Why forecasting leads to success in your business

By Darren Dahl from FedEx on Forbes, 23 May 2013

Far too many SMBs seem to get surprised by changes in the marketplace because they don’t take advantage of a forgotten skill: forecasting.

The rub is that many entrepreneurs and SMB owners say they’re too busy to sit down and create a forecast, which is really just a picture of what your company might look like up to a year or more into the future.

Failing to take a bird’s eye view of your business, however, can lead to fatal mistakes. An accurate forecast can establish measurements to guide management, facilitate planning and goal-setting and basically create a plan to avoid risks while helping the company meets its goals and milestones.

Jack Stack, founder and CEO of SRC Holdings, has been a huge proponent of forecasting for 30 years — a practice he credits with enabling his company to continue growing through three recessions. To do an effective forecast, Stack said that you should collect lots of information — both from the past and the future — from a number of diverse sources to help make decisions that can help your SMB thrive in good times and bad.

Specifically, Stack said any good forecast should be based on macro-economic projections like fluctuations in interest rates as well as survey information taken from customers and competitors.

Forecasting your own company’s sales is a vital part of the process, as is your cash-flow projections.

A common mistake is leaving the job of forecasting to managers. The best forecasts get as many people as possible from your company involved. Other common mistakes to avoid include not being diligent in recording data or forgetting employee costs. Also as important as creating a great forecast is putting together a contingency plan, or “Plan B” for what the company will do in case forecasts aren’t made.

The truth is that at times, forecasting is as much an art as it is a science. That means there is no perfect way to go about creating one, but making a habit of looking ahead will prepare your company for both unexpected road bumps and future success.