Financial Forecasting

Budgeting and Planning

How frequently do you budget? How often do you update your financial forecast?

Budgeting and forecasting is the first financial area to address in order to find more meaningful numbers to confirm your everyday decisions.

In many businesses, budgeting is:

• Completed only once a year
• Focused on the income statement
• Driven by the CFO

Many companies often create an annual forecast during the budgeting process. After each month concludes, they record their results and track their progress against the original forecast. When the year concludes, management spends precious time and energy trying to explain variances that resulted due to circumstances changing after the budget had already been set in stone.

Year-to-date budgeting and planning, while better than not budgeting at all, has minimal value. It’s an ineffective tool to assist with current business decisions, displaying past information which sheds little light on current and future business conditions.

Trailing Twelve Months (TTM)

A more powerful method of measuring profit and loss is called Trailing Twelve Months (TTM). TTM is a moving measurement that includes the most recent twelve months of financial statements instead of an aggregate result from a given period of time (such as a month, a quarter, or a year.)

TTM is powerful because it removes the impact of seasonality. When you chart your TTM results each month, you see a moving average of past performance that clearly highlights the trends of your business performance.

Real Time Forecasting

Real time forecasting is a cultural change from traditional budgeting and forecasting. It’s driven by challenging the status quo and discarding ineffective budgeting procedures. It starts by asking the following questions:

• Who in your business is best suited to predict and influence the future?
• How often is the landscape ahead of your business changing?
• Is there a better way to measure the past?
• Is there a better way to forecast the future?

Real time forecasting modeling combines a constant view of the future with a powerful view of past performance, giving companies a better understanding of the drivers of the business. It’s a mixture of TTM with a continually updated view of the future.

For a deeper look, check out our real time forecasting model called 24 month rolling forecasting.