If every business could peer into the future to see how they will perform, there wouldn’t be a need for historical data and performance benchmarking. Nobody can know what the future will bring, so it is necessary for business owners to plan, hopefully basing their decisions on good data instead of gut feeling alone.
Educated guesses become informed decisions when they are supported by valuable data gleaned from past activities and performance. With the right information, companies can use the past as a guide, helping chart the path to growth and profitability and taking luck out of the equation.
Business owners and managers can enlist the help of their accounting professionals who are great at producing accurate historical financial performance information. The value of historical data is partly in the periodic reports and financial statements generated. The real value is the insight it reveals about the business operation over time. It is from historical data that certain trends are identified, providing a basis for predicting what the business could look like in the future.
Forecasting is very important for businesses, as it provides the framework for laying out near term and future expectations for the business. Armed with the forecast, a business owner can more confidently build a reasonable plan to reach stated business goals.
While there are myriad approaches to creating a business forecast, it makes sense to simplify the process and focus on the area of the business where you likely spend most of your time: sales. Use your sales goals and projections as the basis for establishing a forecast, setting realistic goals for the current year and for a few years after that. Once you’ve forecast the new sales goals, you can more easily appreciate what it will take in personnel and other costs to support that growth.
It is also important to regularly compare actual performance to the forecast to see if the business is on the right path to reach the established goal. If sales are not growing as projected, then the business may need to make adjustments in terms of personnel hiring and other plans to ensure that costs don’t outpace sales. Without a path to follow, business owners will not necessarily know if the operation is on track, as there is no track to be on – there is nothing to measure success against. Certainly, profitability is the goal, but it is a matter of degrees of success, and the business will not know whether it is being as successful and profitable as it could be.
Quality forecasting and reporting requires good financial data. The experts at Mendelson Consulting help businesses implement the right accounting and reporting tools in the right way so the information the business owner needs is available. Better data and reporting means having information that helps businesses recognize and respond to changing conditions so they can adjust plans and keep moving on the right path.
