Ever been short on cash because a market imploded, or a critical deal didn’t go through?  Most businesses have been here before.

Sometimes the situation was a complete surprise – it happens.

More often than not, there were red flags that could have identified the challenges ahead.  We often see that either no one was looking for the market signals or everyone ignored them.

There is no way to see the future, but there is a way to minimize the risks of market changes:  forecasting.

We often see that companies create sales forecasts based on the experience or insights of the most senior person in the company.  Sometimes, sales forecasts are a ‘Hail Mary’ guess that will give the company enough revenue to cover their expenses but aren’t based on market factors, history, or obvious obstacles.

Forecasting is hard.  People don’t like to do it.

So why go to the effort?  Why not just throw out a number and see if we can get there?

Sales forecasts are more than numbers—they drive decisions across the organization. Let’s delve into why they matter.

1. Financial Planning:

• • Sales forecasts guide short-term financial planning. The information helps allocate resources for operating expenses and future growth.
  • Revenue projections ensure that the company can cover costs and invest in expansion.

2. Production Needs:

• • Physical Capacity: Determine if production facilities can meet demand.
  • Manufacturing Expenses: Budget for production costs (raw materials, equipment, subcontractors, utilities, etc.)
  • Human Resources: Assess workforce requirements (production, service delivery, logistics, etc.).

3. Expense Management:

• • Customer Service: Allocate resources for support, education, servicing, installations, warranty.
  • Sales: Plan sales team capacity.
  • Office Space: Accommodate growth.
  • Benefits and Compensation: Account for employee costs.

Forecasting in a company requires vulnerability and speaking hard truths which are not typical boardroom vibes:

• Admitting that a market is not materializing as previously thought could go against a commonly held belief.
• Identifying capacity gaps or financial shortfalls is pointing out a company flaw.
• Facing challenging market factors that are not in your control like interest rates or weather can make people feel adrift.
• Setting an aggressive target without a plan to achieve it is often misplaced motivation or a desperate wish to keep cash flowing that no one wants to admit.

We believe that a well-researched, thoughtful forecast can be a welcome truth.  Clearly identifying obstacles and understanding the reason behind a goal can be liberating and motivating.  Solid forecasts can also lead to better decision making across the company. We’ve seen that staying honest and real is the best foundation for a realistic and useful sales forecast.

Think that a sales forecast could have a positive impact on your business?  Stay tuned for our next blogs that will outline the process for building your forecasting muscles.