- Being a small business owner is a hard task because you're responsible for much more than you think. Good management and staff aren't the only keys to success, you also need to be good at business forecasting.
- As a business owner you should always be one step ahead, and to know what that one step is, you need business forecasting.
- Do you want to improve your business forecasting skills? Well, you stumbled upon the right article.
Editor's Update 07/07/20:
What is business forecasting? Business forecasting is the method of using data, insights, analytics and experience to predict future economic and business trends, and to determine how to allocate budgets. Business forecasting is also used to inform business strategies and make important decisions relating to business growth.
What are the different types of business forecasting? There are three main types of forecasting:
1. General business forecast - evaluating conditions for business such as political climate, national.global economies, regulatory changes
2. Sales forecast - estimating sales over a period of time and how to maximise sales profit
3. Capital forecast - determining how to utilise business capital for optimum ROI
Let’s face it, today is not the best of times for most businesses. With the roller coaster ride we call the ‘world economy’, getting to grips with what may lie ahead could mean the difference between success and getting hit from behind by the proverbial hockey stick. If you’re like me, then I’m sure you wouldn’t want to be that puck.
Business forecasting isn’t something every business owner does, even if they should. It’s an easy mistake to fall into. While you may get lucky and get through tough times without a proper understanding of your cash flow and market trends, you really don’t want to rely on something as random as a coin flip when it comes to your business.
A proper business forecasting can give you the tools and knowledge to make proper and informed decisions for your business.
How to forecast business, revenue and growth
You don’t need a crystal ball to make a business forecasting. Here are 9 tips to help you get underway and avoid mistakes with business forecasting.
1. Start with the basics
Don’t overcomplicate things. Starting from the basics will help you to set the backbone for your business forecasting. Let common sense prevail when answering some basic questions such the feasibility of your business idea and goals, the market in general and the adequacy of your working capital. Look at the things that are certain, such as regular operating costs, taxes and employee salaries and factor those in.
2. Know your clients
Knowing your customers, their shopping habits and if you accept credit, their paying habits can help you get a better idea of how your cash flow will look like. This could be one of the steps to reach a credible business forecasting.
Do they come back every week to buy something new from you or are they mostly one-off customers? Do certain times of the year draw more people into your shops? How many of them opt for instalment plans vs paying in full up front? How happy are they with your products and how often do they return items because they are not satisfied? These are just a few of the questions that will help you paint a clearer picture of who your customers are.
3. Understand the market
Business forecasting isn’t just for your own performance. You might be the star player in the industry but if the industry at large is performing badly, chances are you will be too. Look at market trends and see how your competition is performing. Factor these into your business forecasting.
4. Be honest
Don’t sugar-coat your forecasts. Remember that your business forecasting will be essential pieces of information that would help you formulate a proper business plan. Making it look good sets you off on the wrong foot and may skew your strategy badly enough to cause your business to fail.
If you are business forecasting for the sake of gaining investment, being over-optimistic with your forecasts will likely raise alarm bells from your potential investor. Yes, we all want to see the hockey stick at some point, but assuming you have a runaway hit without the groundwork is a surefire way of scaring off investors.
5. Consider the worst case scenarios
Business forecasting lets you see the worst possible scenarios your business can face. Don’t be afraid of looking at the potential issues that may arise in the future.
Knowing what can happen as early as now will give you time to plan and prepare accordingly and get you through that rough patch. Of course, knowing the worst scenario is not enough because you also want to…
6. Plan for growth opportunities
Your business forecasting should also look at potential areas for growth. This is your best case scenario. If you only focus on the potential problems that may arise, you might end up being over-cautious and miss out on great opportunities that come your way.
For example, if you keep your focus on the minimum sales number, you might miss out on seasonal spikes in demand and fail to stock-up on inventory and staff to properly take advantage of the increased customer demand.
Looking at growth opportunities also sets you to steer your mindset from simply surviving as a business to actually thriving as one.
7. Have frequently updated forecasts
Business forecasting is not a clear-cut certainty. Things change, sometimes more often than you think. You want have updated forecast so that you will have the data to make good decisions for the present.
An annual forecast is rarely enough these days. In fact, a quarterly forecast may not be enough for your business. Be flexible and re-do your forecasts based on the pace of your industry. If you need to re-do your forecasts monthly then so be it.
8. Keep your sales teams involved
Your sales people are like your infantry units. They are in the front lines, and often times they have a very good idea of the performance of your products and how easy it is to move your inventory. ake their input and adjust your business forecasting accordingly.
9. Pay attention to the details
You will be surprised how even the smallest seemingly trivial things can cost the business in the long run. Simple use of office supplies can add costs to your business.
A business can rack up hundreds of dollars in paper clips, staples and envelopes for example. While a single paper clip or staple might cost a miniscule amount, they start becoming costly items in bulk, thus affecting your business forecasting.
Likewise, your smallest, cheapest products may be the one that would keep your business afloat. For example, your convenience store may be selling snacks slower than usual but your beverages might be really in demand.
Business forecasting is both an art and a science. Maintain a level head, stick with the facts and ensure a constant forward vision and you will be fine.
What else do you think will help in business forecasting? Share your thoughts below.
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