In financial forecasting, studying past data helps us predict what might happen in the future. This helps companies make plans, smarter decisions, and keep our competitive edge in the market.
To create better financial plans, the finance department and other teams analyze how different decisions in the company are connected. Since there’s a lot of financial data to check, several teams to talk to, and various ways to make forecasts, the process can seem a bit overwhelming.
What is Financial Forecasting?
Financial forecasting involves making predictions about how well a company will do financially in the short and long term. It’s a crucial part of finance and decision-making for businesses. To do this, financial analysts collect data, look at market trends, and make forecasts. They use past performance, current numbers, market predictions, competitor data, internal factors, strategy, and execution as the basis for their predictions. Ultimately, they use this information to estimate future income, profits, expenses, and other financial numbers.
Forecasting vs. Budgeting
Forecasting and budgeting are alike because they both focus on the future, and teams use them together. However, they have some important differences:
- Budget is a plan that outlines a company’s goals and ideal future state.
- Forecasting is a prediction of income and revenue, often used to create a practical budget.
The budget sets the company’s goals, and the forecast helps estimate future performance. The forecast is then compared to the budget to measure success.
Four significant methods for financial forecasting include:
- Straight-line projection
Straight-line projection, also known as linear forecasting, is a straightforward financial forecasting technique used to predict future values based on historical data trends. It assumes a constant and uniform rate of change over time, making it a simple but often effective method for making short-term predictions. To apply this method, you calculate the average rate of change in historical data and then extrapolate this linear trend into the future, assuming that the same rate of change will continue. While it may not capture more complex patterns in data, such as seasonality or nonlinear trends, straight-line projection provides a quick and uncomplicated way to estimate future values, making it a valuable tool in financial analysis.
- Moving average analysis
Moving average analysis is a financial forecasting technique that involves calculating the average value of a set of data points over a specific period of time, typically with the aim of identifying trends or smoothing out fluctuations in the data. This method is particularly useful for removing noise and highlighting underlying patterns in time series data, such as stock prices or sales figures. By averaging data points over a moving window of time, it provides a more stable and comprehensible representation of the data. This makes it easier to identify trends and make informed decisions about future financial outcomes.
- Basic linear regression modeling
Basic linear regression modeling is a statistical technique used in financial forecasting and data analysis to establish a relationship between two variables: a dependent variable and one or more independent variables. In the context of financial forecasting, the basic linear regression model aims to identify and quantify the linear association between the dependent variable, typically a financial metric like sales or revenue, and one independent variable.
- Multiple linear regression modeling
Multiple linear regression modeling is a statistical technique used in financial forecasting and data analysis. It extends the concept of simple linear regression by considering multiple independent variables or factors to predict a dependent variable. In the context of finance, this method allows for the examination of how various factors, such as interest rates, inflation rates, and economic indicators, collectively influence and predict a financial outcome, such as stock prices or revenue.
12 Best Financial Forecasting Software Solutions
A financial forecasting tool helps you estimate how well your business will do financially in the future. This enables you to use your money to make the business grow, make smart financial decisions, and keep enough cash on hand.
As you get better at guessing and predicting, you’ll feel more confident about making important choices.
The top forecasting software solutions have useful templates, easy-to-use interface, and historical personal and market data letting you estimate how much money you’ll make, how much you’ll profit, how much you’ll grow, and the associated risks.
Datarails empowers you to streamline, evaluate, and project revenue and expenses across your organization creating forecasts for your business. In addition, Datarails’ AI chatbot FP&A Genius, helps with forecasting as it allows you to get answers to any questions or scenarios that you, or management, might have, all from trusted and historical data.
Datarails also comes with additional financial planning and analysis (FP&A) features to facilitate realistic projections.
After aggregating and validating your forecasting data, you have the flexibility to choose between tabular data presentation or a visual dashboard for sharing insights with stakeholders. Drill down and audit control allows each finance team to understand and control every aspect of their budget and forecast.
2) Cloud Zero
CloudZero equips your teams with the resources and capabilities necessary to gain insights into your cloud expenses. Additionally, it offers reporting, reconciliation, and variance analysis through CloudZero Budgets.
Its code-centric method enables you to visualize the expenses associated with tagged, untagged, and untaggable resources. What sets it apart is its ability to monitor costs per specific customer, product, software feature, project, team, and other relevant metrics that matter to you.
Anaplan leverages real-time financial information obtained from both internal and external sources to provide extensive, multi-faceted insights for planning purposes. This platform streamlines the process of organization-wide forecasting by offering a suite of tools tailored to finance, sales, marketing, supply chain, IT, and HR departments.
Anaplan seamlessly integrates budgeting and forecasting functionalities to offer comprehensive insights into financial planning, spanning from modeling to operational planning. Any modification made within the platform has a ripple effect across all related areas, ensuring that all stakeholders are promptly informed about the latest developments in relation to budget and forecast progress.
4) Vena Solutions
Vena offers a user-friendly financial planning and analysis tool that surpasses traditional spreadsheets. This cloud-based solution empowers you to centralize all your financial data, creating a singular and reliable source for planning purposes.
In addition to budgeting and fund allocation, this solution incorporates cash flow planning and tax provisioning for your entire business. Furthermore, it provides what-if scenario analyses, and financial close management, all within an intuitive Excel-like interface.
Cube offers comprehensive financial modeling, consolidation, and validation solutions tailored for small businesses and startups. The platform places a strong emphasis on safeguarding financial data, maintaining strict access controls through file permissions, and ensuring that templates restrict data entry to designated areas.
Using Cube’s Financial Planning and Analysis (FP&A) tools, you can effortlessly gather current financial data from a range of sources, including ERPs, CRMs, and HRIS systems.
6) Oracle Essbase
In contrast to other leading forecasting tools available, Oracle’s Essbase stands out by offering financial planning and analysis capabilities designed for on-premises utilization. It boasts advanced scenario modeling, a repertoire of over 100 pre-designed calculation functions, and robust support for the multidimensional expressions (MDX) query language.
This forecasting solution is firmly rooted in the domain of enterprise financial analytics. This foundation empowers users to create intricate hierarchical relationships with multiple levels and aggregations. Furthermore, it facilitates seamless integration with diverse data sources, allowing you to swiftly convert spreadsheets into readily usable financial forecasting assets. Whether you are dealing with small or large-scale business structures, Essbase enables you to thoroughly test your models.
7) Workday Adaptive Planning
Adaptive Planning provides a diverse array of forecasting tools tailored to different types of businesses, their objectives, and financial hubs.
The platform seamlessly integrates budgeting and forecasting functions, encompassing a spectrum of techniques such as continuous forecasts and hypothetical scenario analysis, as well as top-down and bottom-up budgeting methods, including zero and incremental budgeting strategies.
Furthermore, it leverages real-time data and supports forecasting on a daily, monthly, quarterly, and long-term basis, while also facilitating the integration of all your financial planning tools to streamline projections. Additionally, Workday has a comprehensive HR function that helps for large enterprises who put a large emphasis on headcount.
If you seek a forecasting solution that provides in-depth transactional analysis, Budgyt streamlines forecasting while preserving transparency in the finer details. This tool replaces the complexity of a raw Excel-like interface with user-friendly navigation, real-time consolidation, and collaborative budgeting.
Budgyt places a significant focus on cash flow and balance sheet forecasting, allowing you to control access and track changes that integrate seamlessly into the budget. Additionally, Budgyt offers the capability to refine your activity log with various filters for verifying specific insights.
With Planful, you can effortlessly perform scenario analysis and generate cash flow and rolling forecasts, tasks that typically consume days or even weeks using alternative forecasting methods. In contrast, Planful makes these tasks a matter of just a few clicks.
Moreover, the platform extends its capabilities to cover HR, sales, marketing, and accounting, ensuring comprehensive management of financial plans throughout the entire organization from a single, reliable source.
Utilizing pre-designed templates and financial intelligence, Planful further empowers users to automatically store, classify, and present their data based on accounting attributes.
Prophix puts a focus on rolling forecasts which automatically helps with more accurate and up to date forecasts. This is achieved by seamlessly integrating real-time data, historical projections, carry-forward functionalities, and the ability to introduce assumptions at various levels. The result is the creation of precise forecasts that harness data from diverse origins.
This versatile tool consolidates actual, expected, and projected data into a unified hub. Consequently, you can promptly apply the most current assumptions and swiftly gauge market trends without the need for manual data input or cross-referencing with external sources.
Furthermore, you have the capability to update, approve, and make adjustments to forecasts using either the feature-rich Prophix web interface or the familiar Microsoft Excel interface.
11) Oracle Hyperion
This advanced forecasting solution enhances financial predictability through streamlining both operational and financial procedures. Oracle Hyperion Planning integrates planning, budgeting, and forecasting to provide comprehensive financial insights that are analytically versatile.
With this tool, you have the capability to harmonize and delve deeper into your reports to extract insights across various teams, geographical regions, business divisions, and cost centers within your extensive organization.
Furthermore, the platform is adaptable, functioning seamlessly in the Oracle Cloud, on-premises, within your local data center, or through a blend of these options.
OnPlan’s scenario analysis feature allows you to effortlessly update all scenarios in response to changes in your model. Alternatively, you have the flexibility to customize them individually to address specific ‘What if?’ questions. Similar to Budgyt, OnPlan facilitates detailed report analysis down to transactional data, providing insights into your present and future financial prospects.
Another notable aspect that positions it as a top-notch forecasting tool is its automatic generation of executive and board presentations. This feature enables you to quickly produce and present data to stakeholders, saving you valuable time and streamlining your efforts.
Financial forecasting is a critical aspect of decision-making for businesses. By analyzing past data, market trends, and various influencing factors, financial analysts make predictions about a company’s financial performance in the short and long term. This process helps organizations plan effectively, make informed decisions, and maintain a competitive edge in the market.
To support this, several forecasting techniques are employed, including straight-line projection, moving averages analysis, basic linear regression modeling, and multiple linear regression modeling.
Additionally, advanced financial software tools have become indispensable in facilitating accurate and efficient financial forecasting. This enables businesses to allocate resources wisely and navigate the complexities of the financial landscape with confidence and precision.
Our top 3 picks for financial forecasting tools in 2023: