Why Business Forecasting is so important.
When I talk to a lot of small business owners about forecasting their performance for the year ahead it is typical that many do not see the purpose because of the uncertainty around what will happen. Here are my top reasons why you should use forecasting in your business:
- The forecast can act as a target of what you want to achieve and really focus’s your mind at the beginning of the year on what you want to achieve by the end of the year. Once you have this written down, throughout the year you will be much more set on achieving it – rather than ambling along and seeing how you do by the end of the year.
- Considering the year ahead in this manner can help you plan for cash inflows and outflows during the year. It can assist with the timing of large purchases. It will ensure you hold onto cash when needed if you already know there may be a more difficult spell around the corner.
- Forecasting can help you consider whether you have the resources and skills to hand at the time needed to deliver the target sales in the pattern you expect to receive them.
- If the above 3 x points are alien to you and you would have no clue at starting to estimate your year ahead, I encourage you to do so, after the first time and comparing how you did this will help you learn the points above and will give you invaluable insight into your business.
- If you ever apply for funding, whether this is for a grant, through your bank or other credit facility, management accounts and 12 month projections are a must as they support the business case and shows intelligent management.
- Once you have forecasts in place you can easily carry out stress testing on the business by flexing it for isolated occurrences, for example what would the effect be if your largest customer stopped shopping with you, the flexing can be in any area that would significantly affect your business.