Forecasting is an underutilized, but incredibly impactful service accountants can offer clients. Over the years, I've developed a structured process to implement forecasting for my clients, ranging from scenario planning to backlog and pipeline reviews. Let's break it down.
Why forecasting matters
There are three key reasons to add forecasting to your service offerings:
- You can charge more for your value: Forecasting allows you to deliver higher-value advisory services. Forecasting is a scalable offering that positions you as a strategic partner, and yes, you should charge for that value. Just make sure your clients want it. A simple conversation can help you determine their needs upfront.
- Help clients see the future: Most business owners aren't fixated on what happened last month; they want answers to questions that help them with more-immediate needs: "When can I afford to hire?" or "Can I buy new equipment?" Forecasting helps answer these forward-looking questions.
- Forecasting is scalable: CFO-level advisory services are challenging to scale. Forecasting, on the other hand, is a scalable, repeatable process. Start with simple templates and build from there.
How to start forecasting: Scenario planning as a first step
I recommend starting with scenario planning. It's an easy, low-investment way to test the waters. For example, I once worked with a subcontractor who constantly borrowed on their line of credit. The client gained clarity by me showing them how increasing their margins by 5% would stabilize cash flow.
Another client wanted to add a $5,000/month contractor, but didn't have the sales to justify it. We used scenario planning to analyze labor efficiency. As a result, the client realized they needed to increase monthly sales by $15,000 before hiring. This type of analysis often leads to additional work, such as exploring pricing strategies or even introducing them to a fractional CMO.
For a deeper dive into scenario planning, check out this issue of my CAS Cache blog, “How to Start Accounting Forecasting in Your Firm.”
Methods for forecasting
You can dive into actual forecasting once you are ready to move beyond scenario planning.
I want to start conversing about the forecast with my clients as soon as possible, so I will start by doing 3- to 6-month averages. If I need to pick up seasonal activity, I will do 12-month averages.
Next, I will start filling in the forecasts with actuals:
- Employee wages, including overhead and benefits.
- Recurring revenue.
- Fixed expenses, such as rent and software.
I will stop here with some clients. For a deeper dive into how I forecast in my accounting firm, check out “How to Forecast in my Accounting Firm.”
Integrating backlog and pipeline reviews
One of the most effective ways to enhance forecasting is by incorporating backlog and pipeline reviews.
- Backlog reviews: A backlog review involves analyzing existing projects or recurring revenue commitments. In monthly or quarterly reviews, we update a simple spreadsheet with new deals, remove lost clients, and check for missed invoices. It's amazing how much-missed income gets uncovered during these reviews, giving clients a clearer picture of their cash flow and peace of mind.
- Pipeline reviews: Pipeline reviews focus on tracking potential revenue from sales activity. For clients with a sales team, this is a great accountability tool. I help them track key metrics, including proposals issued, the total value of proposals, and the likelihood of closing each deal. The result? Owners can hold their sales teams accountable without feeling like the bad guy because they let the data do the talking.
These processes improve forecasting accuracy, and foster better communication and accountability within the client's business. Check out my CAS Cache blog for a deeper dive into backlog and pipeline review.
Final thoughts
Forecasting is one of the most scalable, impactful advisory services you can offer. Start simple with scenario planning and evolve into more sophisticated methods as your team and clients grow comfortable. Don't forget to integrate backlog and pipeline reviews they make for more accurate forecasts and fewer sleepless nights for your clients.
Remember, forecasting isn't about predicting the future with precision. It's about empowering your clients to make smarter decisions today for a more profitable tomorrow.
