Early in my early career I worked with Molson Breweries in Toronto, Canada. One of my duties as a Sales and Marketing analyst was to create a 16-week forecast of beer sales for the province of Ontario that the Toronto plant would use to plan their brewing production. Why 16 weeks? Because generally it took 3-4 weeks to produce beer, and 16 weeks gave the production team enough time to prepare for the significant seasonality of beer sales. For example, I recall that twice as much beer was sold during the hottest week in the summer compared to the first week in the cold month of January when everyone goes on a diet.
The sales forecast was used at the Toronto plant, not only as a basis for brewing the right brands, but also for packaging beer in the correct configurations, including 6-packs, 12-packs, and cases of cans and bottles, in addition to draft beer in kegs. Developing the forecast required interfacing with Sales, Marketing, and production people – and it was a fun job while it lasted. How good was the forecast? The production people generally liked the long lead time, and I can recall only a few occasions where enraged sales reps would call me when we ran out of a particular hot-selling brand.
Fast forward a few decades, and today I’m very involved in crafting financial forecasts for emerging tech firms. Every tech firm we’ve ever worked with has requested a financial forecast. Why is that? In the big picture, it’s because forecasts provide executive teams with clarity and help them plan for the future. They focus attention on key areas of a firm’s operations, whether it’s sales, marketing, support, or development. In short, forecasts help you think through the business strategy and your test assumptions.
At Laurentian, we’ve used forecasts to help our tech clients obtain more than $300 million in investments, and we typically build various scenario models of 3-5 years in length. Our forecasts include the big three financial reports in both summary and detail forms – the income statement, balance sheet and cash flow statement.
We are moving away from static spreadsheets because they are too manual and error-prone. We heard of a firm that thought they had nine months of cash, when in fact they only had three months of cash because of a simple formula error in Excel. (That error wasn’t caused by us, by the way.)
We’ve tested more than a few software tools over the years. The key for us, in addition to smart forecasting methodologies, has been the ability to forecast at the department level. We were surprised to find out that not all popular tools have the ability to forecast by department, meaning they would not have the ability to determine the CAC (cost to acquire a customer).
So, this past year, we moved our forecasting service to two software tools, Syft Analytics and Jirav. They are both FP&A planning tools that are reasonably priced and developed specifically for small and mid-sized companies. Significantly, they each give us the ability to incorporate actual historical data to produce updated forecasts on a quarterly and monthly basis. What’s more, they have an elegant dashboard with engaging visuals, which you can share with your team and investors as the single version of the truth.
Both tools are now also generating insights through AI, specifically by giving executive summaries and graphical insights. So far, we have not seen a really important need for this, since the insights are not particularly revealing, but the tools are evolving rapidly.
Few companies can grow and be profitable without careful financial planning and management. At Laurentian, our method takes a “whole business” approach to financial planning. We call this approach Financial Foresight, Business Focus. On that theme, we love to quote Peter Drucker: “The truth is, there’s no such thing as a ‘tax decision’ or a ‘marketing decision’ – there are only business decisions.” This means we like to focus on the business, and not just on the accounting. My experience working with sales, marketing and production folks helped to shape this point of view.
Has your firm reached the stage where you would like more from your accounting team than simply a review of past results? Do you and the rest of the management team need the tools to help you be more forward-thinking? If so, give us a call.