeline of any business. A CFO will act on your forecast to account for shortfalls and surpluses of cash to make initiative-taking decisions about expenditure, investments, and funding. In this way, forecasting helps you make initiative-taking decisions against seasonal downturns and fluctuations, avoid debt, and reduces unexpected cash flow variations that could put your operations at risk. Restoring Trust and Confidence for Investors
Investors and lenders require transparency and information to know that the business is strong and well-run. The CFO assures there will be credible and accurate forecasts created, and this will lead to trust and confidence with your stakeholders. Trust and confidence are critical if you are looking to raise funds, obtain loans, or try and bring in strategic partners.
Why You Need a CFO
Startups and growing firms to collaborate with a smaller team, and finance will be managed by the founder or a general accountant. Over time, however, a growing business will have complexities in its finances that necessitate the need for a CFO.
A CFO brings a strategic approach to the business and assures financial planning is aligned with the growth of the business. The CFO helps explain concepts you have heard in the funding world – burn rate, runway, profitability, etc., so you are able to make more informed decisions about hiring, product development, or adding to your markets. Many start-ups can benefit significantly from the services of a fractional CFO that provides executive level finance experience on a part-time or contract basis. You get all the benefits of high-level finance experience and leadership at a fraction of the cost of a full-time executive.
Technological Advances and Cloud-Based Tools
A CFO today has access to more than just excel spreadsheets, today’s CFO uses cloud-based accounting and forecasting services like QuickBooks Online, Xero, and enhanced financial planning tools to build real-time and collaborative models to run with the business. Forecasting in a spreadsheet is gone forever. Your ability to create accurate, accessible, and actionable forecasts is unbelievable. With the right tech stack, a CFO can engage with founders, investors, and team members seamlessly and regardless of their location globally.
Global Talent, Flexible Structures
Technology and remote work are helping businesses access financial expertise worldwide from an altruistic perspective. There are a multitude of freelance platforms like Upwork or Fiverr that will connect you to operational CFOs who will support you as a freelancer or contractor. Many accountants operating out of Pakistan, and the Philippines, have international accounting certifications (e.g., ACCA (UK), Chartered Accountants) and are available at world-class rates and with remarkable set of financial skills. In fact, it is easier than ever for small businesses and startups to engage with strategic financial leadership anywhere else around the world.
Uncertainty and Opportunity Preparation
In an uncertain business environment, you will need to ride the agile wave. Financial forecasts will help you plan for uncertainty such as a downturn in the market, disrupted supply chains, or changes in regulations, and they will help shape opportunities for growth. When you use a CFO, you will have a person with the knowledge and expertise to stress evaluate your forecast assumptions, conduct scenario analysis, and make decisions in the event of abrupt and rapid change. Having the capability preparedness to deal with uncertainty in a confident way, and to spot opportunities with confidence is a competitive advantage.
Final Thoughts
Financial forecasts are not just a nice-to-have tool – forecasting is how you provide directions that results in the identification of sustainable growth for your business. As a financial control tool, forecasts provide a lot of value; they are only as good as the financial expertise behind them. A CFO provides strategic thinking, financial governance, and fine-tuned insights that distinguish guesswork from future thinking decision making. Investing in financial expertise through a full-time CFO, fractional CFO, or a virtual CFO through Upwork or Fiverr is an investment in the future. Do not gamble with your financial health by working with a CFO, or virtual CFO who can help you see the value of forecasts as a means for you to grow faster, smarter, and with confidence.