Business forecast: any time is the right time

Business forecast: any time is the right time

Business forecast: any time is the right time

The most successful business owners do not make decisions on impulse—they use business forecasts to look to the future. Business forecast Is to estimate your company’s future sales, revenue or cash flow Use a combination of historical data and current market insights.

Most companies rely on business forecasts to understand their business more accurately Financial trajectory, But forecasting can help you make more strategic decisions in every area of ​​your business. You can use forecasts to:

  • Plan for busy or off-season
  • Adjust the schedule of accounts receivable and accounts payable
  • Solve the gap cash flow
  • Create monthly, quarterly and annual budgets
  • Set realistic sales goals
  • emergency plan
  • Assess whether you need credit limit Or term loan
  • Planning for long-term growth
  • Improve your sales or marketing strategy

However, it is important to note that business forecasts cannot 100% determine the direction of your business in the future. They are just a series of wise predictions designed to help you run your business more wisely.

Types of business forecasts

The three most common types of business forecasts include cash flow forecasts, Sales Forecast, And market forecasts.

Cash flow forecast Estimate the total amount of cash in and out of your business in a given time can use it Cash flow forecast Plan expenses and debt payments, evaluate your business costs, adjust accounts receivable and accounts payable, and determine whether you need working capital.

Sales Forecast Estimate the sales or revenue your business may generate in a certain period of time. Sales forecasts can help you order the right amount of inventory during peak seasons, prepare for downtime, make strategic hiring decisions, and analyze your business profit margins.

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market prediction Predict the future market trend, Including changes in your market size, customer demographics, or industry. You can use market forecasts to review your marketing strategy, evaluate your competition, and find more effective ways to reach your customers or customers.

Business forecast timeline

Each business forecast looks forward to a specific time period, whether it is two months or two years later. Generally speaking, the shorter the time frame of the forecast, the more accurate the forecast. Here are the three most common forecast timelines:

  • Short-term forecast cover In the next 30 to 90 days. Short-term forecasting is a good way to determine the immediate cash flow needs of the company, plan production, and set monthly sales or revenue targets.
  • Mid-term forecast Generally speaking Looking forward to one year. You can use mid-term forecasts to formulate annual budgets, set quarterly financial goals, estimate annual sales or revenue, and explain your business potential to lenders.
  • Long-term forecast It usually involves a business event a few years later.Long-term forecasting is often more difficult because it is in the far future, but it is a good way to plan the long-term development of your business Grow, Set annual benchmarks for success, or develop a five-year business plan to show investors.

How to make business forecasts

Business forecast It may be complicated. There is no perfect method or formula to follow, but here are the general steps to get started:

1. Choose your forecast type and schedule

The type of business forecast you are interested in depends on your industry, business needs, and goals. If you are concerned about the cash flow of your business in the next quarter, you may need to make short-term cash forecasts for the next three months.

If you want to calculate revenue for a year, mid-term sales forecasts may be helpful. Or, you may want to market your business to potential investors; in this case, long-term market forecasts will be a viable approach.

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2. Choose your data point

Every business forecast needs to be centered on data points, problems, or problems. For example, if you are making a short-term sales forecast, the question may be: How will our business revenue in the next 30 days? If you want to make long-term market forecasts, you may want to understand how your market size will change in the next three years.

A central data point or question will not only tell you the type and amount of data you need to collect-it also indicates which variables you must consider. For example, if you want to predict the cash flow for the next six months, you need to consider the following factors:

  • Your business cash flow In the past six months
  • Your business’s cash flow during the same six-month period as the previous year
  • Various factors that affect the company’s cash flow, including accounts receivable, expenses and payment guidelines

3. Make assumptions

A key component of business forecasting is making assumptions. Assumptions guide your data collection process and prescribe your testing methods to help you narrow down your focus.

Let’s use the same six-month cash flow forecast example as above. If your sales and production are fairly consistent, you can assume that your business’s cash flow will be equal to or close to the cash flow of the past six months.On the other hand, if your sales fluctuate-it may be because you operate Seasonal Operations-You might assume that your business’ cash flow in the next six months is sporadic or negative.

4. Use correct forecasting methods and tools

Generally there are two kinds method of prediction: Qualitative and quantitative forecasting.

Qualitative prediction Rely more on expert opinions and customer feedback rather than numbers. To collect data for qualitative forecasting, you can survey clients, ask subject matter experts about their forecasts, or consult your business accountant for advice. Qualitative forecasting is not necessarily the most accurate forecasting method, but it helps with long-term vision and broad forecasting.

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Quantitative forecast Use hard numbers and data to draw conclusions. Depending on the specific method, you can extract from historical company data, current company data, or market statistics, or use a mixture of the three. There are some sophisticated quantitative forecasting methods, but the simplest is time series forecasting. You can use past data to evaluate the future.

Business forecasts can be complex, so getting help from relevant personnel is essential Accounting, Financial planner or digital forecasting tool. Most forecasting software integrates with your existing business solutions (such as inventory management or payroll software) to provide you with the most accurate results.

Using a combination of machine learning and complex formulas, the forecasting tool considers factors such as accounts receivable and accounts payable, purchase orders, inventory replenishment time and even invoice approval time.

5. Compare your predictions with the results

After you test your hypothesis, the forecast is not over yet. The final step of business forecasting is to compare your forecast with what actually happened over a period of time. Checking forecasts for accuracy and deviation can help you improve the process, so your future forecasts will be more reliable.

Make sure to write down the data points used and any external factors that might affect the results.

Predict success

Harnessing the power of business forecasting can help you make more informed decisions around your business Marketing strategy, Finance and long-term growth.

Fundbox and its affiliates do not provide tax, legal or accounting advice. This material is for reference only and is not intended to be provided and should not be used as a basis for tax, legal or accounting advice. Before conducting any transaction, you should consult your tax, legal and accounting advisors.

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