𝗖𝗮𝗽𝗶𝘁𝗮𝗹 𝗠𝗮𝗿𝗸𝗲𝘁𝘀 / 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿 𝗥𝗲𝗹𝗮𝘁𝗶𝗼𝗻𝘀 𝗶𝗻 𝗧𝘄𝗼 𝗠𝗶𝗻𝘂𝘁𝗲𝘀 𝗼𝗿 𝗟𝗲𝘀𝘀
𝗚𝘂𝗶𝗱𝗮𝗻𝗰𝗲: 𝗧𝗵𝗲 𝗜𝗻𝘁𝗲𝗿𝗽𝗹𝗮𝘆 𝗼𝗳 𝗧𝗶𝗺𝗶𝗻𝗴, 𝗩𝗶𝘀𝗶𝗯𝗶𝗹𝗶𝘁𝘆, 𝗮𝗻𝗱 𝗖𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝗰𝗲

Financial guidance represents one of the most complicated functions public company executives deal with during their day-to-day.

The process is unnecessarily complex and fraught with anxiety for many. Often times due to a lack of experience or confidence in forecasting, or internal impediments to successful forecasting.

These issues can lead executives to overlook important nuance in the guidance process.

Particularly, the interplay of the timing of when guidance is provided and the associated confidence behind that guidance and the visibility associated with that guidance.

𝗪𝗵𝗲𝗻 𝗬𝗼𝘂 𝗣𝗿𝗼𝘃𝗶𝗱𝗲 𝗚𝘂𝗶𝗱𝗮𝗻𝗰𝗲 𝗠𝗮𝘁𝘁𝗲𝗿𝘀

As a public company executive, or even private company executive, when you provide financial guidance to investors in a given reporting period carries great significance.

For investors, guidance provided early in a reporting period carries low confidence, because limited visibility exists regarding the credibility or achievability of the guidance outcome.

Conversely, when an executive provides guidance late in a reporting period, investors place high confidence on the guidance because visibility is nearly certain.

For example, when a public company reports 4Q24 in March, any guidance the company provides on 1Q25 should be almost guaranteed.

𝗪𝗵𝗮𝘁 𝗚𝘂𝗶𝗱𝗮𝗻𝗰𝗲 𝗦𝗶𝗴𝗻𝗮𝗹𝘀 𝘁𝗼 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀

Financial guidance signals several things to Investors

𝗖𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝗰𝗲: Management is confident in the business and finance team.

𝗖𝗿𝗲𝗱𝗶𝗯𝗶𝗹𝗶𝘁𝘆: Consistently executing on guidance builds credibility with investors.

𝗦𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆: Providing and executing on guidance signals stability in the operating environment and corporate culture.

Optimal communication here revolves around insight into the upcoming quarter and current fiscal year.

𝗖𝗵𝗲𝗮𝘁 𝗦𝗵𝗲𝗲𝘁 – 𝗖𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝗰𝗲 𝗮𝗻𝗱 𝗩𝗶𝘀𝗶𝗯𝗶𝗹𝗶𝘁𝘆

Providing guidance. . .

Early in the Period = Low Visibility and Low Confidence.

Significant duration risk exists as forecasts can move quickly and frequently between the time you provide guidance and financial close.

Late in the Period = High Visibility and High Confidence.

Execution equals certainty as duration risk becomes minimal.

𝗛𝗼𝘄 𝗩𝗶𝘀𝗶𝗯𝗶𝗹𝗶𝘁𝘆 𝗮𝗻𝗱 𝗖𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝗰𝗲 𝗧𝗿𝗮𝗻𝘀𝗹𝗮𝘁𝗲𝘀 𝘁𝗼 𝗚𝘂𝗶𝗱𝗮𝗻𝗰𝗲

When operating in the High Visibility / Confidence zone, a company can be more aggressive given the higher level of certainty.

Conversely, when operating in the Low Visibility / Confidence zone, a company needs to extra conservative.

A company should not be looking to go all in on a 2 – 7 off-suit.

𝗞𝗲𝘆 𝗟𝗲𝗮𝗿𝗻𝗶𝗻𝗴𝘀

𝗔𝗹𝘄𝗮𝘆𝘀 𝗕𝗲 𝗖𝗼𝗻𝘀𝗲𝗿𝘃𝗮𝘁𝗶𝘃𝗲: Doing so accounts for duration risk and the natural disruption to a financial forecast, ultimately avoiding ugly guidance reductions.

𝟵𝟬% 𝗖𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝗰𝗲: Setting a range where you have 90% confidence of achieving the range sets you up to meet and beat expectations, which always unlocks shareholder value!