Financial planning is the cornerstone of every manufacturer’s continued success.
One of the key elements in the planning cycle is the need for accurate forecasting — not always an easy task. In fact, there are some serious pitfalls that commonly prevent manufactures from accomplishing good forecasting and thereby realizing sound, strategic financial planning.
Here are the five most prevalent forecasting challenges manufacturers face:
1. Organizational misalignment
When it comes to planning and forecasting in manufacturing, alignment is one of the most critical components. Manufacturers must ensure their leaders not only understand the financials but also recognize how to accomplish the business’s financial goals.
Finance teams must work across departments to first assess their leaders’ understanding of the forecasting and planning process and then align goals. Do all leaders in your organization think about the financial impacts of the decisions they’re making? Does everyone have the same priorities, and are they moving in the same direction?
Create a cohesive team by getting everyone on the same forecasting page and planning path.
2. Financial forecasting inefficiencies and lack of data credibility
From incomplete information to disconnected data within the forecast, many forecasts have credibility issues. Often the forecast simply fails to tell the authentic story of where the business is headed.
Without credible data, a forecast will not be effective. It certainly won’t support those all-important leadership discussions, nor will it establish the organization’s necessary trust in the numbers. It’s also going to have little value and therefore little impact on the business.
There are a few solutions that can help manufacturers patch quality issues and get the valuable data they need to drive business decisions.
To start, finance teams should spend time implementing structured processes, checks and balances, and analytical procedures that allow them to compile the right forecasts with credible data, every time. Then, teams can create workflows and introduce structured templates to allow for easy replication and consistent data presentation across business functions. Finally, spend time to develop your finance staff into trusted business advisors; this will also drive credibility and increase your organization’s decision-making capabilities.
3. Operational data issues
In the process of reporting and analyzing, problems will arise when it’s necessary to leverage operational data for insights. The data either isn’t in a format that can be easily accessed or it isn’t easily analyzed, particularly when there’s a business issue to address.
Additionally, companies aren’t always able to report on key metrics in a timely manner, and not everyone within the organization understands what those metrics mean. The data simply does not support the performance metrics the business needs.
Real-time reporting can go a long way toward helping finance teams address operational data issues. By leveraging software with built-in dashboards and optimal visibility, teams can easily pull and analyze data and access it anywhere, any time. Advanced analytics programs also empower teams to further solidify the data they gather and deliver it to leaders who need it to make important business decisions.
4. Cumbersome financial consolidation
Every manufacturer wants to cut down the number of days to close books. The faster the time to close, the faster the lead times to make sound business decisions. When closing is delayed, executive management won’t be able to get critical information quickly enough to support their decisions. The right software tools can help simplify this complicated process.
At a minimum, Excel worksheets can be valuable in helping finance teams compile, organize and deliver financial information in a format that is easily accessible to business leaders. Teams can also take this a step further by investing in software solutions that enable you to cut days from your close process through automated, dynamic journal entries, which can pull the appropriate amounts from the correct accounts to create eliminating, controlling interest and reclass entries.
5. Difficulty with translating foreign currency
A key part of the financial statement consolidation process is foreign currency translation. Needless to say, there’s also a lot of complexity in translations, especially when multiple countries are involved, which can add several days to closing the books. It’s also very difficult to incorporate currency translations into an effective forecast process.
While this is another area in which Excel worksheets can help (particularly if they include links and checks and balances, as I described above), a more viable option would be to leverage an automated accounting platform for reporting in both local and common currencies. This type of technology also allows finance teams to store conversion rates by account and time, which means their forecasts will include conversions and cut days from the close process.
How to implement accurate forecasting methods
Financial planning and analysis helps businesses achieve their goals and grow forward with intention. By recognizing and avoiding these five forecasting pitfalls, you can help ensure your manufacturing business develops a plan that promotes clarity, informs leaders and fosters effective decision-making. Need help navigating the financial planning and analysis process or selecting and implementing forecasting tools? Contact Wipfli for assistance.
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