Forecasting Excuses
Recently, I was chatting with a fellow CFO about the things required to build financial projections for a company.
This person shared a belief that's highly common among finance folks:
To do any kind of financial forecasting, you first need to build a solid financial operations foundation.
The thinking goes...
If you don't have excellent data on what's historically happened within the company,
Then how could you EVER hope to possible predict what will happy in the future?
What could you possibly base predictions based on?
How could you ever feel confidence in your forecasts?
But here's the thing:
I don't 100% agree with this way of thinking.
Why?
Because it IS important...
...But it can also be an excuse.
"How could I ever predict what will happen in my startup if I don't have any data?"
Excuse.
"I couldn't possibly provide any reports to the CEO until the accounting team closes the monthly books!"
Excuse.
"It's impossible to track my project profitability because I don't have good data on time spent per project!"
EXCUSE!
Here's the truth:
When it comes to financial data, you will nearly always deal with some degree of imperfection, unknowns, and mess.
If you're waiting for perfect financial records to make business decisions based on data,
You're never going to actually get around to doing it.
If you need to drive decisions based on imperfect or incomplete data, the answer is simple:
Use reasonable assumptions & estimates, label carefully, and update regularly.
That's how you use the data you have to get to the place you need,
Rather than wish for the data you don't have,
And get no where in the dark.
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