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Part 2: Business forecasting that will make, or break, SMEs before they’ve even started.
In this 3-part business planning series, we discuss 3 critical business essentials for anyone considering starting their own business.
Not too dissimilar from cashflow forecasting, general business forecasting gives you the birds eye view of all that has happened in your business, your current state of play, and where your business is headed. However, where it differs is in a stronger visibility of market demands and trends, customer expectations and procurement habits, giving you the insight you need to make strategic commercial decisions that determine the direction of your business growth.
Whether you’re planning on resourcing or recruitment changes, or whether you’re planning to ramp up your supply of raw materials and storage space, or whether you’re looking towards new premises and investment in new technology, being able to forecast the true state of your business performance enables you to make decisions that are poised at helping you succeed, not gamble.
The past tells a story. Don’t ignore it.
Accurate business forecasting takes a look at how things have happened before, adds to that how the business is currently performing, and then produces a probably forecast of what things look like for your business in future. If things haven’t been great in the past, and you’ve done very little to change that, then the chances are strong that there won’t be much of a future ahead for you, or your business.
Creating a business forecast means you have to start with the basics. This is usually done through a thorough and systematic investigation into past business performance, your position within your industry, the position of your products and services and your competitive edge that makes you stand out from your competition. To be able to accurately do this, you need to have collated and collected as much analytical data you can – that will shape your analysis – whether this be from your own business performance, or whether this be from market trends and statistics. But before you head down a rabbit hole – ensure that you are fully-aware of what you’re trying to achieve, the type of data you’re trying to obtain, the reasons for gathering this specific data, how it is to be collected and where it’s being collected from.
Unfortunately, this is where many businesses get stuck. They become so caught-up at proverbial naval-gazing, and wrapped up in the numbers and figures, that they overlook the reason for reviewing the data in the first place. You are trying to identify opportunities and risks for tomorrow – so you need to be reviewing where things went wrong, what your customers expect / need / want from you, where your business satisfies / falls short of these needs, and then the actions you need to put in place to deliver what they need.
Present day influencing future day
One common definition, as echoed by consultant Leo Barnes, explains: “Business Forecasting is the calculation of reasonable probabilities about the future, based on the analysis of all the latest relevant information by tested and logically sound statistical econometric techniques, as interpreted, modified and applied in terms of an executive’s personal judgment and social knowledge of his own business and his own industry or trade.”
It suffices to say that planning for the future is hardly agnostic of having insight and personal experience of current-day trends, industry norms and customer demands. The past may tell a great story, but the past is just that – gone. The world changes in every second of every day, and so too do the demands of customers. In order to predict, one has to have a firm grasp on your own industry and knowledge in order to couple that to a strategy that will withstand tomorrow.
And here is when the wheels often fall off.
Growing businesses become complacent – they develop a comfortable, heavy reliance on just a handful of customers who pay the bills, and pay well. They neglect evolving marketing activities that cater towards new markets and messages, they see the market signs but they avoid acting on any of them, and they lose clarity in their value proposition. All it takes is for 1 or 2 of their main customers to pull a plug, and they’re left scrambling trying to undo and re-do what they need to, to survive.
Complacency is probably one of the biggest killers of most SMEs today. A complacency to planning. A complacency to ask for help when they need it. A complacency in knowing (or rather, thinking) that they’re infallible. For many who seek our help then, it’s simply too late.
Here’s what you can do.
If general forecasting, and effective business planning, is something that you need to get focussed on – then there’s no time like today to get started. Making an informed decision that affects the future of your business is simply impossible if you haven’t taken the time to accurately and regularly update your business forecasts.
Our experienced financial team have worked with many business owners and management team to accurately forecast, and support their business growth plans – ensuring that they’re on the right path towards growth – in whatever shape that may be.
Prevent business failure. Get the professional financial help you need to set your business onto the right strategic growth path.