Update your financial forecast as frequently as possible! As a business owner, you make decisions in your business every day, you need current information. Having said that, there’s a balance. You can’t spend all your resources updating forecasts.
Pro tip: if you close your books monthly, update your forecast at least monthly. If you don’t close your books at least monthly, start doing that. Now! Your forecasts should be constructed using real financial data from your financial systems and as soon as new numbers become available, should flow through into your forecasts, either using automation or with a simple copy-paste.
Do update the assumptions behind the model used to construct the forecasts, but not often. This will take a lot more time, so it makes sense to do this in time with your budget cycle – e.g. if you budget annually, then do post-analysis about the accuracy of your predictions at that time. This will inform both your budget and assumptions behind your forecasts.
“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today. ” –Evan Esar