Financial forecasting: new issues for local authorities
Financial forecasting is becoming a major issue for local authorities and the public sector. In the last decade, public finances have never experienced such upheavals: business tax reform, transfer of responsibilities and recently, public funding reform (in French: DGF).
The objective is to establish a diagnosis of the situation and to present a financial analysis to fully understand the situation before knowing how you will manage it. Based on this analysis, it is necessary to evaluate your financial capacity according to different economic indicators: the level of aggregate savings, debt ratio, outstanding debt etc… Increased monitoring of these indicators, followed by benchmarking are necessary to be well aware of the local authorities’ position compared to others.
Diagnosis, financial analysis, scenarios, and multi-annual investment plan: tools for efficient financial forecasting management
Financial forecasting helps to develop and compare scenarios to achieve the best financing solutions for local projects. Loans and taxes are the two main sources of funding. As it relates to loans, financial forecasting allows you to consider future repayments in terms of operating budget as well as investment and therefore knowing their impact on the overall budget. Financial forecasting is a valuable tool for determining the level of outstanding debt for which the local authorities can afford the associated costs. Regarding taxation, favourable interest rates, monitoring tax exemptions as well as a consistent reduction policy are essential assets to perform financial forecasting.
In terms of investment, the implementation of a multi-annual investment program is most important for financial forecasting. A good project plan and knowledge of subsidised funding sources will determine the choice of elected representatives. The multi-annual investment program must be integrated in financial forecasting and it is in the different possible scenarios that financial departments offer the best solutions to their elected representatives.
Finally, it will be about establishing a long-term cap, since financial forecasting is performed for a minimal term of 3 years. There is no ideal duration, regular monitoring and annual updates allowing the local authorities to conduct their financial transactions smoothly.
Inviseo: solution dedicated to financial forecasting management
To predict the financial trajectory for local authorities, Finance Active offers financial forecasting management solutions and assistance, provided by expert consultants. Financial decision makers are therefore more equipped than ever to master the main balances and to establish a financial strategy in line with the mandates and programs of the elected representatives.