Properly Forecasting your Small Business Growth
Small business owners know all too well how many hats they need to wear on a daily basis. A lot of effort gets put into business decisions like purchasing of new equipment or managing the payroll, as it should. The byproduct of this is that it’s easy for smaller companies to sometimes lose sight of the bigger picture. Being able to properly forecast your business's growth will help you have a firm understanding of your fixed costs and better prepare you for the unpredictability that come with most variable costs.
What tools/strategies are there to begin properly forecasting?
We’re spoiled to live in a world where countless forecasting tools are at our fingertips. A good forecasting software will be easily customizable for your business, regardless of the type or size. It will also often include other useful tools such as budgeting, reporting and consolidation that make forecasting that much easier. Below are the three highest recommended forecasting tools as rated by capterra.com for you to check out.
Having the tools at our disposal is great but it is the human element that puts them into action. The following seven tips come from Inc.com and lay some great groundwork when it comes to strategizing your business’s forecasting.
Plan for the worst, but project for the best
Your business needs to be ready for whatever is thrown at it. Things aren’t always going to go the way you had hoped and having a plan in place for these instances can help get you back on the right track.
Out with the old, in with the new
Take the time to update your forecasts. Some companies can get by just fine with annual forecasts while some others may need to be updated on a monthly basis.
Keep your customer terms updated
This point relates back to the first. Sometimes, business deals go wrong, it is just the way it works. The only thing your business can do is update your customer terms as best possible to try and ensure it doesn’t happen again. Stricter terms mean stricter forecasts.
- Plan discounts ahead of time
Discounts go hand in hand with inventory, cash flow, margins and sales. Planning the discounts before the time comes means all the other pieces of the puzzle can be ready to support it.
- Keep your sales team constantly involved
Forecasting sales for an entire year is nearly impossible. Management should take the time to speak directly with the sales teams on a monthly basis and update the forecasts accordingly.
- Know thyself, and know thy customers
Knowing customer’s habits is the first step in properly forecasting cash flows. That, in conjunction with knowing your own spending and purchasing habits, will tend to make the picture much clearer.
- Pay attention to the small stuff, like paperclips
A proper forecast doesn’t forget the small details, make sure you cover any and all expenses. As minimal as they might seem, they could have a big impact when cash flow gets tight.
How far ahead should a small business be looking?
As we have seen thus far, each and every business is unique; therefore, there is no right or wrong answer here. In truth, whatever time frame gives you a clear picture of where your business is heading and what you need to do to get there is the right one. That being said, the most common is a one year forecast. We also touched on the fact that throughout the life of the forecast, changes will need to be made on a regular basis. A forecast is not just created at the beginning of the year and set in stone, it is a living, breathing document. All of this to say, do what is right for your business and if you need somewhere to start, a one-year plan is a safe bet.
How do businesses prepare for unpredictable slow sales or unfortunate events?
The reality of the business world is that unforeseen circumstances arise, both positive and negative. Whatever comes your way, you need to be prepared. One of the most important ways to protect your business is by having enough cash flow to keep you afloat in slower times. When these rough patches were unpredictable, there are great options like a Merchant Cash Advance out there to get you the capital you need quickly. A Merchant Cash Advance is a funding program by Evolocity that works in sync with your business when sales are low; you only repay when sales are coming in. This flexibility is perfect if you don’t know how long the rut will last.