This is part 2 of a 6-part series on predictive analytics for associations. Read the first one here.
As we roll into the new year, planning and strategy is probably something you’re already tired of thinking about. It takes time, energy, and effort to create good financial forecasts. And if you’re creating forecasts based on spreadsheets, spurious or sloppy CRM data, manual sales reports, and your intuition, you might be spending more time and energy than is really necessary.
Forecasting is an invaluable way to plan your financial future and membership growth over any given period of time. But these traditional approaches to forecasting take far too long, cost far too much, and generate far too little insight about potential outcomes.
With predictive analytics, you can have a greater understanding of your association's cash flow, develop more accurate financial forecasts, and spend less time buried in paperwork.
Predictive analytics is revolutionizing the forecasting process by using an objective, data-fueled approach based on predictive algorithms. This type of algorithmic forecasting—also known as predictive analytics forecasting or predictive forecasting—allows you to confidently drive pretty much all decision-making.
So a financial forecast is not a one-time spreadsheet that you dust off and update each year. Instead, it’s a living model of your financial situation. Predictive analytics makes ongoing forecasting possible in the short term, medium term, and long term.
How can predictive analytics help your cash flow forecast in the short term? It allows your association to evaluate upcoming expenditures and revenue to guide tactical planning and programming decisions. Such short-term decisions may include the specifics of member events and marketing adjustments.
In the medium-term, using predictive analytics enables you to take an in-depth look at expenditures and revenue at the end of the year and in one or two years from now. If it looks like there will be a shortfall, you can respond quickly with minor strategic decisions that increase funding opportunities and cut back on spending to avoid dipping into reserves. And if financial projections point to a revenue surplus, you can put more money toward member services and provide added value to your educational offerings.
Now financial modeling in the long term is a whole different animal. A long-term financial forecast gives your association advance notice so you can pivot and implement new strategies. By using predictive analytics for this long-term forecasting, you can pinpoint possible shortfalls or surpluses in three years, five years, and beyond so you can take the appropriate steps to balance your cash-flow beforehand.
If your long-term financial forecasting models predict revenue will be down, you can transition to programs that build cash flow, such as special member-funded projects, to avoid liquidating investments. And if your financial forecast indicates a revenue surplus, you could decide to hire additional employees in specific departments, hold more value-added events and educational programs, and follow through with large-scale investment initiatives.
Having a clear picture of your association’s cash flow at any point in time depends on the accuracy of your foresights. Here are some internal and external factors to keep in mind to improve the accuracy of your financial forecast.
Another key component to consider is demand data. Past financial performance is a good indicator of future financial performance. So you have to look at historic data and reports. You can then use this demand data to identify which targeting strategies, campaigns, investors, and association employees/leaders contribute the most to revenue.
Accurate financial forecasting is critical for building an enduring association. Developing a financial forecast using predictive analytics can show you exactly where your association is headed, based on past performance and other internal and external factors. From there, you can use that information to prepare for the future and continuously grow your association.
Ready to build a rock-solid financial forecast? Check out our free ebook, The Association Retention Playbook: The 5-Step DIY Membership Retention Strategy and Workbook to discover key insights into how to meet and grow your membership targets and financial position.