Using forecasting to help your decision-making

Producing regular management information is one way to help improve your business decision-making. But looking at historical numbers can only tell you so much.

In business, you want to know what the future holds. And to make truly informed decisions about your future strategy, it’s important to use forecasting tools to project your data forwards in time. By running projections, based on these historical numbers, and producing detailed forecasts, you can get the best possible view of the road ahead – that’s invaluable.

Run regular cashflow forecasts

Positive cashflow is vital to the short, medium and long-term success of your business. Without cash, you simply can’t operate the business efficiently. Running regular cashflow forecasts helps you overcome this challenge. With detailed projections of your future cashflow, you can spot the cash gaps that lie further down the road, and take action to fill these cashflow holes.

Income can often be unpredictable, especially in challenging economic times. If customers fail to pay an invoice, or suppliers increase their prices, this can all start to eat into your available cash. Using forecasting, you can extrapolate your numbers forward to which weeks, months or quarters are looking financially tight. And with enough prior warning, there’s plenty of time to look for short-term funding facilities, or to get proactive with reducing your spending.

Run sales and revenue forecasts

Keeping the business profitable is one of the key foundations of making a success of your enterprise. You want your sales to be stable and your revenues predictable if you’re going to generate enough capital to fund your growth plans. And you need to know how those revenues will pan out over the course of the coming financial period.

Revenue forecasts work much like a cashflow forecast. Instead of looking at your future cash position, a revenue forecast gives a projection of your sales and how much revenue is likely to be brought into the business in future weeks and months. With better revenue information, you’ll be more on top of your profit targets. You can manage your working capital in a more practical way. And you can improve your ability to invest in new projects, additional staff or funding of the long-term expansion of your business.

Run different scenario plans

What’s going to happen to your business in the future? None of us have a crystal ball to predict this future path exactly. But by looking at different possible scenarios, you can run projections to see what the potential outcomes and impacts may be.

These ‘What-if scenarios’ can be exceptionally useful tools when thinking about big business decisions. What if there’s an economic recession? What if our sales increased by 25%? What if we raised our prices by 10% next quarter? What if we lost a quarter of our customers? By plugging the relevant data into your forecasting engine, you can run these scenarios and see how each option pans out. That’s massively useful when the worst (or the best) does happen.

Update your strategy, based on your forecasts

By making the most of your forecasting tools, you give your board, your finance team and your advisers the most insightful data and projections to work with.

A good business plan is designed to flex and evolve to meet the needs of the changing market – and the changing needs of your own business strategy. By making use of your cashflow forecasts, revenue projections and what-if scenario planning, you give yourself the insights needed to update your strategy and your business plan. You can make solid, well-informed decisions and keep yourself one step ahead of your competitors. In the dog-eat-dog world of business, that’s a competitive edge that can make a huge difference.

If you want to delve deeper into the positive benefits of forecasting, please get in touch. We can showcase the latest forecasting software and apps, and show you the value that’s delivered through well-executed forecasting and longer-term projections.

Making data meaningful for your business

In today’s world the fast pace of business requires business owners to be able to react quickly to conditions.

This means having the ability to compile, analyse and act on data is increasingly important. Having access to your business data allows you to forecast and potentially identify trends and patterns before they emerge.

So, what is data?

When it comes to business, data includes the facts and figures that your business processes every day.

Over time, your business will obtain data.

For example, if your business is already using cloud software for bookkeeping and accounting, payroll, project management or CRM (customer relationship management), you likely have access to a goldmine of data. And that data gives you valuable insight into your sales, revenue and expenses, profit, payroll, and other business details that can help you make smart business decisions.

If you aren’t recording accurate data for your business, you can only rely on gut feel and assumptions about your business’ past performance to inform and guide your future business decisions.

It’s important to remember that your business data only becomes meaningful when it has context, relevance and purpose.

Data is only powerful if there is context

You want your data to be able to provide insight into answering these questions:

• What is your business goals?
• What is happening in the business now?
• What has influenced the past?

Is your data relevant?

With all the tools available for data collection it’s important to focus on what’s relevant to your decision making.

Make sure you know what data is necessary rather than what’s nice to have.

• Are your financials up-to-date?
• Are the right systems and processes in use for different parts of your business?
• Are your cloud systems set up correctly (and being used correctly)?

The worst thing you can do is to attempt to analyse irrelevant data and then make business decisions based on it! Make sure you’re collecting and looking at the data that’s relevant for your business.

Your data needs to have a purpose

Don’t forget what you’re collecting your business data for.

Focus on what truly matters and build from there.

• What data/numbers/information determines success for you?
• What do you want to understand most about your business?

If you want help with setting up and understanding your data, so you can forecast and make better, informed business decisions, get in touch.

We can accumulate, analyse, report and advise on your data; or show you the tools to use.

Upsizing or downsizing: forecasting can help

2020 and 2021 have created a number of challenges for the average business. Depending on your business purpose and strategy, you may need to either upsize, or downsize, to secure the long-term future of your company.

But what are the implications of upsizing or downsizing, your operations? And how do you refine your business so it's fit for purpose and ready to take on your new aims and goals?

The answer is to look carefully at your forecasting and your future decision-making.

Looking at the ongoing needs of your business

Our experiences of the pandemic have demonstrated one very clear lesson – you never know exactly what lies around the corner for your business. But the more prepared you are, the better you can respond, as and when new threats and opportunities do appear.

With this in mind, forecasting and scenario-planning can be exceptionally important tools.

Rather than crossing your fingers and hoping for the best, you can plan for two, three or more different outcomes – with different strategies and tactics for each separate scenario. You can’t bullet-proof your business, but you CAN make sure that you at least have a Plan B (or C).

Scaling up, or scaling down?

By making constructive use of forecasting, you’ll be able to see the most viable path for your business. From here, you can make a decision on whether upsizing, or downsizing, is the most appropriate action for the long-term health of your business.

Some key questions to ask during your decision-making may include:

Do you have enough funding to grow, or do you need to downsize?

Knowing how much working capital you have available in the business is a vital piece of information. If you have a healthy balance sheet, a workable funding strategy and access to lenders, you’ll be able to fund your growth. If your cash reserves are depleted and access to finance is limited, now may be the time to shrink the business and consolidate things down – helping you to survive to fight another day, even if it is at a reduced scale.

Do you need more, or fewer, employees?

If your market share has dropped, you may need to downsize your team. And if you've hit a winning streak of sales, you may need to upsize your workforce to meet demand. Look at what resourcing you need and the types of skills, capabilities and long-term knowledge you need from your team in order to meet your new goals and targets.

Do you need to train your existing people?

If your business purpose has evolved, or you're moving more into the online or digital arena, you may need to train up your staff. Upskilling your people helps to bring them more in line with modern digital business practices, software and online customer interactions, all of which helps to increase your operational capabilities and your customer service levels as a business.

Do you need the same number of branches/shops/offices? 

If you've instigated remote working or hybrid working, you may not need so much office space for your people. And if you’ve moved a lot of your business to online selling, fewer bricks-and-mortar outlets will be required. Cutting building lease costs and/or commercial mortgage expenses can be a serious cost-saver for the business. Conversely, if you’re aiming to scale up, it’s likely that larger premises will be needed – resulting in higher property costs, but increased income from your scaled-up operations.

Do you need new equipment, machinery or vehicles?

Knowing what tangible assets you need in the business is an important part of your new business plan. If you’re expanding your operations, new equipment and/or vehicles will be needed to meet the new demand. This is likely to mean taking out third-party finance, or digging deep into your cash reserves. If you’re downsizing, there’s potential to sell-off existing equipment and assets and to free up this equity for other projects in the business.

Talk to us about scenario planning and decision-making

If you’re in the process of evolving or changing your business purpose, please come and chat to us. We can help you review your existing business plan, run scenarios and forecasts, and look at the long-term future path of your business.