Forecasting – the do’s and don’ts

Forecasting can mistakenly be seen as a simple task; enter a few numbers into a spreadsheet for an estimate on how you believe your business will perform over the next six or 12 months.

But producing an accurate and reliable forecast isn’t always easy and at fdu group we’re often surprised by how many people make simple, yet critical, mistakes in the forecasting for their business.

At this year’s Fresh Business Thinking Live, fdu group’s co-founder, David Bloom, shared these top tips for forecasting to business decision makers in his finance masterclass. Use these wisely to guarantee an accurate forecast that will form the platform for business growth.

Do
• Make your assumptions realistic – few businesses double in size year after year
• Reflect existing business drivers correctly – take account of all elements such as product margins, debt collection times, VAT etc
• Test your forecast with different ‘what if?’ scenarios to understand the impact of any changes, for example if sales drop by 10% or margins increase by 5%
• Build in error checking – a forecast is only useful if it is accurate and pulls in all the correct information
• Build in a contingency

Don’t
• Pay for a model that only your accountant understands; it’s a false economy as you’ll need your accountant to make any small changes – invest in one that you can use yourself
• Do your forecast once; instead,keep refining it on a regular basis. The end of the month before the next quarter is a good time
• Distribute your forecast to the wrong internal audience. It’s likely to contain sensitive information like salaries and bonuses that you won’t want everyone to see

For more information on forecasting for your business visit the Finance Gofer website, or try our new GoForecast tool at www.financegofer.com/tools

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