We are well into Forecasting Season now, where 31 March year-end businesses are making their 2025-26 financial forecasts.
And, the game’s afoot.
🔹 Each business unit manager has submitted sales numbers they feel comfortable with meeting and are quietly confident they can receive the thanks later for beating the target.
🔹 It is difficult to forecast some costs and you never know how unknown factors can swing them in the future. So, you add a 10%+ contingency margin in there, so you don’t have the accounts team on your back later as you have gone over budget.
However, while it may be tempting to err on the side of caution, a realistic approach to forecasting gives you:
🔹 Improved Financial Control: Accurate projections help you maintain better financial discipline and detect potential issues and funding requirements early on.
🔹 Informed Decision-Making: About expansion, hiring, and resource allocation.
🔹 Enhanced Credibility: Amongst your management team, and external stakeholders, including investors and lenders.
While pessimism might seem prudent, research shows it can be counterproductive:
🔹 Impact on Performance: Your team and business will naturally ‘strive’ to deliver a pessimistic forecast and coast when they exceed it rather than look higher.
🔹 Missed Opportunities: You overlook growth opportunities or underinvest in your business.
🔹 Staff Motivation: You lose some energy, morale and team dynamism you otherwise would gain by setting stretched yet achievable targets.
Remember that forecasting is not just producing a nice set of numbers and graphs on a few pages. It is a financial rendering of a real operational plan for the year.
So, let’s embrace this forecasting season with confidence and stretch-realism!
How much does your internal or external accountant challenge you on your numbers?