Issue link: http://psai.uberflip.com/i/883683
W EEKLY EDITION OCT 4, 2017 Financial Forecasts and Your Business …continued By PSAI Executive Director Karleen Kos The Re al Goal The goal of business forecasting is not what you might think. It isn't about accurately guessing the future. It's about running your business well. With good forecasting you track your business numbers back to the drivers that you need to manage. Y ou watch the connections between rentals/services/sales, your costs, and your expenses. You watch the ups and downs. If sales are up, you adjust inventory. If sales are down, you adjust expenses. For a real - world example, many company leaders felt their s ales were kicked in the gut when the Great Recession happened in 2008. Tim's company forecast was way off. They were down 20 percent from what they expected. So, the forecast wasn't accurate, but seeing that the real results were so much lower than the pla n helped his team move quickly into evaluating expenses and determining where to cut. It's a lot like having a dashboard. With forecasting, you see the connections between the different uses and sources of cash. You compare what you expected to what hap pened, and you make changes. It doesn't take pinpoint accuracy. It takes good educated guesses. Keys to Success First, do it yourself. You can do this. You know your business better than anybody. The best forecasts are not the technical or mathematical m odels, but the common sense and judgment of the business owners. If you have an MBA you know how to do weighted averages, smoothing, and econometric models – and those are nice touches if you have the skills and time to devote to them. But nobody needs to start there. Start with what you know. Second, look for the drivers of revenue and expenses. For example, in portable sanitation, revenue drivers are likely to include the general economic outlook for your service area, anything you know about businesses entering/exiting your market, any changes to taxation in your region, and anything known about particular initiatives to increase business, building, or tourism. These will all affect the construction and event business environment. On the expense side, th ink about expected changes in fuel costs, disposal fees, the going rate for employees, benefit costs, and so on. In addition to these, look for trends in how your business is performing generally. Have your contracts and rentals gone up, down, or stayed th e same? For the all - important forecast of cash flow, watch for drivers such as inventory not moving, bills paid, and invoices out to customers waiting for you to get the money. Third, break your forecast into factors you can track, and manage. Think of th e difference between tracking just revenue in dollars compared to tracking sales in units and average price per unit. The latter gives you better information to manage. Break it into factors you can track. PAGE 2 CONTINUED ON PAGE 3