Planning and Forecasting is Essential

Some people discredit the need for planning, and take the stance that getting in and making a sale or getting started is more important. While to some extent this is true, at some point you need to start planning the future, and forecasting you revenue, expenses, and profits. The difference between running a business and planning a business is what can make the difference between a business that struggles and a business that lasts.

The best example of often planning to highest degree is found in many large companies. They tend to plan to a level that could be seen as just a little over the top. A level of planning that is almost essential for their business, but at the same time almost irrelevant for a small business. While both small and large businesses need planning, they need it to different degree’s and scales.

To some extent there is a difference between planning and forecasting. For the most part forecasting relies on the financial details of the business, using past data to look into the future. Often used for a short period out to maybe a year. While planning can take a much broader scope and time scale, such as potential growth area’s, employee requirements and facility growth requirements. But they are really also part of the same whole.

FORECASTING

Forecasting really comes down to any time that you look ahead, and make an estimate or guess on your revenue, expenses or such you are forecasting. You are looking at something without knowing exactly but by using your best estimate. This can be done with little if any information, and this possibly more so happens for new businesses, but later on when you have some previous figure you can start making more educated estimates, based on actual figures.

Forecasting expenses once you have information from previous months or years, becomes very easy as this information often does not change to much or has patterns. The more difficult area to forecast for though is income, of course you can use data from previous periods, however this is to some extent going to only give at best an estimate. This is because income is a lot more volatile then expenses, it depends on a lot more factors, if you have a sale or not, how much you market, if you are open and close different days, even if your product is seasonal or not.

PLANNING

Planning is something you really need to connect with your forecasting when looking at revenue. The reason is that you need a plan to see your revenue forecast actual eventuate. Planning can draw in many different area’s of your business all of which should provide opportunites to help you achieve what you forecast. Depending on your business your plan will include different things, for different areas of your business. A plan for a retail store should include marketing, store layout, sales, and staff needs. Where as a service business like an electrician, may only need to plan for marketing, and which products to promote.

A good example can be seen with a retail store. The store manager may decide to do a forecast for the coming quarter. He looks at the figures from the same quarter the year before, and the figures for the last quarter and sets them accordingly. Then for the next quarter he just sits behind the counter.

The manager in the store next door has done the same thing he has forecast based on the same quarter last year as well as his last quarter. However rather then just sitting around and waiting to see what happens he has put a plan in place. Letter box drops every second week, he has a layout change for his front window planned for the beginning of each month, and has a sale event set for the last week of each month.

When it gets to the end of the quarter which store manager do you think will have achieved his forecasts and which will be scratching his head wondering why he did not get any where near them. The manager that planned, purely by planning, as long as he follows through will be far ahead of the manager who just sat there.

This is a very important difference that can show very big differences between businesses, and far to often, the important step of planning even just to do some basic marketing can make the biggest difference between achieveing a forecast and not really know what went wrong.

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Comments

For small retailers, careful planning has two primary benefits. The first is that it gets an owner/manager to think about the business in a quantitative way, at a level of focus they might not otherwise. This heightens attention to any number of details. Second, planning creates important benchmarks for the owner/manager to measure results, and make critical adjustments and corrections in a timely manner. Show me a retailer, of any size, that takes the time to thoroughly plan their business, and I’ll show you a successful retailer. Thanks for highlighting the importance of planning.

Ted, thank-you for your comment,

This i think is one of the main things that i wanted to highlight in this post. The actual need for both forecasting and planning. No business can hope to be successful without a plan, and how do they know what to plan for without forecasting. Every major business that i have worked in works to forecast projection of revenue and expenses, now some are better at doing the plans then others, however just having the targets and even basic plan to work to that target often sets them miles ahead of anyone that wishes to copy them, without either planning or forecasting.

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