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It’s The Most Wonderful Time of the Year (to Forecast Your Business)

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5 Stories of How Forecasting Provided Clarity and Cash

By Shane Bender

Even though I write this near the end of the year, I strongly believe forecasting is helpful at any time of the year. Many of us get to the end of the year or the beginning of the year, and we start to think about how we can make next year the best we can financially for our business. I can’t think of any business that I have worked with that didn’t expect next year to be better than before. But how do you do this? Check out “Why Build a Forecast Model” or “This One Thing Can Improve Business Forecasts and Profits.”  I also have a book and a course that offers even more guidance.

I am going to tell you five real-life stories of companies where forecasting has made a real difference.

1. Team Communication and Insight

I have a client that was struggling to understand their client profitability and projections for the rest of the year. They had some negative financial and cash challenges, and they wanted to know how they could grow and appropriately staff their organization. They struggled with understanding when to hire, how their cash flow was going, and how to prevent the financial fiasco that happened from happening again. I would fully admit that many challenges were not solely financial and a CFO can’t fix them all.  What was clear is that the management team and board needed better information so they can make better decisions. The first thing I did was build a working forecast model. We communicate each month how the financials are looking compared to the forecast. No, it isn’t perfect, but it leads to conversation and a better understanding of how everyone affects the financials in one way or another. We have gained additional insights, and we are looking to continue to work on communication as the company is in a position for significant growth in the next year.

2. Relying on outdated information

It is common for a business to use tax returns to make financial decisions. Also, sometimes a business owner uses a bank account to make decisions. One of my clients was pleasantly surprised with how well the margins and profit looked for the year. They had recently filed their tax returns for the prior year which were not good. Also, cash has been tight because the company was growing fast and much of the cash was in Accounts Receivable. The truth is that the company is poised for significant growth in the next 12 months and will have to make investments in hiring, equipment, and maybe a building. All of this takes cash which can be seen in a good forecast model. It is all a good problem to have but sometimes looking at outdated or incorrect information leads you to the wrong conclusion.

3. Save Money and Understand Business Better

Another client hired me to build a forecast model because he could not see trends in his revenue and profit. The revenue and COGS didn’t match, so one month looked really good, and the next was not. They are a service client who expected similar revenue and margin each month. The forecast model shows a more consistent trend and allowed for more improved accounting. On top of that, we found some expense savings from paying too much in sales tax. The owner recently expressed appreciation for the additional understanding of his business as he makes decisions for next year.

4. To Acquire or not Acquire

One of my clients came across a company that was struggling and would be a good candidate for an acquisition of employees and equipment. One of the first things we did was build a forecast model as to how this company as a business unit would look financially integrated with my client’s company. The financial analysis also aided in negotiating salaries, acquisition price, and other revenue share opportunities.

5. Tough Year and Adjust

Many years ago, I worked as a Controller at a company that lost 5 of their top 10 clients all in the same year. Obviously, this made it difficult to reach their financial goals. The biggest concern was about laying off employees.  We put together a financial plan that showed what we needed to do to avoid layoffs. It required more revenue and more focus on providing more value and services to existing clients. The financial model showed that there was a way and once that was communicated, everyone got to work. Nobody was laid off, and this difficult situation actually poised us for tremendous growth the following year.

There are so many applications for using a working forecast model and I have outlined five above. If you are interested in learning more, please check out my book Forecast Your Future: How Small Businesses Exchange Stress and Chaos for Cash and Clarity or my “Forecast Your Future Course.”  Download forecast templates for free or sign up for my list to get more insights and help.