There is no hard and fast forecasting process, but the following steps are generally applicable to most forecasting efforts:
- Take some time and list out all the basic facts about past trends and forecasts.
- What have you noticed about changes in past actual demand? Why did it increase? Why did it decrease?
- Analyze the cause of deviations between what you forecasted in the past and in what actually happened.
- Determine factors that are likely to affect future demand.
- Based only on information available to you before the period, generate a forecast for a past period. Then measure your accuracy and reliability against the known results.
NOTE: This is an important step. It’s testing how reliable the leading indicator you’ve selected is. However, if the leading indicator is something that you would internally track about your business, it could be that you don’t have this data available for the past. For example, we might want to track how many visitors come to a particular website. If we didn’t have a statistics program running in the past, we wouldn’t have that information. If that’s the case, look for at least one leading indicator that is available and provides additional valuable data to improve tracking.
- Make any necessary changes to your process until it is an acceptable predictor of the actual results of the past period.This allows you, via a trial run approach, to construct a proven effective process on known data.
- Create a forecast for the future using your revised and tested indicators.
- Monitor the performance of the forecast against actual outcomes and determine the causes of variation from forecast.
- Revise the forecast when new data or obvious errors are identified.
Forecasting is not an exact science it takes time and patience to reach the point where the information actually reflects your business reality and helps predict market behavior. As a business owner, you need to familiarize yourself with this data. Track it regularly, analyze it and make it your own.
Analyzing your business forecast performance takes time; the same applies to financial statements. But it is time well spent. Consider it an investment towards your organization’s financial health. Unfortunately, many business owners feel pressured into preparing this information themselves. Reading a financial statement and preparing a financial statement are two very different things.
Business owners: your time should be spent doing what you do well. Keep in mind that time spent preparing financial statements adds little or no value to your customer relationship– or to your bottom line.
At Cash Flow Accounting, helping you improve your business performance is our top priority. Don’t waste your time preparing financial reporting that can be available to you instantly. We guarantee we will prepare timely and accurate financial statements using the information you give us about your business, we will then teach you how to read the information using our unique “Stats at a Glance” online program.
If you are looking for ways to cut costs now is the perfect time to contact us! Please email us at Info@CashFlowAccounting.com.