Forecasting for the New Year

Now is a great time to reflect on how your business has performed over the last year but also to plan for where you want your business to go for the next 12 months.  Forecasting is an essential element of running a business.

So what exactly is forecasting?  Forecasting is a process used to estimate or predict the future financial performance, which of course can be a tricky process.

It is essential to use some sort of tool to help you do this.  I like to use a month by month cashflow budget format in excel and use this hand in hand with a business plan as there are some important considerations when deciding what numbers to plug into your spreadsheet.

Firstly, how did your business actually fair last year?  Where were the peaks and troughs in sales?  This is quite important to forecasting similar patterns for the coming year, particularly if specific troughs caught you off guard last year.  Once you have an understanding of your customer then this will enable you to produce a more accurate forecast.

Secondly, how does last year’s actual data compare with your business plan?  Are there things you can do differently to combat negative cashflows?  For example, introducing discount periods to stimulate sales or buying stock at different times?  Did you overspend in particular areas?  And can some item spends be tightened?

Thirdly, it is important to note that we are still not out of the woods economically.  Predictions are that the next 12 months will again see suppressed profits for many businesses due to the flow on effect of the European crisis.  Have you considered how this economic downturn may impact on your business?

For forecasting to be really successful, get into the habit of reviewing it on a regular basis during the year.  Whilst it is essential at the start of a year to help you plan financially, it should also be an ever evolving tool to really help you understand and better run your business. Revisiting the forecast each month and comparing it with actual data will help you iron out problems and hopefully minimise cashflow issues.