Manufacturers need accurate financial planning to succeed and sustain their businesses. That requires accurate forecasting — which is not an easy task.
Several pitfalls commonly prevent manufacturers from accomplishing good forecasting and thereby realizing sound, strategic financial planning.
These are the five most common forecasting challenges that manufacturers face:
1. Organizational misalignment
When it comes to planning and forecasting in manufacturing, alignment is critical. Leaders need to understand the financials and how their activities affect the business’s financial goals.
Does every leader think about the financial impacts of their decisions? Does everyone have the same priorities? And are they moving in the same direction?
Finance teams must work across departments to assess their leaders’ understanding of the forecasting and planning process. Then, they need everyone to align on goals. It takes a cohesive team to build accurate forecasts and financial plans in manufacturing.
2. Forecasting inefficiencies and a lack of credible data
Many manufacturing forecasts have credibility issues, ranging from missing and incomplete information to disconnected data. Often, the forecast simply fails to tell the authentic story of where the business is headed.
Without credible data, a forecast cannot be effective. It won’t support leadership discussions, nor will it establish trust in the numbers. Make sure forecasting and financial planning exercises are worth your time. They should deliver value and create positive impacts on the business.
To start, finance teams should use structured processes, checks and balances and analytics to compile credible data, every time. Then, teams can create workflows and templates to replicate the process and present financial data consistently across business functions.
Develop your finance staff into trusted business advisors. They can drive credibility and increase your organization’s decision-making capabilities.
3. Operational data issues
Sometimes manufacturing leaders need to leverage operational data to solve a business issue. But they can’t if the data isn’t in a format they can access or analyze.
Additionally, some companies can’t report on key metrics in a timely manner. Or not everyone in the organization understands what metrics mean.
When reporting and analysis challenges exist, financial data doesn’t support the business’s planning needs.
Real-time reporting can help finance teams address these operational data issues. By leveraging software with built-in dashboards, teams can pull and analyze data, from anywhere, at any time. Advanced analytics programs empower teams to collect and validate data 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 it takes to close the books. The faster the time to close, the more time they have to make sound business decisions. When closing is delayed, management doesn’t get the critical information it needs quickly enough to support decisions.
The right software tools can simplify this complicated process.
At a minimum, Excel worksheets can help finance teams compile, organize and deliver financial information in a format that is accessible to business leaders. Teams can take this a step further by investing in software solutions that cut days from your close process through automated, dynamic journal entries. Software can automatically 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. The complex process can add several days to closing the books, especially when multiple countries are involved. Foreign currency translation is also difficult to incorporate into an effective forecasting process.
Excel worksheets can help here, too, particularly if they include links and checks and balances. A more viable option would be to use an automated accounting platform for reporting in both local and common currencies. This technology allows finance teams to store conversion rates by account and time, which means forecasts automatically include conversions. Such software can cut days from the close process.
How to implement accurate forecasting methods
Manufacturing firms need accurate financial planning and analysis to achieve their goals and grow. By recognizing and avoiding these five forecasting challenges, you can develop 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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