Let’s continue with our challenge to improve your business in 77 days.
Yesterday, you worked on improvements based on your previous experience with the business planning process. Today, we will continue with one of the most important parts of the planning process and its forecasting.
What you can improve in your forecasting?
It is important because each business plan is based on forecasting, sometimes called as guessing because we can’t always predict our future. It will be very simple to be an entrepreneur if you can see the future. But, the reality is much different, and because of that, many of your future activities will be based on your plans, that on the other hands are based on predictions and guessing.
The biggest challenge for improvement your forecasting is to make them as true as possible. That means the purpose of your improvement efforts will be to decrease the difference between a forecasted situation and real situation.
For example, if you forecast that your sales in the next six months will be in quantity of 1000 pieces, you want at the end of that sixth month to have sales close to that number. Good forecasting will be if you have sales in quantity of 900 to 1100 pieces. If you have sales smaller than this diapason, then you need to work on improvements of your predictions for the future cycles.
What are the factors that can impact your forecasting?
There are many factors, but the most important for you are:
#1 Quality of historical data.
Each forecasting start with the analysis of your historical data, something that your company has recorded in the past.
If you don’t have such a data, you will be in a big trouble in your prediction efforts, because if you want to make great predictions, you will need to start with something, and your historical data is the best place.
Let’s see what you can improve here:
- If you don’t have a database to track and record data from your own business, start making one.
- Be sure that at least you have data from sales, costs and customers relationships.
- Make it easy to access and analyze that data.
#2 External factors
Although you can’t have some big impact on the external factors, you can use them in your predictions because they influence your business future.
You need to implement the system to follow and improve your own knowledge at least about these factors:
- competitive factors,
- general business conditions,
- general economic conditions and
- market trends.
#3 Internal factors
Except the external factors, your predictions need to include some internal factors such as your own plans for advertising, promotion, products or service development, pricing…
Do you have a clear view about everything that you want to accomplish in the future?
If you don’t, try to have a clear view about that.
#4 Time horizon
Your forecasting, and the difference between forecast and reality in much extent will depend on the time horizon in which you will make your predictions. The real correlation exists between them. If the time horizon is smaller, the smaller will be the difference between predictions and reality, and vice versa.
If you want to improve your forecasting and improve your business in the overall, you need to use plans that will be based on shorter period of time and because of that the predictions will refer to a shorter period of time. In such a way, you will increase the success of your own predictions.
You can better predict tomorrow than next month.
#5 Your own skills
You are an entrepreneur, and you need different entrepreneurial and managerial skills to predict the future. The part of your improvement process is always to increase your own skills.
Read books, industry-related magazines and newspapers, and everything that is connected with your industry and your market. In such a way, you will always know what’s happening outside your business.
#6 Always try to include an estimate of error
Many of your future activities will be based on your forecasting that you know it can’t be 100% true. Why you don’t try to estimate possible errors and use them in the implementation process?
It will give you the possibilities to know exactly where you need to make changes when you implement something based on predictions with bigger estimates for errors.
