Unless you know a bona fide psychic, no one can claim to really know what the future holds. The pandemic is proof of that. But in business, it’s important to know what the future might be, hopefully as accurately as possible, and to have a plan to move your practice and clients toward those future results. And one of the most popular approaches to achieving this is using data analysis and forecasting techniques to model possible outcomes given present and past financial and operating data.
While there are some very sophisticated techniques out there that you may be able to apply to your clients’ businesses — as well as to your own practice — the truth is that both accountants and business owners have been doing forecasting forever. Going back to ancient times, people have had to figure out the best use of their resources, such as grain, to optimize their current as well as their future needs. And when you make a five-year business plan, or even just next year’s budget, you’re performing forecasting.
What’s different these days is that there are now stochastic techniques to perform these tasks more effectively and, hopefully, more accurately. Many of these techniques come to us through the operations research discipline that evolved from the logistical planning needed during wartime. And chances are you were exposed to such techniques as multiple regression at some point in pursuing your accounting degree.
But in some practices, there’s been a degree of hesitation in adopting one of the excellent software applications targeted at this need. As with many applications, building and using an Excel spreadsheet model is still a popular approach. And some practices are hesitant to adopt and apply an analytical application that uses techniques they may not have been exposed to — essentially a “black box.” But in today’s world, many of the apps and software solutions in use employ techniques that you may not be able to detail step by step, but that produce results that are probably a quantum level above those that could be achieved a decade ago. And that’s a very good and profitable development.
Blake Oliver, a CPA and marketing director at Jirav, noted, “Demand is high for advisory services, and services that fall into the FP&A category lead the pack. Business modeling (a.k.a. forecasting) and budgeting are first and second, respectively, in a June 2020 survey by CPA.com.”
“FP&A software helps accounting practices automate client reporting so they have time to add the forecasting and budgeting services their clients need and want. Existing clients are willing to pay more for these services, so it is a win-win for firms and their clients,” he continued. “Firms may be offering some of these services already, but often it is ad hoc on an hourly basis, and is not a large proportion of firm billings. That’s because forecasting and budgeting is traditionally done in spreadsheets, which takes a high level of experience and skill, and leads to a lack of standardization. FP&A software standardizes the process of providing these services, which saves time, enables more junior staff to do the work, and allows firms to offer these services at a more appealing fixed monthly fee to more clients.”
And Val Steed, a CPA and director of accountants at Zoho, pointed out, “Adopting an analytic software can help increase firms’ revenue and practice range because you can easily connect all your financial data into this application to slice and dice data and derive insights quickly.”
“For example, companies often think they know who the best customers are by looking at gross revenue, but when they also include analytical information such as time spent by sales team, write-offs, returns and support calls, they might learn a different story,” he explained. “However, trying to tie these types of data fields together with traditional accounting tools is impossible. Using a dedicated analytical tool will provide insights that allow companies to understand what they should focus on and where they can improve their numbers, leading to growing revenue.”
“Finding an application with pre-built financial reports and dashboards can help give businesses a quick bird’s-eye view of all their financial metrics like profit and loss, cash flow, budget versus spending, revenue forecast, purchases, inventory, etc.,” he added.
And for many practices, adopting a dedicated software application to provide deep dives into firm and client goals is a profitable direction.
“Many financial advisory and consulting firms have historically focused strictly on general ledger and ERP systems as the backbone of financial management and reporting within an organization. However, these days, the landscape is changing,” said Bill Guilmart, senior director of CFO solution marketing at Workday. “Organizations are taking a more holistic view of how they both plan and execute operations, and are looking for integrated platforms to help them accomplish these tasks.”
Still, some familiarity with the internal processes taking place in the current crop of analysis and data mining software can give you (and in turn, your clients) more confidence in the results. “Practically speaking, it is the monthly intersection of budgeting (often led by FP&A professionals) and accounting where accounting practices should focus,” Guilmart continued. “The more accountants understand about the higher-level assumptions that drive a plan, budget and forecast, the better prepared they will be to perform the monthly budget to actual or forecast to actual analysis and drill into data that brings the most business insights to the leadership team.”
And changing with the times is crucial for your practice to grow and flourish. Andrew Paton-Smith, founder and CEO of Jazoodle, noted, “We believe that one of the problems with expanding and scaling advisory services is that of being able to scale and industrialize your client number crunching, and having confidence in those outputs. Fast client setup and presentation of key indicators is critical to being able to scale. There also needs to be alerts and immediate insights into which of your clients need help the most urgently. This allows a practice to quickly focus on those high-priority clients. We believe that software does not replace the need for skilled and highly valuable business advice, but should complement it by taking away some of the grunt work from analyzing relative business numbers.”
Getting to know you
Knowing that adding or expanding your analysis and forecasting practice can expand your CAS practice is all well and good. But to do this, you and your staff must first master the operation of the software, and know which techniques are applicable to which situations. Today’s applications are much easier to use than those available in the past, but many of the features might not be particularly intuitive. Where do you go for help in understanding where and how to apply a solution?
Kevin Cumley, senior director of the Sage Intacct Accountants Program, offered this advice: “There is a tremendous amount of content available from a variety of places, including the internet, but it’s important to work with a trusted source like the AICPA to ensure that the information is accurate and provides the right knowledge for accountants to make good decisions for their firm and clients. This includes selecting the right technology platform, how to become trained on product functionality, information on how to correctly market the solution to clients, and best practices on delivering high-value, successful engagements.”
Jason Lin, CFO of Centage, has another viewpoint. “Hands-on experience with the software is the best way to gain the needed understanding,” he said. “Take advantage of the free trials that many solutions offer, and put the application to the test with real-life case studies. Don’t forget to leverage your network. Reach out to colleagues and peers for their best practices.”
And Zoho’s Steed feels that artificial intelligence is one answer to simplifying the use of complex software: “With AI software, accountants can do analysis themselves, with no need for an IT expert. With the software, accountants can build powerful reports like profit and loss, balance sheets, and business forecasts. These reports help them dive deeper in analysis for their clients in real-time, devise actionable plans, and enable them to stay on top of their business.”
Always willing to help
The pandemic accelerated the need for accurate and timely forecasting and analysis. As Centage’s Lin described it, “The pandemic forced many organizations to create multiple forecast scenarios in a short period of time, and continually update these projections as time passed and more data became available. Using forecasting software that is integrated with the rest of the systems in your organization’s infrastructure is really the only way to ensure accuracy.”
“A very specific example from the pandemic showcased the need for accurate forecasting: the government PPP loan and all the considerations around the forgiveness guidelines,” he continued. “Answering the questions of furlough of employees, employee leave benefits, and how these will affect payroll expense in the next six months as compared to the previous six months are just a few areas where forecasting and analysis software can help,” he pointed out.
And Sage Intacct’s Cumley reported, “The pandemic created many new challenges for CAS teams, especially related to predicting the future, which put a premium on already-strained resources, including hours available to work. One firm recently shared that Sage Intacct Budgeting and Planning substantially eased the burden on their group during this time by eliminating the need to worry about version-control issues or broken formulas in spreadsheets, and not spending hours in report preparation and distribution, which significantly reduced their overall workload. In the past, sharing budgets with people meant a lot of spreadsheets that became very time-consuming and hard to manage. They were able to eliminate that effort with Sage, which opened new time for them to adopt rolling forecasts and utilize robust scenario analysis capabilities with valuable insights critically needed during these uncertain times. In another instance, they reported an 85% reduction in time for the budgeting and planning process.”
And Jirav’s Oliver detailed another instance of how the software helped during the pandemic: “One of our partners used Jirav’s forecasting capabilities to do what they called ‘skyfall’ scenario planning and cash flow projections during the pandemic. This would have been impractical to do in spreadsheets because it would take so much time. But with FP&A software, they were able to quickly clone plans and change assumptions to see the change in cash flow. They were also able to help clients put together Economic Impact Disaster Loan applications, which take two years of financial projections. This would have been very difficult in spreadsheets.”
Back to school?
While many practices have been offering forecasting and analysis services for years, for many, these services are ancillary to their core compliance services, rather than part of the growing importance of CAS offerings. But the sophisticated methods that many of the available software solutions offer today employ methodology that many practitioners either learned peripherally, or weren’t exposed to at all in their formal education.
“Understanding the forecasting methodology is important for the software to be optimized,” Centage’s Lin noted. “From a corporate forecasting perspective, finance and accounting teams generally already possess a strong fundamental understanding of forecasting concepts. The struggle has been applying this knowledge to an adequate tool — Excel and spreadsheet-based tools simply don’t have the accuracy or flexibility.”
Not all of our respondents felt it was quite that simple. Workday’s Guilmart said, “Whether you are an accounting firm implementing planning software for your clients or part of a corporate finance and accounting team, the more training you do, the better. Like buying a new car, you should read the owner’s manual! At Workday we have a certification process that takes two weeks of full-time training to complete before we allow partners to implement Workday Adaptive Planning. But that just scratches the surface of the tool’s capabilities, so we also expect a fair amount of on-the-job training to round out a full understanding of the tool’s capabilities.”
Implementing or expanding an area of practice is no trivial task. Nor is it inexpensive. But analysis and forecasting is not only a profitable addition to your practice, it allows you to offer real value to your clients, and can impress current and new clients with your practice’s knowledge, expertise and capability. And that’s a very good data point for your firm’s revenue forecast.
