What’s stopping accountants from making accurate forecasts?

Forecasting has never been more vital, but many accountants cannot produce the reports their businesses need.

During a major economic downturn coupled with high inflation, rising costs and general uncertainty – forecasting isn’t just important: it’s essential.

A significant proportion of accountants lack adequate tools to produce accurate and effective forecasts for clients, research has shown.

A study of over 500 accountancy professionals* revealed that many accountants struggle to offer accurate and robust forecasts for clients because they don’t have the right tools due to budget, outdated systems or technology issues. In particular, 54% said they struggle to access data quickly enough, 33% reported technology issues, 12% reported a lack of funding for tools needed, 11% said they had outdated tools, and 10% said they do not trust the tools they do have.  

We spoke to several accountants to find out what they need – and use – to ensure effective and accurate forecasts:

The common thread is data – and accountants aren’t always in a position to supply complete, accurate and timely data that would allow for better forecasting. 

So how can accountants bring forecasting tools and systems – including data – up to speed, for them and their clients?

Accurate client data is our number one priority

Stuart Crook, Partner, Wellers

Although we have the tools to forecast effectively, there is often a lack of desire from clients to utilise them to their full potential. Also, because forecasts are based on assumptions that can change in the real world, the expectations sometimes do not always match the outcomes.

In my view, forecasting is vital. It assists in making decisions where finance is critical and timing is uncertain. By considering the assumptions and weighing up your efforts, forecasting can provide an accurate estimation of what will happen in the future.

Our number one priority is receiving client data in an easily accessible format. Pertinent data that’s quickly useable allows us to understand how the incomes are generated and what costs are being incurred by the business, so assumptions can be included.

There is the old adage, ‘garbage in, garbage out’, which certainly rings true here. If the data isn’t sophisticated enough or the information is incomplete, then the forecasts will not be a fair representation.

However, it’s not just the tools and the data that will impact forecasting but the person/s using it. Training staff to use these tools and their ability to flex the results is also crucial. 

Verdict: Easily accessible client data is our number one priority when it comes to effective forecasting.

Data is a must – but businesses also need brave, decisive people

Becky Shields, Partner, Moore Kingston Smith

Data is a huge part of forecasting. Many large organisations have already cracked the ability to extract underlying data as they have the budget and resources. At the smaller end, start-ups have already built their entire IT infrastructure in a cloud environment, so typically there will be APIs to extract data.

It’s actually the mid-tier, medium size businesses with long-established legacy systems that have the biggest hurdle in terms of extracting information and accurate forecasting.

Forecasting is critical at any time but particularly now in this economic climate. Unlike previous recessions where you can pinpoint a single contributing factor, there have been several which have led to where we are now: Brexit, Covid-19, the war in Ukraine, resourcing issues and so on.  It’s, therefore, hard to run a business without having a complex business model which accurately assesses contributing factors and helps businesses to plan accordingly.

To improve forecasting accuracy, businesses need an organised set of databases, a robust security infrastructure and the finance/data science skills necessary to build the model. But you also need to have the right people reviewing the forecast and who have the authority and the bravery to act quickly on what the model is telling you. If it’s telling you the business needs to raise finance, there’s often quite a narrow window to act before concerns are raised about the business’s ability to repay debts. So modelling can help prevent the worst from happening and equally highlight opportunities, too.

Verdict: It’s essential to have the right people with the right skill sets who have the authority and bravery to act fast on what modelling is telling businesses.

Forecasting tools should combine real-time data with visual reports and unique KPIs

Neil Parsons, Managing Director, Wolters Kluwer Tax & Accounting UK

Advisors are well aware of the increasing importance of forecasting, especially during these types of unforeseen economic uncertainty. In fact, our research has found that 25% of accountants are relying on forecasting to drive business growth.

Forecasting helps to add clarity to what the future could look like for practices, which is integral to business resilience and longevity. The more efficiently and clearly that accountancy practices can display key insights, the better-informed clients will be. Forecasts can produce business intelligence, which can boost practice service offerings and also help practices set themselves apart from the competition. Good forecasting can be critical in helping to generate revenue streams, to facilitate conversations based on business performance and KPIs.

A combination of cloud-based reporting with real-time data, as well as visual reports with graphs and dashboards, is what practices should be striving for. Forecasting should be quick, simple, and easily customised with a client’s unique KPIs. Ideally, advisors want to produce highly visual reports where they can actively drill down into transaction details to show their clients potential future scenarios.

Verdict: The best forecasting tools should be a combination of cloud-based and real-time data with visual reports, customised with client’s unique KPIs.

Real-time forecasting is crucial during the economic downturn

Joanne Thorne, Technical Compliance Manager, Caroola Group

It’s surprising that one in three accountants don’t have access to accurate forecasting tools. Despite HMRC’s clear intention to move towards digital reporting for both companies and individual taxes, this may be caused by their reluctance to adopt new technology that would make forecasting readily available.

In times of economic downturn, forecasting tools are crucial, especially those which provide real-time information and valuable business insights.

Traditionally, forecasting would have been done manually on spreadsheets. However, this would require experience and expertise to use correct formulas and would include data that can be corrupted.

These days, however, accounting software can be easy to use and supply information in various formats at the touch of a button. However, software can be costly in terms of initial costs or subscriptions and staff training, which may put some companies off.

Overall, this would be a shame, as forecasting is an area where accountants can add value to their clients and employers and help them to foresee issues in advance and minimise their negative impact.

Verdict: Forecasting tools which utilise RTI will provide valuable business insights, crucial during an economic downturn.

*The study was carried out by finance software provider XLedger.

Annie Makoff is a freelance journalist and editor.