Forecast Your Future 2.0: Is this Possible?

I was running on my treadmill when I accidentally changed my speed from 6 to 12. I almost fell off the treadmill and hurt myself. Immediately, I thought of business growth. Unexpected growth beyond our capacity could lead to destruction and is not necessarily a good thing. How do we grow at the right rate that challenges us but doesn’t overwhelm us? Can we plan our growth and be more prepared for risk and surprises?

As a Christian, sometimes it seems blasphemous to even say we can forecast our future like we are “playing God.” In the book of Ecclesiastes, Solomon, who was arguably the wealthiest and wisest person in all of history, wrote the following:

And whatever my eyes desired, I did not keep from them. I kept my heart from no pleasure, for my heart found pleasure in all my toil, and this was my reward for all my toil. Then I considered all that my hands had done and the toil I had expended in doing it, and behold, all was vanity and striving after wind, and there was nothing to be gained under the sun. Ecclesiastes 2:10-11 NASB

 In 2018, I published a book called Forecast Your Future, How Small Businesses Exchange Stress and Chaos for Cash and Clarity. I wrote that we all should do the following steps:

1. Know where you are financially in your business today.
2. Choose a destination with financial goals.
3. Find a way to get to that destination as quickly as possible.
4. Assess and adjust along the way.

I started wondering if what I wrote in this book is still applicable today and what I could change or add to what I wrote in this book.

I have always liked the following quote by former president, military general Dwight Eisenhower, and others.

“Plans are worthless, but planning is everything.”

Here are some important thoughts about business planning and financial forecasting that I have found helpful.

1. Revenue does not just fall from the sky. You must measure your activities and stay top of mind through marketing, relationships, a quality product, and adapting.
2. You can grow your revenue but may still lose money and cash if you don’t know your margins.
3. Financial forecasting and cash forecasting are different. You can have a lot of cash and be unprofitable, and be profitable with no cash. Believe me, this is true.
4. When you are having a bad run, mitigate risks, but keep investing in yourself and your business. The more cash runway you have, the longer you can withstand the storm.
5. A forecast is usually not as bad as your worst-case scenario or as good as your optimistic version. We tend to overestimate the good when times are good and overestimate the negative when times are bad.
6. We will be hit with surprises in our business, but we must keep adjusting and adapting. Just because we didn’t forecast something doesn’t mean we should throw away this important decision-making tool. How do you best know how to move forward quantitatively?
7. A forecast model without real, actionable goals and accountability is like taking a road trip by just looking at a map.
8. Expense-saving will not save your business alone. It may help you weather the storm, but you also need an offensive plan.
9. Don’t have too many Key Performance Indicators; find the metrics that work for you and measure them consistently over time and against the goal.
10. We can’t forecast our future, but what is better: not having a plan and letting life happen to us or having some financial goals and just keep adjusting?

I start with a financial forecast in all my client engagements, and I believe understanding your business numbers is essential. The most important thing I do is compare actuals to forecasts and adjust regularly. I used to think this was bad forecasting and meant I was not doing a good job. In some cases, this was correct, but when there were real changes in customers, margins, expenses, and personnel, we could be more proactive and make decisions sooner. Being able to see a trend and make a decision sooner is extremely valuable. Why wouldn’t you want this inside information about your own company?

Maybe one day, I will update my book with new thoughts as I continue to learn. At the end of Ecclesiastes, Solomon writes to work hard and enjoy your labor and life with the ones you love; wisdom is better than stupidity; some things will prosper, and others won’t; and be content with all God gives us.