Tag Archives: goals

What’s the forecast

I have a new toy! For the past couple of weeks I have been experimenting with a software program called foreCASH, a tool for creating business budgets and forecasts.

There are lots of different programs that do this, but what’s special about foreCASH is that it is designed specifically to give really useful cashflow forecasts – and as the saying goes…Cash is king

Not everyone is convinced about the usefulness of having a forecast though. I sometimes hear the argument that forecasting doesn’t help as it won’t stop a major disaster from derailing progress.

That is a very negative way of looking at life! Basically saying that “what will be will be”; that you have no control over whether this year is a good one or a bad one.

It’s true that forecasting is most effective when the business environment is relatively stable and predictable, but that’s not a reason to trust your business, your investment of time and money, to fate!

My top reasons for forecasting are:

1. How much is enough?
A forecast gives you a way of judging the outcome of your hard work: a way of seeing how much sales you need to make to generate enough cash to pay all the bills (including your own wages). Can you reach your goals with the business model that you already have, or do you need to make a more strategic change?

2. Green Light/ Red Flag
It gives you an early warning system for detecting whether you are on track for meeting your targets or not and it gives you more information about why things are not going to plan. This needn’t necessarily be bad news – things could be better that you planned, in which case you need to understand why.

3. Profit isn’t enough!
Cash is KingYou need cold, hard cash to pay the bills. So you need to know where the cash if going in your business.

Nowadays most businesses have some combination of loan repayments and finance contracts to pay monthly and these aren’t taken into consideration in a Profit and Loss report.

Add to that the joy of paying tax on your profits much later than you made the sale that the profit arose on and your cashflow will be a very complicated beast indeed!

(Personally I find that it is the deposit for finance for new investment that is a cash flow killer, the monthly repayments are much more manageable.)

4. The past is not a good indicator of the future.
If things worked out well last year it doesn’t mean this year will be plain sailing. In fact it most likely means that this year needs to be even better!

In the UK all small businesses will shortly be commencing auto-enrolment pension schemes, which will increase the cost of employing people. And there will be other changes as well – some input prices may go up, the split of sales between different products/ customers may change.

Making a forecast will help you decifer how you think these changes will affect your business – it’s not just about sales increasing year on year.

What's the business forecast?Forecasts are all about control. You can’t control the world around you, your competitors or your customers, but armed with a forecast you can control the way you respond to the challenges that they present.

Success by chance is great, but repeated planned success is so much better.

How much do you know about your customers?

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”
Sam Walton

Depending on what sort of business you have you may know a lot about your customers or you may not. A high street shop will likely have a large number of customers but not much information about them while a professional services firm (for example) might have a smaller customer list and a lot more information about them. But whoever your customers are they are crucial to the success and profitable growth of your business.

You probably wouldn’t think that an accountant would worry too much about what customers want – on the surface at least it’s usually accounting advice of one form or another.

I’m interested in customers because there is useful business information to be got at.

Most businesses have a list of who their customers are and usually basic details about addresses and contact details. But what did these customers buy most recently? What does recent actually mean?

Are these customers good for your business? Do they pay promptly, are they profitable? Does serving them take more time and attention than other customers? Can you divide your customers into groups? Do they value different things about your product?

I don’t have any advice to share here; because every business is different every business’ customer group will be different, but it’s vital that you build a picture of who your customers are. And it’s vital that that picture is based on information, not your own opinions or guesswork.

If you don’t know who your customers are you won’t know which customers you want more of. And maybe also which customers you don’t want any more of! Then instead of acting on intuition and “the next bright idea” you can develop a structured plan to grow the sales you want.
Customer information is key to growing your business
When you know what’s important to your customers and what’s valuable about them you can set some Key Performance Indicators to track how well you are doing in attracting and retaining the customers that you want – what get’s measured get’s done.

This will focus your efforts around your customers and make sure you’re keeping the boss happy.