Do you ever wish you had a crystal ball for business planning in the future?
As a consultant, I often help clients create business forecasts. I always tell my clients that a forecast will never be 100% right unless you are playing it super safe, but there are things you can do to make it more accurate. A forecast is a starting point to monitor and see if you are going off track and what can be done proactively.
Some challenges to avoid when forecasting:
1. Not using good quality data - not considering what may be missing from information or looking back at historical data.
2. Not looking at consumer trends - you need to consider if there are any changes to how your customer is purchasing and re-look at assumptions regularly.
3. Uncertainty - Not accounting for uncertainty can be very costly in forecasting. Consider the amount that debt rates have gone up recently. By looking at multiple scenarios in a forecast, you can understand how particular aspects of uncertainty affect the business in one way or another.
4. Set it and forget it mentality - many people will do a forecast to see where they think they should end up at the end of the year and then walk away and not track if they will actually get there until ten months later. Look every month to see if your forecast is still accurate or if you need to make changes.
If you forecast as accurately as possible and pay attention to it throughout the year, that is the best-case scenario!