I hear a lot of myths and misconceptions about financial forecasting as I talk with people. Here are just a few:
It’s hard – It doesn’t have to be. If you’re not an Excel wiz (and many people aren’t) find a system to help you, or get someone to set up an Excel worksheet for you. Excel will work, but you’ll need to get someone to update it each year.
I don’t have enough revenue – This is exactly the time you should be forecasting! If things financially are a little tight, you need to know that, and you need to know what sales level you need to get to be in the black. When things are tight you run a much bigger risk of getting into financial trouble and not being able to meet commitments.
It takes too much time – again – it doesn’t have to. Yes, if you’re building your own Excel model, it can take time, but try an online system. Some of them (wink wink) are very quick and easy to use.
My business is too unpredictable – All businesses are somewhat unpredictable, but if you get into the habit of forecasting and comparing actuals with projections, you may be surprised about what you learn about your business. For example, at my last firm, after forecasting for a couple of years, we were able to accurately predict the impact of vacations on our revenue in the summer and around the December holidays. It just made our forecasts even more valuable.
I know what my forecast looks like – Do you? Really? OK, maybe you do, but can you model different scenarios in your head? Probably not easily. It’s so quick and easy to put together a more formal forecast, why not test the model in your head. The bonus is now you can share the forecast with others, do some “what if” modeling, and compare it to what really happens. Go ahead – try it!