What is financial forecasting?
Financial forecasting is making financial projections to predict and estimate your organization's near-term and long-term financial performance.
Forecasting is fundamental to Finance and FP&A and is used by organizations across the globe as the basis for decision-making. FP&A typically works with the c-suite and the broader business to gather data, determine market trends and shifts, and ultimately develop forecasts.
Forecasting has traditionally been based on a combination of historical performance, current performance, current trajectory, future market predictions, competitor performance, internal performance, strategy, and execution.
FP&A then uses this information to estimate future revenues, profits, cash, expenses, and other financial metrics.
How does financial forecasting relate to the demand planning process?
Demand planning is forecasting demand for a given product or service so that it can be effectively and efficiently delivered to the market.
This enables companies to perform supply chain planning and inventory optimization to meet that future demand.
For the most part, demand planning software is similar to financial forecasting software. Both are types of planning software you can use to predict future demand, whether customer demand or shifting market trends.
So if you're looking for demand forecasting software, you're in the right place.
How are financial forecasts used in financial planning?
Internally, forecasts are critical to financial modeling, financial planning, financial budgeting, hiring and headcount (also known as workforce planning), capital expenditures, strategy creation, and overall organizational execution.
If, for example, FP&A forecasts strong profit growth, the CEO, CFO, and other executives may decide to increase budgets in different business areas to maximize that profit potential.
Or if FP&A forecasts show slower growth or lessening demand for specific products or markets, business leaders may plan to preemptively leave or reduce investments in those areas as they plan future budgets.
Externally, financial forecasts are also used by the CEO and CFO to inform external creditors and investors, develop reports and projections, and calculate broader financial metrics, such as company valuation, goals, bonuses, and more.
Banks and lenders may use forecasts to measure risk to determine lending attractiveness, funding levels, or loan interest rates.
Potential acquisition candidates, merger partners, and acquiring companies may also look at forecasts to determine the net value of a transaction or the valuation of a particular deal.
The primary goal of financial forecasting is to help the business make better plans and decisions based on future expectations. Therefore, the accuracy of financial forecasts is critical to sound decision-making, goal attainment, and financial sustainability.
Of course, it all falls on FP&A's shoulders to ensure accurate forecasts.
What are the methods of financial forecasting?
Historical and current financial performance, such as sales data, requires FP&A to gather organizational data from the past several years or quarters, depending upon the cyclicality and seasonality of a particular business or sector.
Estimates of future performance, however, vary widely by company and sector. There are several methods of financial forecasting, as follows:
Straight-line financial forecasting
An organization in a steady sector may have experienced an increase in revenues of 3% per quarter for the past several years. Therefore, barring any economic chaos, they assume similar growth.
This is termed a “straight-line forecast” and is relatively simple. With this method, FP&A assumes the organization will continue growing in a straight line.
Of course, straight-line forecasting is more complex in practice. Organizations may see new products entering their market (which changes demand forecasts), economic uncertainty, pandemics, internal decisions, headcount or executive movements, and other factors impacting their financial forecasts.
This all needs to be taken into account.
So, even when using straight-line forecasting, FP&A would do well to depend on a financial software tool or solution to assist.
Time series financial forecasting
For sectors or organizations with less predictable financial results, FP&A may choose to employ a time series method of financial forecasting. Time series forecasting is particularly helpful for industries that experience cyclical or seasonal changes, such as winter sports apparel companies or lawn mower manufacturers.
Time series forecasting may be helpful for organizations that frequently experience market, competitive, or other changes and cannot rely on years’ worth of historical data. In those cases, FP&A may choose to limit historical data usage to only recent months or quarters.
Time series financial forecasting typically requires more computing horsepower than standard straight-line forecasting. But, the method intends to accurately estimate similarly cyclical, seasonal, or fast-changing financial results in the short-term future.
When using time series financial forecasting, FP&A will benefit from the help of a modern, capable FP&A software tool.
Moving average financial forecasting
For industries or organizations that rely on historical data to develop financial forecasts, moving average financial forecasting brings more data and statistics into their financial projections.
A moving average is exactly that: it uses data from several prior periods to estimate the next period’s results. It helps eliminate or reduce the impact of anomalies, one-time changes, or other fleeting factors from affecting the future forecast since it is based on a more extended series of period averages.
Moving average financial forecasting uses straightforward averaging, but can quickly become complex as FP&A looks to forecast more granularly than just revenue or profits. Organizations with complex product lines, multiple regions, and other factors will do well to equip FP&A with a modern tool for financial forecasting.
Linear regression financial forecasting
Linear regression is a statistical method for modeling the relationship between a dependent variable, meaning the variable that is influenced, and an independent variable, being the variable that is the influencer. This method of financial forecasting shows the effect on profits, for example, based on taking an action, say adding additional sales reps.
More complex linear regression financial forecasting may consider many dependent and independent variables to determine how those factors will affect future financial performance.
FP&A can use linear regression financial forecasting to create various forecasting models based on differing assumptions to then focus on a final likely forecast. But, as the number of assumptions and variables increases, these forecasts quickly become complex.
Employing linear regression financial forecasting with spreadsheets can quickly add undue confusion, complexity, and manual effort to forecasting, leading FP&A to find a dedicated financial forecasting solution.
Read our guide to cash forecasting for SaaS companies.
How do you do financial forecasting?
Most organizations need to understand not just their internal performance, strategy, goals, and investments but also take into account market trends, competitive moves, cyclical or seasonal impacts, supply chain events, raw materials prices, and more. This all requires both data and assumptions, and it can quickly overwhelm FP&A relying on spreadsheets and manual effort.
But, FP&A is ultimately responsible for driving financial forecasting. In general, FP&A teams take the following steps to build financial forecasts:
- Work with the business to locate, collect, aggregate, understand, and analyze financial data.
- Collaborate with sales, the business, and executives to understand outside influencers and account for their impact on financial forecasts.
- Research external data and rely on third-party forecasts and analyst reports to estimate the impact of market forces and economic realities on potential future performance.
- Analyze corporate activities and past periodic performance to evaluate how different actions have impacted past financial forecast accuracy.
- Provide detailed financial forecasts and decision guidance (AKA management reporting) to the business, executives, board of directors, and others.
- Publish financial forecast reports and communicate the organization’s overall financial projections, estimations, and granular details to internal and external parties.
- Use financial forecasts to guide planning, budgeting, modeling, and scenario planning and inform the allocation of assets and investments to achieve overall corporate financial goals and business objectives.
What's the difference between financial forecasting software vs. budgeting and forecasting software?
There is no major difference between financial forecasting software vs. budgeting and forecasting software.
Budgeting and forecasting software promises to improve both your budgeting and forecasting processes. But financial forecasting software does the same thing.
Some software with more built-in budgeting programs might help you accomplish different budgeting tasks faster, like zero-based budgeting.
But by and large, the two terms are interchangeable.
The best financial forecasting software tools
Even the most straightforward business models require financial forecasting to estimate and prepare for the future.
Running out of cash would be disastrous for any business. Likewise, a lack of accurate predictions to help you prepare for an expected surge in demand could leave the entire organization scrambling to retain customers.
Better, more accurate financial forecasts are invaluable to every organization.
No matter which method of financial forecasting is employed, FP&A has traditionally used large, complex, and interconnected offline spreadsheets to develop financial forecasts. Perhaps no other business function relies more on Microsoft Excel or Google Sheets than FP&A.
Here are some of the reasons it's challenging to use spreadsheets without any centralized database backing them up:
- Spreadsheets are highly manual and prone to human error
- They can contain unknown, stale, or incorrect data
- Excel is explicitly not built for collaboration
- Spreadsheets have few compliance tools
- Version control can quickly get tricky
- Because there's no single source of truth or centralized database, spreadsheets require constant checking of numbers, formulas, cell references, and more.
To help solve these common challenges, software developers have built modern, cloud-first, highly powerful solutions to help FP&A do financial forecasts better, faster, easier, and with much more confidence.
These robust and capable solutions come from progressive, innovative, and well-financed software startups and prominent, traditional enterprise software vendors. However, each financial forecasting solution vendor takes a different approach and focuses on specific market segments.
These are the top 15 financial forecasting software providers, with crucial details on their features, benefits, targets, and more, all evaluated through an FP&A lens.
Cube is a powerful and intuitive FP&A tool and our #1 choice for FP&A software. Here's a quick overview of Cube:
- The first spreadsheet-native FP&A software that empowers teams to drive better planning and performance without changing how they work.
- Eliminates manual work and provides the real-time insights finance needs to strategize with speed and agility.
- Pairs the flexibility and familiarity of your spreadsheets with the control and power of enterprise software.
- Implements quickly. Cube gets you up and running in days, not months, which means faster time to value at a lower cost.
- Connects with any source system, browser, and sheet in moments, so you don't have to change your work style.
- Access to an award-winning customer team with deep FP&A experience.
Cube’s simple and intuitive experience makes it an excellent choice for mid-market companies that want to get started fast with scalable, enterprise-grade technology at a reasonable price.
Cube's key features include:
- Automated data consolidation
- Sharable planning templates
- Customizable dashboards and reports
- Scenario planning and analysis
- Bidirectional Excel and Google Sheets integration
- Approval workflow
- Drill-throughs and audit trails
- User-based controls
- Centralized formulas and KPI
- Spreadsheet-style interface
Cube features translate to easier financial reporting and KPI management, more accurate forecasting and budgeting, faster close and consolidation cycles, and collaborative teamwork for more control and fewer mistakes.
Cube vs. Adaptive:
Cube offers a simple and intuitive financial forecasting experience designed for mid-market companies. Workday Adaptive Planning is best for large enterprise companies looking to transform how their business fundamentally operates. Small and growing FP&A teams that lack massive budgets and substantial IT resources would be better served by Cube over Adaptive.
2. Workday Adaptive Planning
Workday Adaptive Planning, formerly called Adaptive Insights, provides enterprise solutions for planning, modeling, budgeting, and forecasting for the financial, workforce. Their tools aim to promote collaboration across the enterprise without spreadsheets or legacy solutions.
Workday Adaptive Planning for finance provides large enterprises with explicit financial planning and analytics. Their FP&A solution also adds capabilities for modeling, collaboration, analytics, financial management, board reporting, scenario planning, and financial consolidation.
Their strong capabilities outside of Finance and FP&A make Adaptive Planning a good choice for large enterprises seeking a transformational, company-wide FP&A solution.
Adaptive Planning vs. Planful:
Adaptive Planning and Planful are tailored toward larger companies and enterprises with large finance teams and bigger overall teams. Adaptive Planning is a good choice for those seeking to modernize how Finance works and goes far beyond just FP&A. Planful is an excellent choice for organizations focused on Finance capabilities and collaboration.
Anaplan helps with complex scenario planning, intelligent forecasting, and faster decision-making. Their enterprise-wide solutions connect strategy to outcomes with accountability to a single truth source.
Anaplan specifically provides FP&A solutions to connect people, data, and plans across the organization to get the right decisions. The solution includes planning, budgeting, and forecasting; specialty finance planning; operational planning, which delivers better and faster decision-making; automated cost management practices; and connected financial and operational plans.
Anaplan is great for large enterprises with strong IT teams that can lead an enterprise-scale business transformation.
Anaplan vs. Vena:
Anaplan and Vena target different segments of the market. Anaplan is great for bigger, complex organizations, while Vena is good for smaller companies looking to standardize financial forecasting around templates. Vena should be considered by organizations eager to control how FP&A works.
Planful offers a cloud-based budgeting software platform covering structured and dynamic planning, consolidation, and reporting. Planful’s platform elevates the financial conversation and helps you make better decisions more quickly, confidently, and strategically.
For FP&A, Planful offers solutions for managing cash flow, workforce reporting, financial reporting, annual operating planning, monthly close and consolidation, and multi-dimensional analysis. The company rebranded from Host Analytics in early 2020 to focus on mid-market customers.
Planful is ideal for larger companies with big FP&A teams that want to work more collaboratively with the business.
Planful vs Anaplan:
Planful and Anaplan are both tailored toward larger companies with an affinity for engaging implementation consultants and support. Planful is better for FP&A teams looking to expand their influence in decision-making and business strategy. Anaplan is better for CFOs hoping to transform FP&A.
5. Vena Solutions
Vena Solutions offers a complete planning platform designed to bring people, processes, and systems together with pre-built solutions to automate time-consuming tasks. Specific capabilities include financial planning and analysis, reporting, compliance reporting, and financial close. Vena offers “pre-configured” FP&A software for a prescriptive approach that can be customized to meet specific needs.
Vena is ideal for companies that need the rigid process and planning controls of pre-built FP&A processes, or that want to customize a pre-built solution for their unique needs.
Cube vs. Vena:
Cube enables FP&A to continue working as they like while increasing efficiency and effectiveness through simpler financial forecasting, planning, analysis, and reporting. Vena uses a structured, template-driven approach to standardize FP&A. Cube is the better choice for FP&A teams that already have existing processes yet want to be faster and more confident in their work.
Prophix sells a corporate performance management (CPM) solution designed to improve profitability and minimize risk by automating repetitive tasks. Their solutions help Finance automatically budget, plan, consolidate, and report with cloud or on-premise solution options.
Prophix is best for automating slow, manual, repeatable FP&A processes using pre-built functionality.
Prophix vs. Cube:
Prophix offloads manual work with structured automation of repetitive tasks, such as data imports and report generation. Cube is the better choice for FP&A teams who want to expand, improve, and accelerate financial forecasting along with the rest of FP&A.
Jirav is financial planning and analysis in the cloud that helps accounting and finance teams budget and forecast without the need for stale, error-prone spreadsheets. It’s designed to be completely customizable so you can track, forecast, and share the data that matters most to your business.
Jirav is designed for small businesses looking to move their financial processes off of spreadsheets and onto a simple tool with straightforward capabilities.
Datarails is analytics for the finance function. Their financial management platform was designed to empower finance professionals to easily collect, report, and analyze data. Without changing how you work, Datarails creates a unified database of all your numbers by automating data collection from your organizational systems and spreadsheets.
Datarails is best for smaller companies that already run financial processes and financial forecasts on Excel, but have trouble finding and organizing data across spreadsheets.
Centage’s Planning Maestro empowers FP&A to make faster, more informed decisions, react quickly to market changes, take calculated risks, and capitalize on new opportunities. The tool enables you to build flexible, driver-based plans, forecast likely financial performance, analyze results, and share critical information across the business.
Planning Maestro is suited for FP&A at small businesses looking to drop spreadsheets and enable more complex financial processes. Their solutions are developed for specific industries, such as Architecture, Engineering & Construction, Education, and Nonprofits.
OnPlan is financial modeling software that allows you to forecast, budget, and collaborate with your FP&A team for better visibility, greater transparency, and more effective benchmarking. You provide your existing spreadsheet models to OnPlan and they build you a customized model with informative dashboards, charts, graphs, and more.
OnPlan is for small companies looking to eliminate financial modeling errors inherent to spreadsheets by transitioning those models to a more powerful financial modeling platform.
Budgyt is an easy-to-use, intuitive platform with a clean simple interface for budgeting multiple P&Ls without needing Excel. It is a fully cloud-based, multi-department budgeting tool that delivers solutions for small-medium-sized businesses, nonprofits, or larger enterprises with complex needs like cost allocation.
Budgyt is perfect for companies seeking a solution specifically for budgeting multiple P&Ls that eliminates their need for Excel.
12. Oracle Essbase
Oracle Essbase allows organizations to rapidly generate insights from multidimensional data sets using what-if analysis and data visualization tools. It is a business analytics solution that can complement other FP&A tools with deeper analytics and modeling capabilities.
Oracle Essbase is best for extensive Oracle shops seeking an analytics and modeling solution which can be used across the business.
13. Oracle Hyperion
Oracle Hyperion Planning is a planning, budgeting, and forecasting tool that combines financial and operational processes to increase business predictability. It has capabilities for planning, budgeting, and forecasting to align financial plans, models, and forecasts across departments, cost centers, and lines of business. It is a part of Oracle’s bigger enterprise business planning solutions.
Oracle Hyperion Planning is built for large organizations looking for an enterprise-grade performance planning management solution integrated with other Oracle solutions.
14. Oracle PBCS
Oracle Enterprise Planning and Budgeting Cloud Service (PBCS) is for operational planning with
flexibility, scalability, transparency, and control. Their software solution uses built-in best corporate finance practices through a configuration framework that can be used as-is or customized for unique needs.
Oracle PCBS is suited to large enterprises that combine financial and operational planning and have existing investments in Oracle solutions.
15. Oracle NetSuite
NetSuite Planning and Budgeting is an enterprise resource management (ERP) tool offering planning and integrated accounting software to automate planning and budgeting processes and centralize financial and operational data for companies operating in specific industries.
It then lets FP&A quickly and easily create budgets, financial forecasts, what-if scenarios, and reports within one tool.
More robust demand planners might want to combine NetSuite with a dedicated financial forecasting tool on this list, like Cube.
NetSuite Planning and Budgeting is designed for large companies in specific industries that already use NetSuite solutions.
16. IBM Planning Analytics with Watson
IBM Planning Analytics with Watson streamlines and integrates financial and operational planning across the enterprise. As more than just budgeting and forecasting software, IBM Planning Analytics with Watson promises to use Watson AI (artificial intelligence) to power your financial forecasting or demand planning process.
Best for: Enterprise corporations, especially those with another IBM solution.
Conclusion: choose the best financial forecasting software
So which financial forecasting software solution and vendor is best for you? The choice comes down to how you run Finance, the size of your business, and the capabilities you need to support growth.
If you’re in FP&A at a mid-market company, and you’re looking for an easy-to-use, scalable, and robust financial forecasting tool that maintains your spreadsheet experience yet adds the power of a cloud platform, you should take a look at Cube.
The simple and intuitive experience Cube delivers makes it perfect for Finance leaders at mid-market companies who want to modernize how they work, get started quickly, and scale FP&A with their growing business.