When planning for the coming year, business owners face a number of unknowns: What conditions will affect your revenue and cash flow? How should you allocate your resources? Which goals should take priority? Fluctuations in the economy, your industry, and your local market can make it difficult to predict your performance. But knowing the fundamentals of forecasting can help you see the bigger picture, set realistic expectations, and make better-informed decisions as you move forward.
More than guesswork
An effective forecast is more than guesswork – it’s realistic assumptions and careful analysis. For example, if you’re forecasting the first-year revenue from a new service line, you won’t have any existing revenue data to draw from. Instead, you can look for comparable situations: Consider how another service line performed in its first year, research the performance of similar-sized competitors, or look at the market demand for your new offering. Adjusting your forecast over time can help you identify which types of information are most helpful.
Weighing revenue and expenses
As you develop and fine-tune your forecast, be sure to address these three, interconnected areas:
Benefits of forecasting
A practical business forecast can give you a clearer picture of your needs, opportunities, and risks. This information can help you to:
Once you’ve developed your forecast, consult it often and adjust your projections as circumstances change. By taking time to learn why some predictions proved correct and others did not, you can learn ways to improve the accuracy of each forecast.