It’s said that a TV meteorologist is the only job where you can be wrong most of the time and not be fired.
While a lot of science and thought goes into it, at the end of the day, forecasting is hardly exact.
But when a meteorologist’s wrong, a parade might get rained out. When you’re wrong about your business forecasts, it can mean stormy times ahead for your company.
It’s important to know where you’re headed—for the sake of tax planning, asset allocation, and so you can make mid-course corrections.
Before you’re under water, take some time to learn the art of proper forecasting.
You’ll want to look at three key figures to help with forecast.
- Your performance to prior year
- Your performance to budget
- Your performance to goals
No number is helpful in isolation. You want to view your numbers in both dollar amounts and as a percentage (change or percent of total) to have an appropriate perspective.
Given the comparison, you can begin to determine your trajectory and future forecast outcomes.
Make sure to take both external and internal factors into account. Is there a competitor opening up across town? Are you running advertisements this year that you didn’t last year? How’s the economy as a whole?
The best forecast is one that you adjust as you go along—and then adjust your operations accordingly. Reacting along the way saves myriad headaches in the end.
Moral of the story? You don’t have to be perfect every time, but don’t let sloppy forecasting rain on your parade.