According to Forbes, Gross Domestic Product (GDP) grew at an annual rate of 2.1% in Q2 of 2023. In addition, the site also reports that the Atlanta GDPNow model projects a GDP of 5.4% during Q3. Based on these measurements, it appears that there is, in fact, no recession over the horizon, and it instead appears that the U.S. economy will enjoy a soft landing from the recent economic turmoil and uncertainty. 

Nevertheless, savvy controllers and CFOs are hedging their bets by redefining their budgeting and forecasting strategies in these uncertain times, and you can (and should) do the same. You’ll ensure that your organization is prepared no matter the future challenges the economy throws its way. 

With that in mind, let’s explore some practical tips that you can use to fine-tune your budgeting and forecasting strategy:

Scenario Planning: Expect the Unexpected

Despite your best efforts, the economy can throw all sorts of surprises your way, but fortunately, you can prepare for the unexpected through scenario planning. Create multiple versions of your budget and forecasts for different potential scenarios, including a best-case, worst-case, and a few cases in between. 

CFOs and controllers don’t have the luxury of assuming the best in uncertain economic conditions. Instead, they must prepare for a broad range of possibilities. Through scenario planning, you can avoid panic and successfully guide your business through a range of hurdles. 

The Importance of Flexibility

On the subject of the unexpected, rigidity is your enemy amidst uncertain economic times. Remaining steadfast during economic challenges is like sailing directly into a major storm simply because it aligns with the course you originally chartered.

When the unexpected happens, you need to be ready to pivot, and when your budget and forecasts are flexible, you can adapt, change course, and navigate any economic challenges as they emerge. 

Rolling Forecasts: Keeping it Real(-Time)

Traditional forecasts are often set in stone, but rolling forecasts are more like a forecast playlist that sees continuous updates. Instead of forecasting once a year, do it repeatedly, adjusting your predictions based on the latest trends and data.

Properly making use of rolling forecasts means you’ll have to upgrade your analytics tools. Modern artificial intelligence (AI) and machine learning (ML) technologies significantly enhance your ability to harvest, analyze, and leverage data. 

Embrace Technology

There are fantastic tools out there that can make budgeting and forecasting easier and more accurate. In addition to AI and ML, consider a unified enterprise resource planning (ERP) solution that includes integrations, accounting and finance tools, and automation capabilities. 

If your organization is already using an ERP platform, evaluate its fit and ensure that it continues to align with the needs of the business. If not, connect with your vendor and determine whether they have released any new modules that may fill the gaps in your tech stack. 

Oftentimes, you can simply add a few new modules and extend the life of your ERP solution, but if your system has reached the end of its life, it is best to consider a complete overhaul.

Zero-Based Budgeting: Start From Scratch 

In unsteady times, it’s useful to question every expense. Zero-based budgeting gives you the opportunity to reevaluate which expenses are actually necessities and where you can cut some fat from your expenditure. Though, admittedly, throwing out last year’s budget and starting from zero can be tedious, it is still a great means of improving your financial flexibility and eliminating waste. 

Cash Flow Insights: The Pulse of Your Business

When facing economic uncertainty, there are lots of different levers you can pull to protect business continuity, but cash flow is perhaps the most accessible and important of them. Your ability to produce timely, accurate cash-flow statements and to perform analysis based on those is essential for assessing the health of your organization. 

To learn about your choices for improving cash flow management, download our latest e-book, Why Accurate Cash Flow Insight Matters More in a Recession.

Learning From the Past

While the future may be unpredictable, the past is forever set, so look back at the last few years, identifying what has worked for your business while also pinpointing some shortcomings that you can improve upon going forward.

Applying the lessons you have learned from the past is a great way of preparing for what’s ahead. The last thing you want to do is face economic uncertainty with glaring weaknesses in your budgeting strategy. 

Use Budgeting and Forecasting to Maximize Your Financial Resilience 

Budgeting and forecasting remain foundational elements of financial planning, but you must reevaluate the way you forecast — and subsequently budget — for your organization. 

By applying the concepts outlined above, you can improve your organization’s financial resilience and flexibility, both of which will help you withstand whatever economic challenges lie ahead. Should the economy slip into a recession, you’ll have the agility and reserves necessary to weather the storm, and even if predictions of a soft landing are correct, your business can still shift back into growth mode with ease and go on to thrive. 

Additional Resources

Effective Budgeting Strategies for Controllers

Navigating the 2024 Budgeting Season: A Comprehensive Guide for Finance Teams (Part 1)

How to Use FP&A to Create Value