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CFOs Can Help Themselves by Helping Sales Improve Forecasts – CFO.com

Improving Sales Forecasting

At fast-changing, high-growth organizations, finance executives need to work with sales to derisk the business plan. This is also a way to become a more strategic business partner. – CFO.com

Many chief sales officers are notorious for making pie-in-the-sky forecasts that can lead their company to overspend. CFOs who provide sales forecasting modeling – and train the sales leader on how to use it – can save their company from financial calamities. They can also save their chief executive officer from embarrassing meetings with the board.

But high-growth, fast-changing companies, or those with long sales cycles, cannot use history as their guide: they must rely more on predictive analysis. Commission-driven salespeople tend to be overly optimistic. They add up the new prospects in the pipeline, make a gut adjustment, and pass on a nice big number to the sales director, who then sends it to the CFO.

This can be disastrous. Take the case of a $16 million engineering-services firm that, based on the vice president of sales’s projections, decided to accelerate growth, adding six salespeople and launching a new campaign. The CFO and CEO built the business plan and budget, staffing up on the delivery side. Six months later, sales were only 45% of target. The business found itself drowning in red ink and was forced to fire people en masse. What a waste – of time, effort, money, and hope. 

CFOs need to throw themselves heart and soul into a partnership with sales, becoming an active participant in the forecasting process rather than a passive recipient of sales-department projections. The key to more accurate sales forecasts is examining the drivers of sales: the set of activities you know precedes results. CFOs should brush up on their pipeline-measurement skills, identify those drivers, and measure their results. That leads to a solid platform for planning future sales activities and accounting for the revenues they will produce tomorrow.

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Source: CFO.com

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