The Art Of Forecasting

9 April 2011

Marianne has been the CFO of some of the top corporations and she is currently helping us through our Brain Bank to help CUBERS and CREATORS become more financially savvy and aware. As she puts it “everything in your business translates to figures’. Her first workshop was an insight on the relevance of forecasting as most of us either  

A. do not forecast correctly or

B. see as a completely useless exercise.

Expanding on point B, most of us think it useless because we have not been properly educated on its relevance or how to use to grow our companies.

Some tips, ideas, and concepts

1. Establish why you are forecasting and what you would like the numbers to communicate

  • Is it resource driven?
  • Is it sales expectations?
  • Is comparing old figures to new?
  • Is it to measure the potential of the business?

2. Do your forecast based on the sales timeline of your business. For example, if your business is  project based with long sales cycles, forecast quarterly rather than monthly. Knowing when to forecast not only paints a more accurate picture it also relieves unrelated pressure to perform outside the company’s capacity.

3. For any small business look at forecasting as simply activities drive cash vs. what activities spend cash.

  • To create a macro picture of your business and create a functional forecast observe the following
  • Customers: Who is paying? Not paying? How is their industry behaving? What changes affect their bottom line. Can you provide them a better product in reaction to your observations?
  • Observe your own industry
    • Can you continue to grow organically?  Do you need to implement new tools to grow?
    • How much of the sector can you take from your competitors?
    • What other external events will affect you making the numbers that you would like? Can you react differently to adjust?

4. You have more control over your outgoings than your incoming, so if you want to meet your forecast make the business leaner.

5. Forecasting without a strategy does not serve a purpose or objective; the two hand in hand.

  • Planning can be defined in two parts- Strategic planning that would set up the direction and assess the potential of your business in this case you need to ask yourself some or all of the following questions.
    • What Am I trying to achieve ? Or What good would look like for me in x years.
    • What are the different constraints I face in my environment (Resources issues, macro trends, competition strategy…)
    • What could I achieve if I were totally unconstrained (All resources, I need, if the sky was really the limit)
    • Always look at the planning in two angles- different part ( top line/ costs/ Bottom line) but then take a step back and ask yourself.. DOES IT MAKE SENSE ?
  • Allow some flexibility in what you do not control (Fx, interest rate etc….)

6. Once you have done the strategic planning, you set the directions in essence, then you naturally move to operationalisation – the key is strict strict strict Sales Planning (looking at such things as Pricing strategy, volume strategy or mix strategy and things like- outperforming the market, customer organic growth, cannibalisation etc etc etc..)

7. Your forecasting is then just a measure of performance of what you are trying to achieve, make it fit for purpose and work the numbers.