Financial Modeling Best Practices Evan Wells
What would happen if you had all the time in the world to build a forecast for the next year? Enough time so that not a single thing is left out. Site traffic, conversion rates, hiring, inventory, and every item in between factored into an elaborate prediction model. Then, six months in — BAM! Your forecast is 100% precise. Number by number, line by line; everything is spot on. You would likely respond by doublechecking every formula, just to make sure there are not any errors. Because this never happens in the world of accounting. Not only is this scenario highly unlikely, but attempting to achieve this level of numerical enlightenment could actually be bad for business. You read that right. It might seem counterintuitive, but this level of precision is not the point of financial modeling, and it can even harm your forecasting capabilities. Instead, we should aim for accuracy. To do that, we need to understand the difference between precision and accuracy. 36
The Washington CPA Winter 2021
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