Forecasts? What forecasts?
TV and Radio stations always have weather forecasts at the end of their news slot. And for most of us these have little more impact than whether we will need a coat in the morning or perhaps choosing to plan outside activities at the weekend.
If you are running a small business, you may be tempted to have only the vaguest of forecasts. And in practice any forecasting is often limited to an estimate of what the sales are likely to be on the basis of a gut feel covering the next few weeks based on enquiries that have already come in.
But how plans will affect your business and personal cash flow, the valuation of the business and longer term prospects isn’t normally given a lot of attention. If you are a sole trader with no family or employees then this “don’t worry everything will be alright” attitude may be OK, but if you have people that are dependent upon you, then the time is right to give the future some more detailed thoughts.
What should you be forecasting?
Every aspect of a business can be forecast / planned, but for most smaller organisation the best bits to concentrate on are those that will allow you to move forward towards achieving your long term goals and generally things will start with the sales figure and then flow on from there.
As you start your forecasting, you will soon appreciate that the greatest difficulty in planning is how every aspect of a business is interconnected. If you change one aspect then this has a knock on effect in other areas. You can find that rapidly rising sales, which is often a goal that a business may chase, can lead to problems, as unexpectedly cash flows can worsen, and existing credit limits may be breached. By forecasting you are able plan for these problems and take steps to avoid them
If you have no plans to make changes and are following a steady as it goes business strategy, then things can be relatively easy to forecast, but does this mean that you will meet your long term goals? Many business owners say that they see their business as their pension, but is this a realistic expectation? If you think that there will be a big payday at the end when you sell, you need to consider who will buy your business and is it worth what you think it is? If you are your business, then there may be little intrinsic value to your business. If this is the case, how are you hoping to fund your later life? Are you saving enough? Will these savings grow to provide you with the lifestyle you are hoping for? Or will you no choice, but to work for longer and harder that you are hoping for or retire to a poorer standard of living?
Would a small change now pay huge dividends in the future?