𝗕𝗲𝘁𝘄𝗲𝗲𝗻 𝗧𝘄𝗼 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀 𝗖𝗮𝗹𝗹𝘀 𝘄/ 𝗠𝗿 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿 𝗥𝗲𝗹𝗮𝘁𝗶𝗼𝗻𝘀
𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗚𝘂𝗶𝗱𝗮𝗻𝗰𝗲 𝗞𝗲𝘆 𝗖𝗼𝗻𝘀𝗶𝗱𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝘀

Financial guidance can be difficult for public companies for two reasons:

Anxiety around rules, and the art of efficiently summarizing amorphous data.

𝗧𝗵𝗲 𝗙𝘂𝗻𝗱𝗮𝗺𝗲𝗻𝘁𝗮𝗹 𝗣𝗿𝗲𝗺𝗶𝘀𝗲

Guidance represents translating operational detail (weeks and months) into summary ranges (quarters and years) to set proper expectations with investors.

Financial Guidance = Art + Science

𝗧𝗵𝗲 𝗦𝗰𝗶𝗲𝗻𝗰𝗲 𝗼𝗳 𝗚𝘂𝗶𝗱𝗮𝗻𝗰𝗲

The science revolves around simple calculation and presentation of the actual numbers.

These numerical results are comprised of:

Forecasts and scenarios,

Data that is internal to the company, not public, and

Wide ranges of outcomes and expectations.

They key is the company controls the answer.

The company determines what to disclose and what expectations to set.

The company has an advantage because all of its non-public information constantly informs what it decides to disclose and how it sets financial expectations.

𝗧𝗵𝗲 𝗔𝗿𝘁 𝗼𝗳 𝗚𝘂𝗶𝗱𝗮𝗻𝗰𝗲

The art revolves around summarizing amorphous data sets.

The art involves summarizing detailed operational data (weeks and months) and zooming out to a summary level (quarters and years).

The key is presenting the summary data using three considerations

Always use ranges,

Ensure your ranges incorporate all known outcomes, and

Be conservative!

𝗪𝗵𝗲𝗿𝗲 𝗚𝘂𝗶𝗱𝗮𝗻𝗰𝗲 𝗚𝗼𝗲𝘀 𝗪𝗿𝗼𝗻𝗴

The three most common pit falls revolve around:

Backing yourself into a corner using spot estimates,

Being too aggressive or toxically positive on expected outcomes, and

Using your budget as your public company guidance!

𝗪𝗵𝘆 𝗚𝘂𝗶𝗱𝗮𝗻𝗰𝗲 𝗜𝘀 𝗛𝗮𝗿𝗱

The art of guidance is hard because it involves summarizing several amorphous scenarios that constantly change.

Good guidance requires strategic thinking versus rote accounting rules.

The hardest part is preserving optionality, or simply ensuring your ranges

Do not back the company into an unwanted outcome, and / or

Preserve the ability to adjust without destroying value.

𝗞𝗲𝘆 𝗟𝗲𝗮𝗿𝗻𝗶𝗻𝗴𝘀

Guidance represents translating operational detail into summary ranges where the company knows all the answers given the right people, processes, and systems are in place.