Not many business owners think that they can make the time to prepare budgets much less forecasts, but when done properly forecasting is one of the best activities for checking your understanding of how your business is doing. Creating a basic forecast using drivers makes it a lot easier and informative.
I want to share with you 5 basic steps that I use when working with my clients to help them grow their business.
- The best indicator of the future is the recent past until you have learned otherwise.
- Until you understand your telephone expense just forecast it to equal what it was last month.
- Some things are easy to determine because you directly make them happen
- For example what should you forecast for vehicles is 100% dependent on when you plan to make the purchase in many companies
- Other things are almost as easy to determine since you make them happen, indirectly.
- You buy that truck you will need to buy insurance and fuel at the very least.
- There are things that might be outside of your control but if they happen you can pretty much predict that something else will happen with a certain degree of confidence.
- You might not be able to predict how many widgets you are going to sell, but you have a pretty good idea that if you have $100 In widget sales, you will need to buy $50 worth of widgets to make those sales.
- Many of your expenses don’t change enough to make a difference to your forecast. Don’t focus your attention to them, focus on the stuff that matters.
- Does it really matter if you can accurately forecast how much you are going to spend on your office utilities? Again the best and easiest predictor is often the most recent month.
Using these 5 steps to create a forecast for your business will give you a solid foundation and will give you an reasonable picture of what lies ahead for your business. With this forecast you will be able to plan for opportunities and challenges instead of being caught off guard.
At the Shared Finance Center, this is how we start building forecasts for our clients. As part of our regular monthly service we provide all of our clients with 12 month forecasts for Sales, Profit and Loss and Cash Flow. Please visit our website to learn more: www.TheSharedFinanceCenter.com