The state of the economy has a considerable influence on the finances of businesses. Economic growth, oil prices, exchange rates and interest rates are all critical to planning and forecasting. Finance executives should keep a close watch on economic trends, and make sure your planning processes are adaptable to changing business conditions, so you can change course as needed.
Will The Economy Will Continue to Improve?
I don’t want to make any economic predictions here, since conditions can change quickly. But recent reports on the US and global economy show conflicting signs. Economic growth in the US was soft in Q1, but labor markets continue to strengthen. Oil prices have rebounded from recent lows, but may be stabilizing. And while interest rates remain low, the Federal Reserve is still planning to increase rates in 2016. And the jury is out on whether the UK will recede from the European Union.
Conditions can change quickly and will vary by industry and geography, so keep a close watch on your own sector, and expectations for the broader economy as the year unfolds, and plan accordingly.
Use Rolling Forecasts to Stay Ahead of the Curve
The global economy is prone to fluctuation and unforeseen economic trends can largely skew the finances of a business. When businesses rely on annual budgets, even minor changes in economic activity can have a major impact on the departmental allocation of funds. A rolling forecast will help your organization stay ahead of economic fluctuations in the coming year. You’ll be able to rapidly respond to any economic or industry trends, thus reducing the financial risk of your company.
Rolling forecasts allow a business to update their budget allocations regularly, so you are accounting for all current trends. This not only gives you the advantage of leveraging positive financial trends, but it also minimizes risk by allowing you to downscale funding anytime the economy or your specific industry takes a hit.
There are a lot of predictions regarding the economy of 2016, but given the fluctuating nature of the economy, you should never rely too heavily on prior assumptions. With an annual budget, you’re confining your business to a set budget that may no longer be valid, and could already be obsolete.
A rolling forecast will provide your business with the agility it needs to rapidly alter plans and resource allocations, based on changes in your company, industry, or the global economy. With cloud-based enterprise performance management solutions, you’ll access a variety of tools that can simplify budgeting and forecasting, while giving you the accuracy and agility your business needs.
To learn more, read this free white paper “Best Practices in Rolling Forecasts.” And best of luck to you in your planning and forecasting for the remainder of 2016!