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Do you make decisions on gut instinct or best guess? Ever feel that’s a bit scary? There’s another way. Thousands of companies around the world engage in business forecasting (cash, sales, profit, demand) successfully every day. It’s just something that isn’t taught when we set out in business and until now it’s been bloody hard to do well.
So this is my effort as Futrli's founder, to get you on the forecasting bus. With our prediction technology, it’s finally now insanely easy too.
Let’s take it from the top. You may have only heard the term “forecast” in relation to the weather. Every morning, we turn on the news and get our forecast fix. It changes our plans for good or bad (mostly bad here in the UK!), but don’t you feel better prepared and more in control knowing what’s to come after you’ve watched it?
Business forecasting is pretty much the same and will also make you feel better prepared and more in control of your business decisions. In the same way, the Met Office uses data to predict future conditions, business and cash flow forecasting use layers of historical information and data to make educated estimates about what is likely to happen in the future.
Let’s imagine you’re trying to decide if you can afford to hire a new employee…You could take a deep breath, jump and decide to bring on a great new member of your team. You could leave it to chance and assume everything will work out just fine.
Or, you could make a solid decision based on forecasting the hire’s cash out and inflows and the impact of their salary, taxes, commissions as well as the ramp-up period for their sales to make them profitable for you.
I’m under no illusion that any forecast is going to be correct all the time; and the longer out the forecast, the more uncertainty will creep in, but forecasting gives companies the best chance of being right. And when you’re looking for a competitive edge, that can make all the difference.
Yes! Every business no matter how small should be relying on a forecast to make their business decisions. The alternative is just not an option: flying by the seat of your pants, playing whack-a-mole every day and using plain guesswork as an exhausting tactic.
Let me spell this out. Forecasting is not just “a good idea” — it’s critical if you want to grow faster better and smarter. It may just help you retire earlier too!
Still need to be convinced? Here are a few reasons to bring you into the forecasting fold.
I know, not a game-changing header, but it’s so true! I’ll wager that you have put blood sweat and tears into your business. It’s not a hobby! You’re in it for the long term. Well, forecasting helps you plan for both short and long-term futures.
Where do you want to take the business? What’s your plan? Setting goals for yourself and your team is much easier when you can see exactly what the impact hitting a target will have on cash, profit, sales and costs.
Set those targets and track progress against forecast and you’ll know faster when you need to course correct or maximise an opportunity in your business.
Knowing when cash is going to be leaving your bank account and more happily when it’s going to come in sets you up for the best decision making. You can have the best sales and be making great profit, but if you’re not on top of your cash flow you’re going to become unstuck.
Typically, cash-flow forecasts cover twelve months, though depending on your needs, you can cover a shorter or longer period of time. Having a good handle on what’s ahead in terms of cash flow lets you make better decisions with better information.
Listen, if you’re brand new and starting out, it’s going to be a bit harder. It’s not easy when you’ve not got established trade that you can refer back to. Give sales and expenses a guesstimate (be conservative!) and revisit them when you have real numbers after a month or two.
For established businesses, historical data for sales, expenses, payments and liabilities can build a pretty accurate picture of the future if using prediction software (cue Futrli Predict!). Machines assess patterns, trends, anomalies and seasonality to build up an interconnected view of every area of your business. So there’s no need for crappy spreadsheets or double-entry accounting as it’s all done for you automatically.
Predict doesn’t just calculate future cash flow, it’s also calculating forecast sales, forecast profit and just about everything else!
Just remember cash flow forecasting is counting money coming in and out of your bank when they are received or paid, not in the period they are invoiced. So, you’ll get cash spikes if things are invoiced monthly but paid quarterly for instance.
And, the sales forecast, expenses forecast and profit forecast is counting invoices and bills in the period they are invoiced, not the period they are paid.
Predict niftily splits this out for you into 2 different views for every account in your company (Cash impact and Activity).
Forecasting cash flow can help you identify predicted cash flow dips and highs. If you are not going to be able to pay your bills you’re going to need to ramp up sales, cut costs or chase customer payments as a starter. Without a forecast, you might not know you’re in trouble until it’s too late.
A cash flow forecast can also help you get a handle on and prepare for seasonal ups and downs. Are you smashing the summer and Christmas, but January is a lean month? You can plan for cost-cutting, staff reduction and more if you can see what’s going to happen.
What if the bump in the road is too big for operational decisions to make a positive impact in time? Most small businesses apply for funding when they have 3 days of cash in the bank (Our partners Swoop Funding revealed this shocking nugget). They aren’t using forecasts to guide them faster and smarter
Having a good handle on what’s ahead in terms of cash flow lets you make better decisions with better information.
When all is said and done, forecasting in businesses is about optimizing your resources. A business has many resources at its disposal; optimizing them all simultaneously can provide you with the edge you need to get ahead.
Forecasting is the future of business. Whether you’re a Fortune 500 company with an army of analysts, or running your own small business from home, forecasting (cash flow management and sales/profit forecasting in particular) will help you make better decisions about what to do next. You’ll be able to plan for expected changes in demand so that when it arrives later on down the line, you can meet it head-on and capitalize on this temporary opportunity. It’s just like predicting rain at a picnic — if we know what’s coming our way then we don’t need to worry about getting wet (or drenched — again sad UK reference)!
So for Zen-like business decisions use a business forecast. Or better yet, use prediction software, like Futrli Predict — as it’ll get you to nirvana faster :)
Hannah Dawson is Futrli's founder and CEO and is marginally obsessed with forecasting. She is painfully yet bullishly aware that this is a sad obsession. But learning to forecast, changed her life and her first business for the better, so she'll keep on banging that drum!