Ask Andi: You’ve talked about predicting the business’ future. Yes, I’d to see two to three years into the future. But I don’t know what’s in my company’s pipeline. And even if I did, I don’t see how that would help. I can’t predict the future. How do I figure out a forecast more than a few months ahead?
Thoughts of the Day: Predicting the business’ future is an essential part of any well-run business. Forecasting takes practice to get good at it. Forecasts that look two to three years ahead are a blend of historical performance and intention. Know your expenses before you can forecast future profits, know your current expenses.
Predicting the business’ future
Every business needs to grow. The challenge is in knowing if you’re going to be on or off track. Advance warning equals the opportunity to tackle problems before they turn into major headaches. Most business owners can be very creative and solution-driven if they know there’s an upcoming snag. Gaining advance notice is where forecasting can become a business owner’s best friend.
In the beginning, it’s normal to feel quite uncomfortable with forecasting. You’ll be making educated guesses. Chances are good the guesses might be wrong. Trial and error is a necessary part of the learning process. To increase accuracy, try smaller guesses. Break revenue down into subcomponents – categories of customers that buy categories of goods or services. Try whatever revenue subdivision makes the most sense to you.
Forecasting can take advantage of both the past and the future. For each revenue category, look at historical trends. What’s declining and what’s picking up? Ask employees, vendors, and customers to provide their thoughts on what might be going up or down. Estimate how current categories of sales might change in the upcoming years.
Shape plans and overall growth
Layout the company’s overall growth goals. Planning on doubling in five to seven years? Calculate 10 percent to 15 percent year-over-year revenue growth. Whatever you do, plan on at least 8 percent growth in order to stay ahead of inflation and losses. Compare overall goal predictions based on historical trends. Got a gap between what’s expected and what’s needed? No surprise there.
At some point, every business maxes out what it can do with existing resources. Ignore the problem and risk big revenue dips. Savvy business owners start brainstorming solutions as soon as they see a potential problem.
There are lots of ways to build toward meeting or beating a forecast. Here are just a few ideas:
- Raise prices
- Buy another business
- Add salespeople
- Invest in sales training to improve performance
- Boost commitment to proven marketing programs
- Launch a well-tested new product or service
- Go after a list of previously untapped or unsuccessful prospects
- Branch out geographically
- Hold a sale for equipment or services nearing obsolescence
- Offer teaser rates to interest new buyers
Learn about the future of your business
Pick the ideas that make the most sense to try in your business. Assign someone to oversee each idea you intend to test. Get a plan written on how to roll out each idea, with a guesstimate on the kind of outcomes you’d like to see as a result.
Keep going with the ideas that get traction. Reassess, reformat or dump the ones that don’t perform to expectation. Keep at it until you’re confident you can fill the gap between revenue needed to meet the goal and revenue likely to come from current sales.
Go through multiple rounds of forecasting, assessing what’s realistic, and brainstorming solutions to fill gaps. Success spotting problems and brainstorming solutions will boost everyone’s confidence that you can get ahead of the problems and turn a forecast full of guesses into reality.
Looking for a good book? Try “Successful Sales Forecasting” by Laurence Ainsworth.
