The best way to predict the future is to create it (Peter Drucker)
Do you wish you could predict how your business will look in five or even ten years’ time?
No matter the size of your business, forecasting growth is one of the most important actions you’ll need to make on a regular basis. It not only helps you prepare for the months and years ahead but it also assists to ensure that the overall health of your business is moving forward.
To effectively predict the future of your business, you need to be across numerous external and internal variables, from market cycles and the economy through to internal resource costs and processes.
So, how can you predict the future of your business? Here are six steps that you can take to achieve clearer foresight and plan more effectively for your business in the days and years ahead:
Tip 1. Know your expenses
Before you can forecast future profits, you need to know your baseline (i.e. your current financials). Make sure to consistently record all of the following information: fixed expenses, variable expenses, revenue, gross margin, and interest rates. Some of these costs may include rent, utilities, telephone, accounting, legal, technology, staffing, advertising and marketing.
It’s also absolutely vital to keep track of direct sales and customer service time as a labour cost because this information will be crucial as your company grows and you attract more clients.
If you have clarity on your financials, you’ll know that if anything changes drastically, you need to re-evaluate your predictions.
Tip 2. Consider multiple scenarios
Now that you have your baseline, you can predict your future growth. In short, you want to predict how many units you’ll be selling this year and how much that will cost you. Whatever your guess is will determine how much profit you can expect to make. When considering multiple scenarios, think about the following: price point, staffing costs, marketing and advertising needed for the units to sell.
Consider the growth rates you’ve experienced in previous years, make an educated guess about your growth rate this year, then run the same baseline numbers but using flat sales, above-average growth, and negative growth.
The big tip in calculating your predictions is to detail the revenue breakdown by client, geography, product or salesperson – this detail will be useful to track against when you’re reviewing your monthly results at a later point.
Tip 3. Think big but with caution
As most business owners and operators know, in order to get big results, they need to think big! By having ambitious forecasts, you’re more likely to achieve big results. However, it’s also important to keep in mind that anything can happen in business, and it’s crucial to err on the side of caution – even when thinking big. Even if you think that your company will grow at a certain rate, it may be smart to downplay that revenue growth expectation.
Tip 4. Observe consumer spending
When consumer spending picks up, so does the demand chain in the economy, especially in terms of the correlations between and among consumer spending, corporate profits, and the marketplace. When looking at data on consumer spending, small business owners need to look at more than one set of data for equitable comparisons.
Tip 5: Get your whole business involved
Getting the whole organisation to participate in planning is a valuable process, as today’s workforce tends to be in tune with big changes that are taking place, especially when it comes to technology.
Even through this process should be done on a regular basis (e.g. quarterly), paying attention to trends should always be top of mind for the team. It’s important to take heed of trends that affect the business and explore how it can capitalise on these whilst remaining pragmatic about how many can be leveraged without over investment or too much risk.
Tip 6: Balance operating today with planning for tomorrow
The challenge for most business leaders is striking the right balance between operating for today and planning for tomorrow. Ensuring daily effectiveness and profitability while maintaining a focus on the future of the business and innovation is a difficult tightrope to walk.
That’s why it’s important to have a natural curiosity about the wider external environment and how the business can thrive in its ever-changing ecosystem. Simultaneously, it’s vital to have strong internal and external networks of people with diverse backgrounds and experiences. This creates different learnings and perspectives, helping to ensure that no singular management team or ethos is pigeonholing the business into a direction that may not be fruitful in the future.
So are you ready for the future?
Planning for the future need not be as overwhelming as it might seem at first. Having accurate information about your current financials and a general awareness of the future is the key to successful adaptation, innovation and the long-term financial and operational health of your business.
And by taking these six steps into consideration you can keep the business and yourself ahead of the market curve and ready to face the challenges of tomorrow with confidence.
Learning how to balance your business today, while planning for your business tomorrow can make or break the health and livelihood of your business. To find out more about how to better predict and plan for the business future you desire, contact the team at ABJ Business Solutions or email us at admin@abjsolutions.com.au
