The whole point of reviewing the history of where a company is, and has come from, is to get an idea for where the company will be in the future. The past can’t be changed, but the future can.

You’re already ahead of much of the competition if you have a good understanding of the current financial health of your business, including which numbers and KPIs are trending favorably vs unfavorably. The great business managers use this information to build out their crystal balls of where their companies are going to be in the future, using that knowledge to make decisions.

When a business does not have a firmly instituted monthly routine of reviewing historical data and recent trends in its financial statements and KPIs, it must create one. Developing that routine and resulting reports is the first milestone. Once that process becomes firmly entrenched, the focus should then turn toward where the company is going to be in the future vs. where it has been in the past.

For starters, any forward-looking company should develop a forecast (in Excel) based on a combination of historical trends and knowledge gleaned from its business managers of what is expected to change in the next six to 18 months. The forecast should be the company’s collective “latest, greatest crystal ball” of knowledge and expectations based on available information. It should be updated monthly and presented as part of the management report and monthly financial discussion process. 

This allows the focus of those monthly discussions to change from where the company has been to where it is going.

● Before—This is how the financial health of the business has been last month, last quarter, and year-to-date.

● After—A month ago we discussed that at the end of this year, we project the financial health of the business to be here. Now, our latest crystal ball envisions the financial health of the business at year’s end to be this. Let’s discuss why our expectations changed from where they were a month ago, to include how much of that change is due to this month’s actual performance varying from our original forecasts and how much is due to changes we made to our forecasts for future months.

The purpose of forecasting is to raise visibility about where the future financial health of the business is going to be for management so they can maintain the status quo (if they are pleased with the company’s outlook) or make decisions sooner rather than later to affect any changes deemed necessary to improve the company’s position.