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5 Ways to Improve Your Business Forecasting

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By    |   Tuesday, 06 March 2018 11:36 AM

Predictions are impossible. Projections, on the other hand, are not only possible, but integral to entrepreneurship. Baseless predictions are easy, but will cost you down the line.

Conjuring up financial projections, rather, is a matter of time, skill, and patience. You’ll need to invest yourself to the process, but you will most certainly reap the rewards of your hard work. By honing your forecasting skills, you are effectively increasing the likelihood of analyzing market data, attracting investors, and developing a successful long-term plan for your business.

The process of creating your own financial projections is fraught with difficulties. The five tips listed below are designed to help you navigate those difficulties and maximize your chance of drawing up accurate business forecasts.

1. Plan for the good, the bad, and the ugly

If you have only planned for the best case scenario, be prepared to be unprepared. You must plan for things to deviate from your expectations. Investigate what would happen if all known elements worked against you, such as a material you need to manufacture your product skyrocketing in price. Then, draw up a plan assuming the most beneficial sequence of events occurs (i.e. securing seed funding from your first choice, entering the market at the right time).

Likely, you’ll find that things will unfold somewhere between these extremes. Fortuitous and disastrous events alike will affect how you proceed. Think deeply about all the possible permutations, and form plans around them.

2. Account for uncertainty
We humans have a nasty habit of thinking only in terms of what we know. We tend to underestimate the effects of unforeseeable events. Some disruptions are simply impossible to predict and no amount of market research can accommodate for the unknown. Mapping a cone of uncertainty can help you create plans around these unknowns, however. As you stretch your forecast further into the future, your cone should widen, akin to a meteorological projection of a storm’s path.

3. Outline the funnel

In order to make worthwhile forecasts, you’ll need to know your business inside and out. This requires an intimate knowledge of your marketing funnel, from top to bottom. If you’re trying to project sales, for example, don’t simply give a vague top level number. Project how many consumers you plan to catch with your marketing efforts and follow them down the funnel.

In the case of e-commerce:

  • What percentage of consumers exposed to your banner ads do you expect to visit your website?
  • What percentage do you expect will add an item to their shopping cart?
  • How many will make it to the checkout?

Follow your target consumer down the funnel with questions like this in mind, accounting for mishaps, missteps and unknowns along the way.

4. Be open to new data

Sometimes, when engaging in business forecasting, we hold on too tightly to conclusions we have already made. We may want to believe that a competitor will price their product at a certain dollar amount, for example. There may be strong evidence supporting this assertion, but we must be open to reevaluate this assertion when presented with new data. Being too firmly rooted in the hypotheses you have formed can cause you to overlook important information, information that, if utilized, could be enormously helpful to your business venture’s strategic planning.

5. Look for parallels

Analyzing the competition is only part of business forecasting. You should also look of parallels to your business from past ventures, businesses with similar models in disparate industries, and abject failures. Looking for parallels is hard to do when constrained to the very recent past, especially if what your company does is rather unique, so broaden your horizons. Reach back further to find trends, searching for parallels from decades past.

Conclusion

Forecasting is integral, whether you’re looking to invest in a new company or engaging in long-term strategic planning for your own company. Forecasts are fragile things that can easily break down due to unforeseen events and unaccounted for elements. It’s therefore best to keep many scenarios in mind, accounting for the best and worst cases, as well as most everything in between. Stay open to new data that may refute your conclusions, and seek out parallels to your own business models. Be sure to investigate failures as well as there will be useful (and oft-overlooked) information to glean from them. Ultimately, good forecasting means continual analysis, research, and reassessment. Forecasting can be perilous work, but if you’re willing to wade those waters, do so with an open mind.

Michael Volkmann is an entrepreneur with a focus on business operations and finance. He has worked with many small businesses helping them with their M&A for over 6 years. You may sometimes catch him on Twitter.
 

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Economy
The process of creating your own financial projections is fraught with difficulties. These five tips are designed to help you navigate those difficulties and maximize your chance of drawing up accurate business forecasts.
business, forecasting, better, improve
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2018-36-06
Tuesday, 06 March 2018 11:36 AM
Newsmax Inc.
 

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