Planning, Forecasting, and Budgeting
Most people have heard about business plans and budgeting, but forecasting is another essential technique in business. If you are thinking about starting a business, or have already begun, use these planning stages to make sure your business is on the right track.
Writing a Business Plan
The first stage is the business plan. Writing a business plan is the most human of all the steps because you are expressing your desires for what you want to accomplish. Clearly state your mission and your expectations for the business in the future, and think in terms of short term and long term goals. If you haven’t started your business yet, use data from market research. If you have started your business, you can use your totals of costs, expenses, and sales, etc.
Forecasting
Once you have some data, you can use this to project into the future. No forecasts are exact predictors of the future, but they can give you a hint of what to expect. For example, using a qualitative approach, if your sales on one item doubled in the past year, your forecast may show that it increases the next year again. An increase in sales for that product may happen again, or it may decrease. Employ causal forecasting to examine other factors at play, such as a diminishing trend. Real data is more meaningful than projections, so it’s essential to update the data in your forecasting software regularly, so it’s projecting as accurately as possible.
Budgeting
You know now from the forecast how much you can expect to earn and spend, so you can adequately decide which areas of your business need which percentage of the funds. You can choose, based on the goals in your business plan, and the data from the forecasting software, if you would like to phase out a product or invest in a new market. As with forecasting, you’ll want to update the budget to keep pace with what is happening in the business. If you don’t update the budget, you may find yourself spending more than your business can allow.
These three essential planning stages are meant to be living documents. Even the business plan should be updated from time to time based on the information from the forecast and budget. If other people are in charge of it, make sure they are communicating with each other. This way, all the information is in sync, and your business can benefit from it.
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