Forecasting Your Business
|Forecasting Your Business|
Making predictions is difficult, especially about the future!
But if you can’t predict the future, how can you make decisions about your business? Should you expand your business? Should you hire a new employee? Should you invest in new software or equipment?
Everyone of these decisions is a risk, but only if you don’t know what the future holds for your business.
Now traditionally, business owners, justifiably, pay a lot of attention to their revenue and their bottom lines and their bookkeepers provide them regular reports on this information. Good business owners pay a lot of attention to these reports, but even if they are produced in a timely fashion, rather than a month after the end of a quarter, they only tell you what has happened, and not what’s going to happen. It’s like driving a vehicle by looking in your rear vision mirror.
So how can you forecast your business?
You need to look at leading indicators, not your history. A simple starting point for that is to track enquiries. Where they come from and how they are trending over time. A drop off over several months is an indicator that, depending on your sales cycle, will translate into a fall in sales in the future. This may not happen immediately if the sales cycle is long, as for example in the construction industry, but it will be an early indicator.
A more sophisticated approach is to develop a structured Sales Pipeline which breaks apart the sales cycle. The most simple Sales Pipeline is:
Of course, there could be many more stages. You can read more about Sales Pipelines here.
Once you have constructed your Sales Pipeline, you can see the health of sales cycle. You may be getting enough enquiries, but what is happening to them? Is there a bottleneck that will later impact on your revenue? Alternatively, are there a bunch of new sales just about to be closed that will require you to increase your capacity?
If you can predict the future of your business, you can either adjust to the future, or change it if it’s one you don’t like. Early indicators give you advance warning and time to plan and be pro-active rather than reactive, putting you in control.
May Your Business Be – As You Plan It.
Dr Greg Chapman – The Profit Whisperer
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