Forecasting is fundamental to all businesses, whatever the size. There are key times when you need to anticipate future developments, both short-term and longer-term. For example, when you set up your business, when you need financing and when working out how much you will earn.
Forecasts should not be one-off paper exercises, but a dynamic part of your business strategy. You should review your forecasts regularly and update them with actual results. That way you can see how things turned out compared to your forecast, and adjust your activity accordingly. This will enable you to:
Short-term forecasts can look at the next 12 months, the next six months or even the next month.
To prepare a short-term forecast look at:
You'll also need to forecast:
Each of these can have a huge impact on your ability to continue in business.
How often you review and update your short-term forecast will depend on what is happening in your business:
Long-term forecasting looks at your company's strategy and figures over the next three to five years and is especially useful when:
As well as taking into account all the things you would look at in short-term forecasting, long-term forecasting will include an element of brainstorming:
For decision-making to go ahead, any investment or major change in your business should be preceded by a feasibility study, both financial and non-financial. A feasibility study looks at:
A financial feasibility study details:
Ideally, your long-term forecasts will inform your short-term forecasts, which will in turn inform your annual budget. Forecasting and monitoring will help you organise incentives for your staff - for example, if you set targets and they exceed them, you can reward them with bonuses. In this way, you can all work towards your company's ultimate goals.
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