The art of forecasting

I always tell clients that the aim of a forecast is not to be right, but to be more right than you would be if you hadn’t made a forecast.

Some clients are perfectionists: they fail to see why they should even try to predict the future, when everything is in their head anyway, and they feel they know their own business so well.  But there is an answer to this.  If everything is in their head, then it is not easily shareable with others- banks, shareholders, investors, other stakeholders.  It is better to have a shareable plan, and to show publicly that you have an understanding of your business.

Psychologically, the same is true about predicting our futures.  Some people like to live from day to day, with no thought for tomorrow, and what it might bring.  ‘Leave me free,’ they say.  ‘Don’t cramp my style.  I can’t have my heart stifled with plans and predictions.’

But do we not think that our futures should be shareable with others?  Is it not a key component of a relationship, to be able to plan together to some degree?  Too often, we hide in our own heads, and by not sharing, we deprive others of the opportunity to join us in our journey.

Here are a few tips for creating a good business forecast.  I have left them quite generic, so that they can also be applied to personal relationships, with a little creativity.

1. KEEP IT SIMPLE – A good forecast can be summarised on one page, or in an easy graph.  You need to be able to see at a glance how things will end up, if you continue on the path you are on.
2. SHOW THE IMPORTANT CONSEQUENCES – I always make sure my forecasts for clients show their predicted bank balance, because in practice, in this word of overdraft limits, it often comes down to that.  Year-end profit is another good one: a single figure, predicted regularly, brings focus.
3. KEEP YOUR RECORDS UP TO DATE – A good forecast shows accurately what has happened recently, and uses that data to predict what will happen soon.  If your books are behind, then you are making it up.  Records should be up to date on a weekly basis, ideally even live day-to-day.

In our personal lives, too, we can benefit from simple summaries of our progress, showing the important data, and keeping records up to date.  For example, if we have a weight loss program, then a publishable summary keeps us accountable, and stops us hiding in secrecy.

Make the future visible.  It changes things.