Start Forecasting Now!

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Information about Start Forecasting Now!
Business & Mgmt

Published on January 15, 2009

Author: tomstocker



Whether your company is on a high growth roll, merely trying to survive this recession or somewhere in between, if you aren’t using forecasts, you may be incredibly lucky. The odds of continued success and building a high-value company are stacked against you. On the other hand, that may help explain why you are in survival mode. Forecasting can change the odds to your favor.

Start Forecasting Now! by R. Thomas Stocker You wouldn’t drive on the highway looking Annual plans (budgets), although important through your rearview mirror would you? for setting a stake in the ground for So if you don’t have a system to predict measuring the year, are not the best measure your company’s near-term future, what do for each period because it is static. And, you call it? Most of us are used to using given how long ago the plan may have been monthly financial results as our measure of created may not be realistic if major success, and maybe cash in our bank assumptions have changed, such as the 2008 account for cash flow. But you don’t stop oil spike and collapse for example. Annual your business at the end of the month to see plans are a static measure and need how you did and decide what you are going something more dynamic on an ongoing to do next. Every business uses forward- basis to make them useful and current. The looking tools internally, some formal and plan (if you have one) is your goal for the some informal. Your sales group continues year. In many companies they are the de to sell and your operational group continues facto annual bonus targets and sometimes to produce. Both use their own metrics and stretch targets. They help you plan your schedules. But the company as a whole tactics and cash use to support those tactics needs to measure against something to and long-term strategies. ensure it is on track, both from a cash flow and profitability perspective and to provide The best measure for operational every area in the business with a dynamic effectiveness is a rolling forecast of both central plan for guidance of what to do and profitability and cash flow. It bridges the what to expect. dynamics of what is happening right now to the history of period results and the annual So how are you measuring your business plan. When using a forecast process with and determining how you are doing, what to the annual plan, it gives you the ability to do and what to change? You are using some make realistic adjustments to exploit form of forecasting and estimating. No one opportunities if you are ahead of your plan waits for the numbers. From an operational or make the mid-course corrections you point of view, as important as the results are need to reach the plan goals if you are to know as soon after the period as possible, behind. they are ancient history and only a piece of the complex system you need to run your I recommend rolling forecasts to my clients, company. And if it takes longer than seven updated monthly. It should be a living days to get those results you already have a document with assumptions and action plans problem (a different story for a different continuously reviewed, challenged and article) you need to address. Financial adjusted. Each month or period the forecast information must be current. This is is updated by stepping off the monthly and imperative regardless if your company is on YTD results and are updated the last week a track of high growth, survival or anywhere of the period. Some companies use a twelve in between. month roll, some use thirteen periods and some use however many periods are left in 10 Larkspur Road, East Greenwich, RI 02818 401-451-9799

the plan. Regardless of what you use, keep if you don’t have a plan, measure your in mind that after four to six months out, success and make adjustments on a your crystal ball will most likely get very continuous basis, you won’t remain in hazy very quickly. For example, did you business very long. This is equally critical call Q4 2008 in your 2008 plan or April in times of success and in times of stress. 2008 forecast correctly? All the very reason There are many positives about utilizing your forecast must be a living document. tactical planning and measuring throughout Therefore, in my mind the closest four your company. If shared widely, you are periods are the most important for this sharing “the score” and building a team. I process and demand the most attention. can’t stress the power of score. Human So how do you start? With the annual plan. nature is to try to win. If you don’t share The purpose of your annual plan is to where you are or where you want to go provide a roadmap of what you want to along with the tactical adjustments you are accomplish. Your entire company making, you are ignoring a powerful contributes to the process and gives resource you have available…your people. everyone a tool to understand where they are The earlier your team knows you have a supposed to go, how much they should tiger by the tail or are off course the sooner expect to spend and when things should be they can implement counter-measures and expected to occur. But what happens when adjustments to take advantage or get back on things don’t happen the way you planned, course. Determining how planned tactics especially since you started making the plan are working by predicting and sharing the previous August. I suspect how the expected results gives everyone additional fourth quarter of 2008 unfolded made your opportunities to make positive adjustments. confidence in your 2009 annual plan a bit Earlier in the article I suggested the first four suspect, especially since annual plans are months of the forecast are the most typically completed by the beginning of important. I think any forecast should have December and finalized before the start of the most detail and attention in declining the New Year. If you are on a different order as you work through the forecast. fiscal year schedule your annual plan may Clearly if you are updating your forecast the be completely unrealistic as a result of those week before the current period closes, this events. This makes the rolling forecast all period should be very close to the actual the more important. results. If not, you may want to understand Regardless of your fiscal year, the goal is why. If this happens consistently, there is always to make or exceed the plan. But the something wrong within your process that timing and methodology of how you get you need to understand. This is important there may need to change. Using a forecast because the most important period in the process helps you keep the planning process forecast is the following period and that in front of everyone in the company. It could be suspect as well. helps to know how far away the goals may If you are new at forecasting it may take be or what mid-course changes can be made. several periods to gain confidence in the Forecasting is a logical method to measure process. Don’t give up. You will find this how effective those changes are as you go process a very important part of building a forward. An analogy I like to use is skiing more valuable company. Continuous moguls. In mogul skiing, if you haven’t tactical planning is in the fabric of “A” picked your path at least four bumps ahead companies. It should be in the fabric of you will crash…soon. Likewise in business, yours.

To comment on this or other topics important to private business owners, access my blog at About the author; Tom is a Principal of Boardroom Advisory Group, LLC, an owner advisory and consulting firm. Tom serves on the Board of Directors for the RI Economic Development Corp’s Small Business Loan Fund Corporation (SBLFC), the finance arm of the RI EDC. He writes a monthly article for the RI EDC’s Every Company Counts initiative. His articles focus on areas that can add significant value for business owners. Contact Tom directly at 401-451-9799 or Boardroom Advisory Group, LLC is a business advisory and consulting firm specializing in helping business owners resolve day-to-day systemic issues that interfere with cash flow and profitability attainment. The Firm works with both growing and underperforming small to mid-market private companies. The Firm’s team of hands-on senior professionals find and implement solutions to improve top-line and bottom-line growth, increase cash flow, reduce costs, improve process, structure, and use world-class metrics to keep the business on track. The team also has extensive experience working with troubled companies through business restructures and recapitalization. Boardroom Advisory Group’s core focus on developing strategies to drive and measure performance has resulted in a history of sustainable top and bottom line growth, healthy cash flow and increased company value for their clients. For more information about how we can help you build a more valuable business visit our website at ©2008-09 Boardroom Advisory Group, LLC All Rights Reserved. No part of this document may be reproduced without the express permission of the author. All registered trademarks mentioned in this document are the property of their respective owners. Additional articles written by Mr. Stocker include: Start Forecasting Now! Do You Have Contingency Plans? I’m Out of Compliance. Now What? Have You Thought About Your Future Lately? Are you in a Foxhole? Metrics Should Be Everywhere (Part I) Are You an Octopus? Metrics Should Be Everywhere (Part II) What is Value? It’s All About Growth These articles can be accessed at You can also request to be added to his email list to receive his latest articles on a monthly basis on the Company website. Contact Tom at

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