The Importance of Forecasting

The Importance of Forecasting

When a small business owner asks me for advice the very first thing I say is “do you have a forecast and financial statements?” They usually look at me like I’m nuts, I guess they think forecasts and financials are only for the sexy people or the blue chips, or someone else, not them. Well that is bologna. If you don’t have a plan that has made it outside of your noggin and onto a piece of paper and you’ve tied numbers to it, then you have some work to do.

As soon as a business owner says “I don’t have a forecast but I have a plan” I say, do you have enough capital to fund your plan, how much do you expect your revenue to grow, what is your profitability going to look like, do you have the right staffing, can you afford them, and on and on until they get it. I cannot emphasize enough the importance of a forecast. If for no other reason, mapping out a forecast on the financial performance of your company will make you think about all of the things that maybe you don’t have time to think about during the day – that inevitably runs into night and into the next day, sometimes with you even wondering when you have time to eat or sleep. It doesn’t have to be complex or even long term but at a minimum try to pull together a view on what your company will do financially for the rest of the year or maybe the next twelve months.

Once you have a forecast, measure yourself against it as you perform. Seems obvious of course, but so many people don’t do that. They instead build a forecast and then put it on a shelf like it was a doctoral thesis and not really meant to be operationalized. You would be surprised how much you learn about your business by making a plan and then measuring yourself against it. Don’t worry if you don’t hit your forecast, truth is almost no one does. But you will change the way you operate if you are consistently performing differently than you thought you would, you may find that having a plan in your head simply isn’t enough to really build your business.

Start small, start simple, but turn that plan in your head into financial targets and get to it, I promise it will improve the way you operate.