The annual forecasting process is typically an all-encompassing and exhaustive exercise no matter the year. For many portfolio companies and their private equity (PE) sponsors, it is taken for granted that long hours and weekend work will be required to get it done. The 2026 forecasting season is of particular importance given the impact of evolving trade policies, loosening capital markets, and pent-up M&A demand.

As detailed in this article, there are several actions you can take now to mitigate common pain points and position the organization for a successful forecast season.

1. Kick-off with portfolio company and investor alignment on strategic elements.

Early in the forecast process, investors and portfolio companies should align on strategic elements like potential transaction activity, organic growth or value creation plans, and any major changes to the investment thesis. Portfolio company leadership should communicate these strategic elements to the organization so the tactical impact can be determined and embedded in the forecast.

As the forecast is developed, it should clearly link the strategic elements communicated with the tactical actions required to make the strategy a reality.

This is also an opportune time to make sure your forecast models can accommodate various strategic scenarios and support efficient sensitivity analyses that may be considered. This includes building or refining dynamic financial models that support decision making by linking performance, finance, and strategy to value creation.

2. Develop a plan and communicate that plan.

The forecasting process is an iterative, living process that should provide continual feedback into performance and your long-term growth strategy. The recommended actions focus on the critical relationship between the annual forecasting process and long-term strategy, and the challenges relevant to 2026.

Several key takeaways are worth highlighting:

1. While long-term plan refinement is not required to be complete by the end of Q3, necessary discussions and a rough draft should be well underway.
2. The forecasting process will require substantial input from cost-center owners and other non-finance personnel. Thus, a well-articulated process needs to be communicated to establish expectations.
3. Likewise, the annual forecasting process should integrate key functions like finance, operations, sales, and IT on a common path forward. Disconnects between functions is a red flag and will result in a suboptimal output.

For companies that do not currently have a formal forecasting process in place, engaging a team of FP&A experts can be helpful to execute the budget process, ensure accountability, and integrate stakeholders.

3. Understand your macroeconomic drivers and potential impacts.

Many companies are struggling to grapple with the short-term uncertainty of tariffs and associated rising costs, let alone the long-term plan consequences. Depending on the company, actions being considered will range from small actions like price increases to more permanent changes to supply chains and go-to-market strategy. Regardless, tariff uncertainty belabors the need for implementing an adaptive long-term plan with annual forecast integration.

Further, most indicators point toward an active M&A and IPO market expanding into 2026 driven by interest rate optimism and fund “war chests” being replenished. High transactional activity places pressure on aligning long-term projections across the portfolio group to ensure capital needs can be allocated diligently.

Overall, economic and market factors going into 2026 will expose static long-term forecasts that are heavily reliant on historical data points or that are not integrated into the annual forecast. The next month will be crucial to ensuring next year’s forecast is fully reflective of long-term implications. Conversely, companies should be laying the groundwork over the following couple of months to ensure short-term versus long-term performance monitoring is in place.

Companies that utilize well-built, flexible, and functional financial models will be well-positioned to analyze and sensitize the potential impacts on the forecast and, ultimately, value from macroeconomic factors.

4. Consider the operational impacts of past and future transactions.

Clean and efficient accounting processes are imperative to a successful and timely forecasting process. Delinquent reporting, prior period adjustments, and accounting “noise” will derail data flows and a business’s ability to utilize its forecast effectively.

Further, standardization of department transactional inputs and chart of account (COA) structures are necessary to provide timely and consistent variance analysis. In periods of rapid market change, it is crucial that time is not wasted trying to understand whether performance is reflective of accounting noise or actual performance.

It is rare that recently acquired businesses are perfectly “plug and play” into existing processes. Uncovering process gaps after data is already feeding into month-end reporting and forecasting will ensure long hours and missed timelines.

Therefore, it is imperative that sponsors and portfolio company management deploy their integration playbook in the lead up to an acquisition, and not after, to rapidly assess process gaps, accounting pain points, and systems infrastructure to ensure a robust forecasting process is attainable. Given the short-term nature required for improvement, prioritization of high impact items is even more crucial.

5. Achieve scalability.

Dynamic market conditions leading into 2026 are likely going to place pressures on your team’s ability to keep up with the pace. Further, a tighter labor market combined with an abundance of new automation tools can cause uncertainty in terms of finding the best solution to achieve scalability. Regardless of the root cause, limited scalability will slow down the forecasting process and frustrate key stakeholders.

You can increase scalability in two ways. First, leading into 2026, companies should perform a resource and skillset assessment of their current finance teams, flagging potential gaps in either abilities or time. To the extent coverage over the forecasting process is a concern, consider hiring or third-party resources to provide surge support before extending too far into Q4 2025.

Secondly, leaders must initiate steps to upgrade systems and tools to enable the process. A system will not solve all modeling concerns, nor will “out-of-the-box” capabilities provide the answer to complicated, business unique scenarios. However, systems are certainly an enabler, and Excel models should be upgraded with eventual system integration in mind. These are just examples, and leaders should engage an agnostic viewpoint to assess options available to improve scalability.

6. Revisit KPIs and performance drivers.

Dynamic market conditions mean shifting targets for key performance indicators (KPIs) and their relationship to the annual forecast. Be prepared to convey forecast performance to stakeholders through the lens of the most critical KPIs. For sponsors that are planning on being acquisitive in 2026, short-term KPI integration is one more item to add to the list for long term plan alignment.

Most expenses are forecasted based on a dedicated driver (or input). For example, components of cost of goods sold (COGS) will often have a direct relationship to a specific revenue stream either as a historical percentage or standard cost. Similarly, certain costs will be driven by the number of associated employees. Whatever these “cost drivers” are, the inputs used for the forecast already set the basis for the associated KPIs that can track performance. As such, forecast leads should create a catalogue of forecast inputs that can transition to priority KPIs and confirm whether the data is readily available for actual performance comparison.