Business forecasting uses historic data to determine the direction of future trends. Businesses use forecasting to make decisions that determine how to allocate their budgets or plan for anticipated expenses for an upcoming period of time. Forecasting is useful for identifying future trends in sales performance, finances, customer behavior, and much more. And by the way, it’s vital to the success and growth of your business.
Do Small Businesses Forecast
Most small businesses aren’t in the mindset of thinking forward enough. It’s not because they don’t recognize the value of it. I’m sure most do. It’s because they are too focused on what’s happening today, tomorrow, and if they get lucky maybe they’ll get around to thinking about next week. Many small businesses just don’t have enough employees to dive into the future. This makes forecasting even more important for small businesses that lack resources.
Small businesses need to develop a good strategic plan that forecasts at least the next year, maybe even longer into the future. Understand that the further out the forecast is, the higher the chance that the forecast will be inaccurate. If you don’t plan well enough, you will miss out on funds or other resources that would help you get through a difficult experience. Your forecasting shouldn’t pull numbers out of thin air, but rather rely on industry statistics to make the best forecast possible.
There are two types of forecasts: qualitative and quantitative. Qualitative forecasts are forecasts made by experts—they depend on the input from market experts or the market as a whole as the basis for their projections. Quantitative forecasts focus on data and can test the strength of relationships between data sets and also predict future events. That makes it critically important that the data you use is not faulty. If you’re using faulty data, then your forecasting will suffer.
What Should I Forecast?
Sales forecasting is one of the most important processes in your company because so many parts of the company are tied to it. Sales forecasts will be used to set quotas for each sales rep and how to measure performance. Also, other departments in your company rely on sales forecasts. For example, an operations department will make critical decisions based on sales forecasts. If you’re a manufacturer, you decide how much product to make every day based on sales forecasts. Sales forecasts even effect how you manage people. It can affect how and when you hire new people, as well as any increases or decreases in salaries and benefits that you might need to make. Sales forecasting has far reaching effects. Make sure your data is accurate so your forecasting will be as beneficial as possible.
The benefit of business forecasting is simple; you will make better decisions in crucial moments if you analyze past performance and then predict future events. Business forecasting allows you to make decisions proactively instead of always being in a reactive state. External, unplanned circumstances will always be a threat to your business. As a small business owner, you need to be proactive and prepared for the unique circumstances that your business encounters. Forecasting allows you to be proactive and manage the negative factors you experience that threaten your business.