Financial Forecasting for Non-Financial Managers

Financial Forecasts Every Business Should Know 💼 Accurate financial forecasting is essential for successful business planning. Here are crucial financial forecasts to ensure your company stays on track: Sales 📈 Review historical data and contracts, use market research, and consider economic trends. Key Drivers: Annual growth, seasonality, economic conditions. COGS & Gross Profit 💵 Analyze purchase prices, supplier contracts, and gross profit margins. Key Drivers: Raw material costs, economies of scale, supplier discounts. Headcount 👥 Align workforce planning with business objectives and HR input. Key Drivers: Business growth, turnover rates, recruitment time. Salaries 💸 Compare salary-to-cost ratios and industry benchmarks. Key Drivers: Inflation, company earnings, regulatory changes. Variable Expenses 📊 Analyze data trends and review vendor contracts for cost-saving opportunities. Key Drivers: Sales volume, cost variability, efficiency improvements. Fixed Expenses 🏢 Monitor recurring costs and analyze historical spending patterns. Key Drivers: Inflation, supply price changes, operational growth. Capital Expenditures (CAPEX) 💼 Discuss new investments and validate depreciation rates with the CEO/CFO. Key Drivers: Capital budget, asset replacements, sales plan. Net Working Capital (NWC) 💡 Focus on improving cash flow by optimizing payment terms and production cycles. Key Drivers: Payment terms, production cycle, margin improvement. Debt & Interest 📉 Align debt planning with company objectives and assess loan schedules. Key Drivers: Loan covenants, new loan plans, variable interest rates. Master these key financial forecasts to optimize decision-making, improve profitability, and drive growth. By Nada Nasri, MBA, CMA®

Cash is the single most important resource in every startup. And yet... Most don’t understand how to build a proper cash forecast. 𝗛𝗶𝗻𝘁: It’s not as simple as forecasting your revenue, COGS, and OPEX. All that will get you is a forecasted income statement. Which of course, is a good start, but if you want a more accurate cash forecast, you need to take the next step. Ultimately, you need to build a 3 statement forecast. After your income statement, you need to focus on the balance sheet. This is the part that trips up most non-finance founders, but it’s not as scary as it sounds. Focus on key balance sheet accounts: 𝗔𝗰𝗰𝗼𝘂𝗻𝘁𝘀 𝗥𝗲𝗰𝗲𝗶𝘃𝗮𝗯𝗹𝗲 - Make a formulaic assumption for how accounts receivable will change each month. Start by looking at your forecasted revenue for each month. How much of that do you anticipate you’ll collect from customers in the month of sale? How much in month 2, month 3, and so on. 𝗔𝗰𝗰𝗼𝘂𝗻𝘁𝘀 𝗣𝗮𝘆𝗮𝗯𝗹𝗲 - Make a formulaic assumption for how accounts payable will change each month. Start by looking at your forecasted expenses for each month. How much of those expenses will actually get paid out during the month they’re incurred? How much will go on a credit card? How much will you be able to put on net terms and pay out 30, 60, 90 days later? 𝗖𝗔𝗣𝗘𝗫 - Make a formulaic assumption for how much you’ll need to invest in fixed assets like computers, machinery, equipment, etc. This is oversimplified, as you’ll want to forecast other components of the balance sheet (inventory, prepaid assets, accrued liabilities, etc.), but you get the point. After the balance sheet, the statement of cash flows is a breeze. You simply start with your forecasted net income and then bridge that number to a change in cash using your forecasted balance sheet. 𝗤𝘂𝗶𝗰𝗸 𝘁𝗶𝗽: If you’re forecasting an increase in an asset account on the balance sheet (i.e. accounts receivable, inventory, prepaid assets, etc.), then deduct that increase from your net income (and vice versa). For example, if your forecasted net income in September is $100k and your forecasted accounts receivable shows September’s balance going from $0 to $100k (a $100k increase in an asset account), then you would deduct that $100k increase from the $100k net income to arrive at a change in cash of $0. Why? Because, while you may have net income of $100k, all $100k of that went into accounts receivable and wasn’t collected that month (all else being equal). At the end, you get a more accurate forecast of cash. Your income statement only tells you part of the story. The balance sheet helps complete the picture. That’s a lot to digest. As always, don’t hesitate to reach out if you’re a founder or business owner and need help forecasting cash.

Ever built a P&L model that looked great on paper… until someone asked, “But what actually drives these numbers?” One of the biggest mistakes in FP&A is building models around outputs instead of drivers. You might forecast revenue at $10M next year, but if no one knows how you got there, the conversation stalls. That’s where the simple Rate × Volume approach comes in. Think about it like this: Revenue = price × quantity. Opex = cost per unit × units. Salaries = average comp × headcount. Once you model this way, you give business leaders something concrete to challenge. Instead of saying, “I don’t buy your $10M number,” they’ll say, “Do we really think volume can grow 12%?” That’s a much more productive discussion. Driver-based models help you: Stress-test assumptions — volumes down, rates up, what happens? Shift conversations — from numbers to actions. Build credibility — your model ties back to real-world levers. If you had to explain your forecast to a non-finance colleague, could you point directly to the business levers? Or would it sound like “finance magic”? I share FP&A techniques that make your models easier to explain, trust, and act on. Follow me if you want more practical finance tips you can actually use at work.

Forecasting in FP&A team, follow these steps: 1. Understand the purpose: Clarify the forecasting objective, such as informing budgeting, strategic planning, or identifying areas for improvement. 2. Gather historical data: Collect relevant financial and operational data, including trends, seasonality, and anomalies. 3. Identify key drivers: Determine the most significant factors influencing the forecast, such as revenue growth, expense ratios, or external market trends. 4. Select a forecasting method: Choose an appropriate technique, such as: - Top-down (e.g., using high-level trends) - Bottom-up (e.g., aggregating individual components) - Hybrid (combining multiple approaches) 5. Develop assumptions: Create informed assumptions about future market conditions, customer behavior, and internal performance. 6. Build the forecast model: Construct a comprehensive model incorporating historical data, drivers, and assumptions. 7. Perform sensitivity analysis: Test the forecast's robustness by analyzing how changes in assumptions impact the outcome. 8. Refine and iterate: Continuously refine the forecast based on new information, feedback, and changing circumstances. 9. Communicate and present: Effectively present the forecast to stakeholders, highlighting key insights, risks, and opportunities. 10. Monitor and update: Regularly review and update the forecast to ensure accuracy and relevance. Additionally, consider the following best practices: - Collaborate with cross-functional teams to ensure comprehensive insights - Leverage data visualization tools to facilitate understanding - Document assumptions and methodologies for transparency - Establish a regular forecasting cadence to maintain accuracy

The other day, I hit 10,000 followers on LinkedIn. So, figured it's a good opportunity to share some hard-earned FP&A lessons I've learned over the years. Here’s what I wish I knew earlier about building rock-solid forecasts: 1. Your financial forecasts should drive action A forecast is first and foremost about influencing decisions. I’ve seen FP&A teams get too caught up in the weeds and lose sight of what matters. The ultimate test of a forecast, beyond accuracy, is whether it drives action. Is it helping leadership decide where to double down? Is it guiding strategic business decisions? Focus on creating forecasts that drive the business forward and matter to decision-makers. 2. Assumptions break, shift to continuous planning If the past few years have taught us anything, it’s that the only certainty is change. Forecasts aren’t about being right - they’re about being ready. The old-school static annual plan isn’t sufficient anymore. Continuous planning is the way forward. Use it to constantly update your models and be ready for what’s next. 3. Speed wins, use AI agents The faster your FP&A team responds to changes in the business, the more valuable it becomes. And that’s why a modern FP&A platform with AI agents is such a game changer. For example, Firmbase AI agents work 24/7, analyzing models, suggesting actions, and detecting data anomalies in real-time. This allows FP&A teams to plan, analyze, and report much faster than ever before. Your competitors are likely already leveraging automation and AI - so should you. 4. Trust is everything If business leaders feel like your forecast is a black box, they won’t trust it. If you can’t explain your model to a non-finance stakeholder in 5 minutes, it’s too complicated. To build trust, focus on clarity. Use plain language and share key assumptions in a way that others can challenge and improve them. 5. Executives want insights, not the models Too many FP&A teams get stuck presenting data instead of insights. Execs care about three things: What’s happening, why it’s happening, and what they need to do about it. Don’t make them sift through a sea of text and graphs. Build a compelling story, focus on your narratives and add a clean one-page summary with main takeaways. 6. Planning is a team sport This is foundational. I’ve seen far too many FP&A teams work on forecasts in isolation, expecting the business to adopt them. But, if business leaders didn’t have a hand in shaping the assumptions, they’ll either distrust your forecast or ignore it entirely. Make sure to bring in department heads early - not just when you need their budget input, but to collaborate on assumptions and validate business drivers. —— Forecasting is tricky. So, put in the work. Follow best practices. Challenge your core model assumptions. And build forecasts that leadership can trust.

✨Need some liquid courage while pouring over your budget? ✨ It’s Hard to Predict—But Is It Really? Every year around this time, we work with clients to forecast the next 12 months. Their biggest hesitation? They feel it’s pointless to try and predict the future. It’s challenging for them to think about what’s possible because it doesn’t feel real or tangible. It can seem like the numbers are random—but there are ways to make an educated guess about the future. Here are some of the steps my CFO leads and I take to help clients move through the uncertainty: 1️⃣ Financial Statements We look at the past year or two of financial performance by month. We review the income statement, balance sheet, and cash flows over the past 12–24 months. This gives us a starting point to see if there’s any seasonality, any trends, and an idea of general operating costs. It gives us a chance to look at past revenue sources—what products or services sold the best—and to spot customer patterns, including any former customers who haven’t purchased in a while or new potential customer segments. 2️⃣ Collaborate with the CPA We speak to the CPA to check for any upcoming changes in tax laws that may impact financials. We talk about any potential changes in the industry or economic environment that might affect the company’s future revenue. 3️⃣ Evaluate Staffing and Major Purchases We review the current employee list, their salaries, and benefits to determine if there are any hiring needs. Then, we discuss any new major purchases that need to happen, whether in technology, software, professional development, or conferences. And all of this revolves around the CEO’s higher-level goals for the company for at least the next 3 years. These are just a few of the ways we help make the future feel more tangible for our clients. Do you have similar hesitations when it comes to financial forecasting? If so, come to my next CFO Hours on 11/20—sign up at the link in the comments! #SmallBusinessFinance #ProfitabilityTips #ScalingYourBusiness #FinancialPlanning

From My University Classroom to Your Office! Recently a friend and former colleague suggested I share what I'm doing in the classroom each week and relate it to your office. I'm currently teaching two graduate financial planning and analysis classes and one graduate advanced financial accounting (M&A accounting) class at the University of Colorado - Boulder. Prior, I have nearly 15 years experience in senior leadership roles applying what I am now teaching. We are learning about forecasting financial statements this week. Here are some key takeaways that we'll be discussing: 1. Don't prepare a forecast alone - this is not a solo project. Every number on that forecast should be vetted with all who are impacted by the forecast. Seeking input will ensure the most accurate forecast. 2. Accuracy of assumptions determines accuracy of the forecast. Understand how your numbers correlate. For example, cost of goods sold can be forecasted as a percentage of sales. However, interest expense can not be forecasted as a percentage of sales. 3. Forecasts take time and require several iterations but if you start from the most realistic place, there will be fewer iterations. You might feel pressured to show unrealistic results. Challenge that pressure. Applying these tips while I was forecasting allowed my forecasts to be more accurate and reliable. The process of forecasting: 1. Income statement a. Sales is the starting point. Make sure your sales forecasts are realistically ambitious. Use modelling techniques to help you determine this sales estimate. b. Then, apply your revenue recognition principles to take your sales estimate to a forecasted revenue amount to be shown on the income statement. 2. Balance sheet a. The revenue forecast on income statement will determine the balance sheet resources and financing needed. b. Forecast the following balance sheet accounts: i. working capital accounts required ii. capex required iii. financing required (short- and long-term liabilities and debt as well as equity) 3. Statement of cash flows a. Create your operating activities forecast first based on the income statement net income and adjust for expected non-cash items and working capital changes. b. Create your investing activities section next making sure to consider any increase in capex required to support the forecast. c. Create your financing section last. Include any changes in financing activities needed to support the forecasted income statement and balance sheet. A forecast can make or break your financial planning. How do you ensure the accuracy of your forecasts? #accountingandaccountants #accounting #finance #forecasting #leadership #financialacumen