Part 2 Creating your forecast

In the last blog I discussed pulling out the information you need to start the process to reforecast your year.  This was the process to identify the gap – from a financial, strategic and operational point of view.

Now it's time to create a new budget or forecast for the financial year. It will include:

• Actuals for the six months from April to September

• Forecast for the six months from October to March

A good budget (and forecast) should create a full set of financials by month – this includes forecasting your cash requirement around capital spends and loan payments.

Assumptions: as with any budget or forecast you need to identify the key assumptions and these can be based around your initial budget, as well as the actuals to date as a base. Review all key lines and ask yourself the following key questions.

• Sales: are you expecting growth, are there bad months, do you have a seasonal or holiday impact?

• Cost of sales and margins: did you makes changes that will impact you in the next 6 months? Can you find more savings?

• Overhead expenses: have you have you made all the savings you can; have these all flowed into the expenses lines?

• Staffing: are all your staff fully employed?  Will you need to increase their hours or salaries? Do you need additional help?

• Cashflow: did you have capital plans around spending, loan payments or new funding requirements?

Review your SWOT analysis in relation to the above lines (SWOT: strengths, weaknesses, opportunities, threats). COVID-19 for example could be a threat or an opportunity or both.  What changes to how you work and how the world is changing might drive your customers’ decisions and how can you respond?

There are only three scenarios when it comes to forecasting for the balance of the year:

1. perform the same as the first six months 

2. perform better

3. perform worse

What will be the key external forces that will drive each of these scenarios and what is the likely scenario? How does that compare to your strategy and annual plan? Now consider what decisions you can make now to get back on track or take advantage of the opportunities.

Review everything then reset the annual position performance and use this forecast to report on for the next six months. It is through this process that you keep your eye on the ball: continually reset where your business is going and make sure you stay on track.

Last word: you cannot grow your business without comparing your actions and results with where you want to go and adjusting the course. Monthly management reporting is important for highlighting this. There is more to your business then your bank balance or your sales. Make sure you understand this and give yourself time to make effective decisions.