No matter the size of your business, regular forecasting can help you readjust to a changing market, to plan ahead, to better allocate resources, and to reach your goals.

Because it’s both an art and a science, you’ll never hit the mark 100% of the time. In fact, all forecasting is incorrect the second you press send.

But you still need to do it.

That’s because its value lies in aligning focus—more so than getting it just right.

Here’s what I mean.

For our clients at Scalable—ranging from $1M to $100M—we kick off the budgeting process each year by asking the following questions.

1. How did we perform last year relative to the forecast?

2. How many times did we have to recast the financials?

3. What were the three most significant misses? (i.e. Revenue, COGS or Marketing Spend)

Our goal here is simply to understand, “How bad were we?”

Rubbing your nose in it is part of the value. That’s why you should resist the urge to delete the initial forecast each time you recast the financials. Because if you do, you’re letting yourself off the hook for poor projections.

There are absolutely times when you need to throw it in the bin. These are the unexpected events that rock your budget by more than 25%—not failing to account for an extra hire or inclement weather.

And even in these rare occurrences, you’re still better off logging it as a lesson in forecasting.

Next, we establish reporting by making two comparisons.

1. Actual vs current forecast (If recasted)

2. Actual vs original forecast from 12/31

With each comparison, we then ask the following questions.

• Where did the miss come from?

• Was it preventable?

• Did we underperform in a specific area?

• Was it in our control (i.e. Marketing, Sales Conversion, Large Client Churn, Covid, etc.)?

• How can we adjust for that in this year’s budget?

• What are the risks in this year’s budget? Are we expecting growth in areas that are outside of our control? Are we hiring and budgeting for roles to become effective too quickly?

The insights gleaned from asking these questions will quickly allow for the foundation of your next forecast to take shape while also informing the actions that need to be taken to stay on track for the coming year.

In other words, this exercise simultaneously brings any blind spots to light and ensures that time and resources are spent most efficiently to arrive at the desired endpoint. This is precisely how imperfect forecasts deliver value through aligning focus.

Of course, the accuracy that comes through data and firsthand experience is important. But the SMB world is full of far more outside factors that can determine success relative to the Apples and the Walmarts of the world.

That’s why you need to think about each of them during the forecasting process and then come up with a specific plan to drive value in response.

Putting It All Together

Here are your top takeaways from this week’s post.

1. Every SMB needs a forecast. Forecasting allows your business to readjust to a changing market, plan ahead, allocate resources, and reach goals.

2. Even the best forecast will have some variance with actual performance. That’s why the value in forecasting isn’t getting it 100% right.

3. Your goal in creating the forecast is to identify last year’s misses, to learn from them, and to use them to identify and respond to emergent risks.

Hungry for More?

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2. Shoot me an email with your questions or requests for what you’d like me to write about next.

‘Til Next Time,

Connor