Updated: Jul 1, 2021
Paul Bezani, Regional Cluster Manager, South East Wales
From projecting future sales to managing your cashflow, forecasting is extremely important for any business. Unfortunately, many business owners do not fully engage or regularly review the process due to, understandably, being too busy solving problems and searching for the next sale! However, once you have your forecasting in place you have a route map for strategy, cash management and better decision making.
Why is forecasting so important?
Forecasting is considerably cheaper than failing, which is a real possibility if you are not forecasting the various factors integral to running your business. In my 35-year career in the food supply chain industry, forecasting was central to every decision I made. Here are my five reasons why you should prioritize time for forecasting in your business:
1. IMPROVE YOUR CASHFLOW MANAGEMENT
Cashflow is the lifeblood of any business and can quickly throttle it if not managed closely. Most accounting systems can give you a retrospective overview of your cashflow, rarely do they allow you to forecast into the future and see what may lay ahead. Typically, SMEs don’t see cash flow problems coming and fail to anticipate large bills which can have larger than expected consequences if not anticipated.
2. IMPROVE YOUR PROFIT MARGINS
In the same way as managing your cash flow, your accounting software will be able to show you your retrospective profits, but it will not be able to show you what the future could hold for your profit margins.
The success of your profit margins and cash flow are reliant on many different factors and each of these have an impact on your future cash flow and profits. Imagine if you could see the impact of changing just one or two of these factors? The decisions you could make with that information is almost endless!
3. AVOID A POTENTIAL FINANCIAL OR OPERATIONAL ERROR
Whether it’s cashflow, sales or stock, regular forecasting gives you a clearer view into the future and should show you any bumps in the road ahead which could derail your business. This allows you to put remedial actions in place to successfully navigate any potential dangers.
4. BETTER DECISION MAKING
Information is powerful and the information you can quickly glean from better forecasting will allow you to make better-informed decisions meaning a stronger business.
5. PLAN FOR GROWTH
The only way you can effectively and reliably plan the growth of your business is to forecast. You can forecast different growth scenarios to see which ones are viable and which are not. Reliable financial forecasting will show you where the possibilities for growth could come from and what the likely timescale could be for that growth. It is also a must-have if you are applying for funding or investment.
The downside of not dedicating time and effort to forecasting could result in issues such as: - running blind, cashflow problems, too much/not enough stock and unable to adequately plan resources or your business gets stuck in a rut!
If you would like to know more about forecasting or need support in understanding how to build a business forecast model get in touch with Paul.
Paul is the Regional Cluster Manager for South East Wales and supports food businesses primarily in the operational areas of procurement, cost management, Management Information processes (ERP), inventory management and business resilience.
Have any questions? Speak to one of our Cluster Managers, their contact details can be found here.