If you’re going to succeed in business, you need to be able to tell the future. Kind of. At least, you need to be able to estimate the future. But before you start breaking out the tarot cards and hanging thick purple drapes around the office, let’s clarify something. The tools you need to predict the future are all readily accessible to you. We’re talking about business forecasting – a practice that thousands upon thousands of businesses engage on a daily basis in boardrooms across the globe. Sometimes, if you’re really smart, you’ll just do it naturally. Like Mark Zuckerberg in The Social Network (and in real life). Through some alchemy, Marky Z was able to predict a gigantic future trend. The result? Facebook. And a great film. And two multi-million-dollar lawsuits… But let’s focus on the good stuff.
What Does Forecasting Mean In Business?
You may have only heard the term “forecast” in relation to the weather. But business forecasting is much the same thing. In the same way a meteorological agency uses data to determine future conditions, business forecasting utilizes historical data to make informed estimates about the direction of future trends.
Businesses don’t just make it all up on the spot on a daily basis. Ideally, every decision they take, every budget they allocate, and every client they chase is based on informed reasoning thanks to forecasting. Sure, it might not be correct all the time; history has shown us that yes, businesses have made some spectacularly bad decisions over the years. But forecasting gives companies the best chance of being right. And when you’re looking for a competitive edge, that could make all the difference.
Why Do Businesses Need to Forecast?
Forecasting is critical because the other option is pure guesswork. No business wants to be flying by the seat of their pants, playing catch-up with themselves and the market each day before they start work. Like Mark Zuckerberg, you want to be ahead of the curve and have the rest of the industry catching up with you.
Here are three specific reasons why forecasting is an absolute necessity. Repeat: forecasting is not just “a good idea” – it is an absolute necessity if you want to get the edge over your competitors.
1. It Helps You Plan For The Future
Chances are you don’t see your company or business as a hobby. Chances are you’ve put absolutely everything you’ve got into it. You see it as long-term project. Well, forecasting helps you plan for both short- and long-term futures.
There are essentially three types of forecasting you can utilize depending on the size of your business. The first is the qualitative approach, traditionally used when a business is new and historical data is not readily available. The second is the quantitative method, which is used when the product or service has been available for some time and recognizes patterns and trends that have historically been successful. The third method is called causal modelling. It’s the most sophisticated of the three tools, and it identifies causal relationships between data. Depending on the type of business you’re in, one of these approaches will help you plan for all types of future.
2. It Can Help You Decide Where to Put Your Money
It would be great if businesses and companies had endless supplies of cash. Then we’d all be happy, and there wouldn’t really be any need for this thing we call “business”. Unfortunately, that’s just not the case – one of the first rules of business dictates that there is never enough money and there’s never enough time.
Instead of spreading your money wildly around the roulette table, forecasting can help you identify the best places to spend. Whether this is lending support to an upcoming product launch, investing in new staff, or improving your social media channels, every business has areas where money is best spent.
3. It Can Help Anticipate Change in the Market
Businesses are dependent on the whims of the marketplace at large. Sometimes these catch us by total and utter surprise (e.g. the devastating crash of 2008), and other times they can be planned for. Forecasts can help you anticipate the movements of the market at large, putting you in a position to become active instead of reactive. You can then adjust your sales forecasts in accordance with predicted changes in the marketplace, limiting or expanding your stock as necessary.
When all is said and done, forecasting in businesses is about optimizing your resources. A business has many resources at its disposal; optimizing them all simultaneously can provide you with the edge you need to get ahead. With a powerful management app like Productive, you can achieve this. It has an inbuilt forecasting toolkit designed to provide you and your team with all the information you need to make accurate calls around the future of your business. Specifically, within insights feature you are allowed to build a fully customizable report from scratch or use a template. This will help you to get insight into the profit and loss of your agency over any given time period, as well as providing key metrics about how you’ve spent your time and resources. With the sales pipeline feature, you can adapt Productive to your specific sales process and generate sales reports to help you get to grips with the numbers.
Like Mark Zuckerberg, you might have a fantastic, revolutionary idea for your product or business; but in the same way you don’t get to 500 million friends without making a few enemies, you won’t get to 500 million dollar profits without making a few forecasts.